New Prescription Drugs Are Worth the Cost

There has been an ongoing debate for many years about the value received for the money spent on new prescription drugs. Many critics argue that most new medications offer only limited advantage over existing ones, while at the same time increasing healthcare costs.

We cannot deny the fact that the costs of prescription drugs have been increasing at a considerable rate over the last few decades. Prescription drugs spending as a share of all healthcare expenditures in Canada rose from 6.3 per cent in 1975 to 13.4 per cent in 2012. While total healthcare spending per capita has almost tripled during this period, per capita expenditures on prescription drugs have increased six-fold.

But should this trend be a source of concern? Not necessarily. Although costly in the short-term, new drugs tend to lower overall health spending in the long run, by reducing expenditures on other categories of medical care. Indeed, innovative pharmaceutical therapies have been, over the years, increasingly substituted for other, more costly types of medical treatments and surgeries that require hospitalization.

Several studies conducted in the U.S. during the last decade have shown that for every dollar spent on drugs, expenditures in the entire health system are reduced by an amount between $2 and $2.65.

Furthermore, most of these medications help prolong and improve the lives of patients. They can accelerate the return to work, reduce absenteeism and improve productivity.

In a recent study, economist Frank Lichtenberg of Columbia University and his colleagues surveyed nearly three decades worth of data in order to assess the effects of new prescription drugs on the probability of survival of elderly Quebecers with cancer, cardiovascular diseases or asthma. The results they found are impressive: the introduction of new drugs was associated with a 51 per cent reduction in the risk of mortality for the study population, as compared with older medications (marketed prior to 1970).

In another study released last year, Lichtenberg showed that pharmaceutical innovations account for almost 75 per cent of the increase in life expectancy at birth observed in 30 developed and developing countries in the last decade.

Of course, older drugs may sometimes prove to be as effective as new ones. This is apparently the case for those used to treat hypertension. However, such exceptions do not believe the general rule that new drugs come most often than not with reduced side effects and enhanced efficacy. And in addition to improving the quality of life of patients, they help reduce the overall cost of our healthcare system.

Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute. The views reflected in this column are his own.