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BIO Magazine - Pharmaceutical innovation Δεκέμβριος 2015
Δεκέμβριος 2015 No38

BIO Finance

 Pharmaceutical innovation
Pharmaceutical innovation

Hippokratia 2014, 18(2):100-106


Over the recent decades, advances in healthcare technology have led to significant improvements in the quality of healthcare and in population health. At the same time, technological change in healthcare, rising national income and expansion of insurance coverage have been acknowledged as the main determinants of the historical growth in health spending in industrialized countries. The pharmaceutical sector is of particular interest as it constitutes a market characterized by rapid technological change and high expenditure growth rates. The purpose of this article is to provide an overview of research findings on the impact of pharmaceutical innovation on pharmaceutical expenditure growth, total health expenditure and population health outcomes and to bring forward the challenges that arise for pharmaceutical policy in Greece.

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Corresponding author:  Eleftheria Karampli, MSc, Department of Health Economics, National School of Public Health, 196 Alexandras Ave., 115 21 Athens, Greece, tel: +302132010245, fax: +302106449571, e-mail: ekarabli@esdy.edu.gr

Advances in healthcare technology have led to significant improvements in the quality of healthcare and in population health and, in parallel, have contributed to increases in real health expenditure in most industrialized countries over the recent decades1. The term health technology refers to products such as pharmaceuticals or medical devices, new techniques (for example surgical interventions) as well as systems of organizing healthcare provision2. Technological advances in the healthcare industry, rising national income and expansion of insurance coverage have been acknowledged as the main determinants of the historical growth in health spending. Other determinants of health expenditure growth include demographic factors (population growth and aging) and medical prices inflation3-5.

The impact of pharmaceutical innovation on pharmaceutical expenditure

It is therefore important to understand which factors affect expenditure growth and the extent to which these are amenable to policy. The present paper focuses on pharmaceutical expenditure. The methodological approach adopted in most studies investigating the determinants of pharmaceutical expenditure growth is the decomposition of growth in real pharmaceutical spending into changes in three components: quantity of pharmaceuticals prescribed (measured in Defined Daily Doses- DDDs), prices (using the pharmaceutical price index – PPI) and prescribing choices/therapeutic mix. The latter captures the change in mean price per DDD that results from changes in drug treatment patterns within therapeutic categories and classes of drugs. A negative change in this component indicates a shift on average towards prescribing of less expensive pharmaceuticals and vice versa15,16. A summary of study results is presented in Table 1. Although there is variability in the characteristics of the pharmaceutical markets and the study time-frame, researchers conclude that prescribing choices and increases in volume of consumption are the main contributors to the observed increase in real spending for pharmaceuticals15-21.

Depending on the time period and the country, real pharmaceutical expenditure increased by 9%-119% whereas the change in the prescribing choices component ranged from 4.8% to 67%. In all countries, the quantity of pharmaceuticals consumed increased overtime by 10% to 41% (Table 1). The notable exception is that of Sudan: the largest contributor to pharmaceutical expenditure growth was the increase in the quantity component by 91%, whereas the prescribing choices component decreased by 18.44%. According to Mousnad et al21 the considerable increase in consumption volume was a result of the increased demand for pharmaceuticals caused by the insurance reform that was implemented in the country. Furthermore, Mousnad et al21 note that the relative prices for pharmaceuticals increased due to an increase in prices of essential goods owing to the global economic crisis as well as tax increases. The therapeutic mix component, according to the researchers, reflects a shift towards locally produced generics. The researchers also report that since 2007 no new products were introduced in the pharmaceutical market in Sudan21. Since prescribing could not be shifted towards more expensive medications, the effect of increased generic prescribing was the dominant driver.

In the case of lipid-lowering drugs, antihypertensive treatment and antidepressants, the dominant driver of increased spending was the increase in exposure to these therapies. Increases in exposure were more pronounced in the 45-64 age-group for antihypertensives and in those over 85 years of age for lipid-lowering drugs. Regarding therapeutic choices, increases in per capita drug spending were driven mostly by a shift in prescribing towards newer therapeutic drug classes in the case of antihypertensives (from b-blockers and diuretics, towards angiotensin-converting enzyme inhibitors and angiotensinreceptor blockers). For antidepressants, prescribing of more expensive drugs both across and within antidepressant drug classes was observed. By contrast, treatment choices were the major driver of the increase in spending on antacids during the study period. Although there was an increase in the level of exposure to antacid treatment, increased prescribing of proton pump inhibitors was the most important driver in all age-groups.

These trends are the result of the interaction of a multiplicity of factors that may or may not be amenable to policy. Factors that impact the level and mix of pharmaceutical consumption include –but are not limited to– population demographics and health needs, advances in medical knowledge, access to treatment and doctor-patient preferences17,23,26. Lipid lowering drugs, antihypertensives, anti-diabetic medications and hormone replacement therapy are examples of drug classes in which these factors were the predominant cost drivers17,27-29. Healthcare system reforms also play an important role. Evidence from the US point to the significant effect of insurance. In particular, according to the literature, expanding insurance coverage in the US to include pharmaceuticals contributed to increased pharmaceutical consumption and spending30,31, a finding that was also reported by Mousnad et al21 for Sudan. On the other hand, changes in treatment patterns may reflect a shift in prescribing between drug classes of the same therapeutic category and/or a substitution effect between drugs in the same drug class. As Morgan23 notes, even though in the former case policy intervention may not be required or need be limited to prescribing guidelines, in the latter case policies such as reference pricing or generic substitution have the potential to modify this components’ impact on expenditure growth. 

The effect of pharmaceutical innovation on total health expenditure and population health outcomes

Research findings on the effects of newer drugs on health spending are conflicting. Lichtenberg35,36 analyzed data from the 1996 Medical Expenditure Panel Survey (MEPS) in the US and concluded that, controlling for patient characteristics and conditions, patients that were prescribed newer drugs for a given condition had fewer hospitalizations, shorter length of stay in the hospital and lower total non-drug (hospital, emergency room, outpatient, office-based, dental,home health) medical expenditures associated with that condition. Drug vintage was calculated using the number of years since the active ingredient was first approved by the Food and Drug Administration (FDA)35. Although Zhang and Sumerai37 consider that the cost-reducing effects in Lichtenberg’s analyses are overstated, another study adopting the same definition of drug novelty but US State level panel data38 supports the existence of a cost-offsetting effect at the State level. As however their findings refer to the effects of newer drugs across individuals and across diseases, the researchers38 note that significant heterogeneity across disease categories and drug classes might be present.

On the other hand, there are studies that do not confirm the cost-offset hypothesis. This is the case for anti-diabetic agents in Taiwan41 and newer therapies for colorectal cancer in the US42. In both studies, diffusion of newer drugs increased drug outpatient spending mainly through the effect of treatment substitution. Utilization of these drugs did not result in reduced demand for other types of medical care during the study period (1 year); hence, adoption of pharmaceutical innovation was expenditure-increasing in the short-term. It must be noted that the studies discussed so far explore the effect of newly marketed drugs on non-drug health expenditure, as this is the focus of the present paper. The substitutability between pharmaceutical care in general (which would include all drugs) and other types of care is not in the scope of our analysis.

With regards to the impact of specific drugs and/or drug classes on health outcomes, newer antiretroviral therapy, new cancer drugs (e.g. for breast and colorectal cancer), statins, pharmaceutical treatment for acute myocardial infarction, new asthma medications and newer orphan medications are examples of pharmaceutical technologies which significantly contributed to improved health outcomes in patients suffering from the related conditions33,46-50. Furthermore, new pharmaceutical technologies such as influenza vaccines, migraine medications and newer antipsychotic agents have been linked to improved economic outcomes (increased productivity and higher employment rates)33.

The research findings discussed in the previous paragraphs bring forward the challenges faced by policy-makers internationally in an effort to contain costs while ensuring patient access to valued pharmaceutical innovation. Furthermore, current decisions regarding pharmaceutical innovations (reimbursement, prices) are among thepolicy variables that influence future R&D investments10. Biologic drugs as well as personalized treatments which target chronic, debilitating or life-threatening conditions are illustrative examples of the challenges faced by pricing and reimbursement authorities and the pharmaceutical industry.

The introduction of the aforementioned policy measures as part of a comprehensive pharmaceutical policy, as well as exploitation of international experience is important for Greece. During the previous years, pharmaceutical expenditure growth in Greece was driven by increases in quantity of drugs prescribed and treatment substitution20. Lambrelli and O’Donell20 analyze OECD data on pharmaceutical expenditure and consumption for the period from 2000 to 2004 and conclude that the increase in real pharmaceutical expenditure during this period can be attributed primarily to increases in volume of prescribed pharmaceuticals and secondarily to the effect of treatment substitution (Table 1). However, they note that OECD data may overestimate the effect of the quantity component as they include parallel exports of pharmaceuticals. Using prescription data from the main health insurance fund (IKA) and for the period 1991-2006, Lambrelli and O’Donell find a significant effect of the prescribing choices component and a smaller effect of the quantity component on pharmaceutical expenditure increase20. It can therefore be concluded, that pharmaceutical expenditure growth in Greece follows the pattern observed in other developed countries with increases in the volume of consumption and changes in therapeutic mix being the determinants of growth. The trends observed in the Greek market can be attributed to the introduction in clinical practice of a large number of new pharmaceuticals that were considered important innovations by physicians20,54, as well as the lack of measures to promote cost-effective use of pharmaceuticals (such as prescription guidelines), promotion of generics and management of the diffusion of new drugs20,55,56. As was discussed earlier, new pharmaceutical technology impacts expenditure growth through both the expansion and the substitution effect. In parallel, pharmaceutical innovation contributes to improved patient health outcomes. A recent study by Lichtenberg57 provides an estimation of the benefits related to the introduction and use of pharmaceutical innovation in Greece. Lichtenberg57 assessed the impact of pharmaceutical innovation (measured by drug vintage) on the 2000-2009 longevity change in 30 developing and high-income countries. He concludes that, controlling for other determinants of longevity change, 73% of the population-weighted mean increase in life expectancy at birth in these countries can be attributed to the change in vintage of pharmaceuticals sold (increase in the percentage of drugs sold that corresponds to those marketed after 1990)57. Greece was among the top 5 countries in drug vintage (measured as the quantity-weighted-mean fraction of drugs sold in 2009 that were marketed after 1990). Comparing the top five and the bottom five countries in drug vintage, Lichtenberg attributes 37% of the difference in life expectancy at birth (9.1 years) between the two country groups to the differences in the vintage of drugs consumed in their markets57.

Conflict of Interest


Part of the review has been reported in abstract form in the 9th Pan-Hellenic Congress on Management, Economics and Health Policy, organized by the National School of Public Health, Athens, 5-7 December 2013.


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