Pharmaceutical Innovation Is Crucial to a Return to Normal

Research demonstrates that the introduction of new drugs to the marketplace results in longer lives and shorter hospital stays.

person looking at a microscope
Topics
Economics & Policy, Healthcare, Entrepreneurship & Innovation
Author
Stephen Chupaska
Published

On July 30, the Commerce Department reported that the pandemic’s effect on the nation’s economy caused GDP to fall 9.5 percent in the second quarter, all but eliminating nearly five years of growth for the American economy.

Economics professor Frank R. Lichtenberg believes that the most promising long-term treatment for the ailing economy would be pharmaceutical innovation, preferably a COVID-19 vaccine, the value of which he says could be in the trillions of dollars.

“What everyone is hoping for is an innovation that will get life back to some kind of normal,” Lichtenberg says.

In his paper, “The Health Impact of, and Access to, New Drugs in Korea,” Lichtenberg, the Cain Brothers & Company Professor of Healthcare Management, finds that pharmaceutical innovation – the creation and introduction of new drugs – increases longevity and reduces costly healthcare expenses such as hospital stays.

In designing his research, Lichtenberg focused on the introduction of new medicines, most of which were developed in the United States, Europe, and Japan, to the Korean market.

“I wanted to determine how much of the substantial long-run increase in the longevity of Koreans was due to the launch of new drugs.”

Lichtenberg determines the average age of people at the time of their death from a specific disease—a related but slightly different statistic than life expectancy.

“You can’t measure life expectancy for specific diseases,” Lichtenberg says. “If you want to document that, you look at mean age at death.”

The research demonstrates that due to the introduction of new drugs, the average age of death in Korea increased by about 1.7 years between 1995 and 2015.

“I’m not saying that drugs are the only source of longevity growth, but they are an important source,” Lichtenberg says. “A 1.7-year increase is significant.”

Lichtenberg also investigated the impact of new drugs on cancer survival rates in Korea.

Because Korean registries track patients who have had various cancers, Lichtenberg had a trove of data to calculate the probability that a person would live at least five years after diagnosis.

“Survival rates from cancer increased,” he says. “Most of that was due to the introduction of new drugs.”

Lichtenberg says that his research showed that almost 80 percent of the long-run increases in cancer survival were because of innovations in drugs introduced between 1995 and 2015.

“When we look at cancer, we find that the fraction of the longevity increase attributed to new drugs was a lot larger than it was for longevity overall,” he says.

Lichtenberg is able to demonstrate that the introduction and use of new drugs saved money in the healthcare system by reducing hospitalization.

Comparing diseases for which there have been high amounts of innovation with those with fewer instances, Lichtenberg estimates that the number of new drugs launched between 2008 and 2010 reduced the total number of days spent in the hospital in Korea in 2017 by about 13 million.

Although the spending on new drugs rose, the reduction in hospital costs was greater than the increase in pharmaceutical expenses.

“Not only did the drugs save lives and allow people to live longer,” Lichtenberg says, "but they actually reduced total medical expenditures.”

Lichtenberg believes policymakers should be aware of these calculations, especially considering how innovation could lead to a COVID-19 vaccine.

“When we look at the price of drugs, we should be aware of the cost offsets,” he says. Creating new drugs may be expensive, he explains, but “costs elsewhere in the healthcare system are reduced and should be accounted for.”

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