The Dependence of Improvements in
Health, Longevity and Productivity on
Incentives for Medical Innovation
Frank R. Lichtenberg
Columbia University
frank.lichtenberg@columbia.edu
Basic argument
Expected private return on R&D investment
Amount of R&D investment
Number of new drugs, medical devices, and procedures
Population health, longevity, and productivity
Two illustrations
• Orphan drugs
• Cancer drugs
DOES MISERY LOVE COMPANY?
EVIDENCE FROM PHARMACEUTICAL
MARKETS BEFORE AND AFTER
THE ORPHAN DRUG ACT
Frank R. Lichtenberg
Joel Waldfogel
15 Mich. Telecomm. Tech. L. Rev. __ (2009), available at
http://www.mttlr.org/volfifteen/lichtenberg&waldfogel.pdf
1983 Orphan Drug Act
Provided incentives to develop drugs for rare conditions
(affecting <200,000 Americans)
• Higher Returns
– 7 years of market exclusivity
• Lower Costs
– Tax credit for research expense
– Research grants
Policy
Drug
development
Drug
utilization
Health
outcomes
6
Difference-in differences research
design
Before ODA (1980)
After ODA (1995)
After - Before
Rare
diseases
A
C
C-A
Common
diseases
B
D
D-B
Rare - Common
(C - A) - (D - B)
7
Cumulative number of drugs approved,
as % of cumulative number of drugs approved in 1979:
orphan vs. other drugs
8
Examine three types of data
• Physician survey (pre & post ODA)
• Household survey (post ODA only)
• Mortality census (pre & post ODA)
9
Physician survey
• National Ambulatory Medical Care Survey
(NAMCS), 1980-81 and 1997-98
• Representative samples of visits to physicians
• Two facts recorded about each visit:
– Physician’s diagnosis (or diagnoses)
– Whether physician ordered any medication
10
Physician survey
• Aggregate data by diagnosis, i.e., compute:
– Total number of physician visits in which a diagnosis is
recorded
– Rx visits as % of total visits in which a diagnosis is
recorded
• Interpret total number of physician visits in which
a diagnosis is recorded as a measure of market
size
• Physicians are best qualified to determine
diagnosis
11
Physician Survey
Summary Statistics
Period
Number of diseases
Total no. of physician visits
Mean no. of physician visits
Minimum no. of physician visits
Maximum no. of physician visits
Rx visits/total visits
1980-1981 1997-1998
2454
1996
627,701,627 981,751,220
255,787
491,859
1,031
1,921
44,162,054 54,396,942
0.73
0.74
12
Hypothesis
Rx prob.
Post ODA
Pre ODA
Market size
13
14
Hypothesis
 Rx prob.
Initial market size
15
16
Mortality Census
• Vital Statistics—Mortality Detail files, 1980
and 1995
• Complete census of U.S. deaths (approx. 2
million per year)
• Two facts recorded about each death:
– Cause of death
– Age at death
• We exclude infant deaths (age < 1)
17
Market size and longevity
• Aggregate data to most detailed published disease
classification: CDC’s 282 causes of death
classification
• For each of these 282 causes of death, compute
– Number of deaths
– Mean age at death
• Group these 282 diseases into 5 quintiles, ranked by
number of deaths
18
Hypothesis
Mean age at death
Post ODA
Pre ODA
Market size (no. of deaths)
19
Hypothesis
 Mean age at death
Initial market size (no. of deaths)
20
Disease Prevalence and
Mean Age at Death
Prevalence
quintile
Lowest
Highest
1980
1995
1995 - 1980
No. of
Mean No. of
Mean Mean
deaths
age deaths
age age t-statistic p-value
1,586 49.4
1,839 56.9 7.6
14.6 <.0001
2
18,537 58.3
18,189 65.2 6.9
3
56,233 65.9
62,951 67.8 1.9
4 169,345 68.6 215,638
71 2.3
1,541,562 72.6 1,836,369 74.4 1.8
106.4 <.0001
Highest - lowest
23.2
17.4 -5.8
11.2 <.0001
21
Disease Prevalence and
Mean Age at Death, 1980 & 1995
1995
1980
22
Disease Prevalence and Increase in Mean Age
at Death, 1980-95
23
Discussion of Results
• ODA worked, softened “misery loves company”
effect
– Good policy? Does the rationale extend to other contexts?
• Market size results show that incentives matter for
drug development
• With high FC markets deliver more products (and
satisfaction) to larger groups
– Markets vs. collective choice
24
Cancer drugs
Basic argument
Market size
(no. of cancer cases)
Expected private return on R&D investment
Amount of R&D investment
• Number of scientific articles published
Number of new drugs, medical devices, and procedures
• Number of distinct chemotherapy regimens
Population health, longevity, and productivity
Cancer incidence and number of core
chemotherapy regimens, by site
Site
Number of cases
in Canada in
2002
Number of core
chemotherapy regimens
Number of cases
in the U.S. in
2000
Lung
20,648
11
164,100
Breast
19,540
21
182,800
Prostate
17,900
11
180,400
Colorectal
17,708
3
130,200
Lymphoma - Non-Hodgkin's
5,671
11
54,900
Renal
3,858
1
31,200
Uterine/Sarcoma
3,643
1
36,100
Leukemia
3,636
16
30,800
Melanoma
3,585
4
47,700
Pancreas
3,277
1
28,300
27
log no. of chemo. regimens
The relationship between incidence and
innovation
3.5
3
2.5
2
1.5
1
0.5
0
6
7
8
9
10
11
log no. of cases in Canada in 2002
28
Incidence in 2002, by region, and
number of MEDLINE article citations,
for 25 cancer sites as defined in GLOBOCAN
total number of
MEDLINE
articles
pertaining to
cancer site
number of
MEDLINE
articles pertaining
to drug therapy
for cancer site
incidence of
cancer at
site in the
less
developed
region
incidence of
cancer at site
in the more
developed
region
Cancer site
ICD10 codes
Leukaemia
C91-C95
138,971
30,529
175,898
124,202
Lung
C33-C34
98,796
14,341
672,221
676,681
Non-Hodgkin lymphoma
C82-C85,C96
52,485
9,064
149,191
151,096
Colon and rectum
C18-C21
80,738
8,744
355,701
665,731
Ovary etc.
C56,C57.0-4
38,142
7,636
107,541
96,769
Brain, nervous system
C70-C72
106,896
7,435
114,630
74,549
Prostate
C61
44,355
7,015
165,347
513,464
Liver
C22
77,313
6,464
513,060
110,404
Melanoma of skin
C43
46,321
5,039
29,352
130,815
Hodgkin lymphoma
C81
22,973
4,628
34,264
28,033
29
Estimates of the relationship between cancer
incidence and the number of drug and non-drug
MEDLINE citations
Model
dep. Var.
1
ln DRUG_CITESi
2
ln NONDRUG_CITESi
ln INC_WORLDi
0.597
0.598
std. err.
0.210
0.138
t-stat
2.850
4.330
p-value
0.009
0.000
3
ln DRUG_CITESi
4
ln NONDRUG_CITESi
ln INC_MOREi
0.670
0.433
std. err.
0.209
0.145
t-stat
3.200
3.000
p-value
0.004
0.007
ln INC_LESSi
-0.065
0.167
std. err.
0.222
0.154
t-stat
-0.290
1.090
p-value
0.774
0.289
30
• Both analyses indicate that the amount of
pharmaceutical innovation increases with disease
incidence.
– The elasticity of the number of chemotherapy regimens
with respect to the number of cases is 0.53.
– The elasticity of MEDLINE drug cites with respect to cancer
incidence throughout the world is 0.60.
• In the long run, a 10% decline in drug prices would
therefore be likely to cause at least a 5-6% decline in
pharmaceutical innovation.
31
Comparison with previous studies
•
Acemoglu and Linn (2003) investigated the response of entry of new
drugs and pharmaceutical innovation to changes in potential market size
of users, driven by U.S. (or OECD) demographic changes. Their results
indicated that a 1 percent increase in the potential market size for a drug
category leads to approximately 4-6 percent growth in the entry of new
drugs approved by the FDA. However their estimated response reflected
the entry of both generics and non-generics, and the effect on generics
was larger and somewhat more robust.
• Giaccotto, Santerre and Vernon (2005) employed time series econometric
techniques to explain R&D growth rates using industry-level data from
1952 to 2001. Their estimate of the elasticity of pharmaceutical industry
R&D with respect to the real price of pharmaceuticals was 0.583.
• Abbott and Vernon (2005): the elasticity of innovation with respect to
price is in the 0.67-1.33 range.
32
Physicians and other health care providers are also
responsive to financial incentives
• Empirical evidence indicates that the supply behavior
of physicians and other health care providers, not
just drug companies, is affected by exogenous
changes in financial incentives (including changes in
reimbursement).
• Some of the best evidence about the physician
supply response to variation in reimbursement
comes from the Medicaid program.
33
Doctors Objecting to
Planned Cut in Medicare Fees
NY Times, November 20, 2005
Dr. Duane M. Cady, chairman of the American
Medical Association, said: "Physicians cannot
absorb the pending draconian cuts. A recent
A.M.A. survey indicates that if the cuts begin
on Jan. 1, more than one-third of physicians
would decrease the number of new Medicare
patients they accept."
34
The effect of new cancer drug approvals on the
life expectancy of American cancer patients, 1978-2004
Frank R. Lichtenberg
Columbia University
and
National Bureau of Economic Research
frank.lichtenberg@columbia.edu
Age-adjusted mortality rates,
1950-2006
700
Diseases of heart
600
Cerebrovascular diseases
500
Malignant neoplasms
400
300
200
100
0
1950
1960
1970
1980
1990
2000
Source: Health, United States, 2009, Table 26
36
• Bailar and Gornik (1997): “The effect of new treatments for cancer on
mortality has been largely disappointing.”
Bailar JC 3rd, Gornik HL (1997). “Cancer undefeated,” N Engl J Med. 336 (22), 1569-74, May 29,
http://content.nejm.org/cgi/content/full/336/22/1569
• Black and Welch (1993): “The increasing use of sophisticated diagnostic
imaging promotes a cycle of increasing intervention that often confers
little or no benefit.”
Black, William C., and H. Gilbert Welch (1993), “Advances in Diagnostic Imaging and Overestimations of
Disease Prevalence and the Benefits of Therapy,” N Engl J Med. 328 (17), 1237-1243, April 29.
• Welch, H. Gilbert, Lisa M. Schwartz, and Steven Woloshin (2000), “Are
Increasing 5-Year Survival Rates Evidence of Success Against Cancer?,”
JAMA 283(22): 2975-2978
37
Objective
• Attempt to determine the extent to which
new cancer drugs introduced during the last
40 years have prolonged the lives of
Americans diagnosed with cancer.
Methodology
• A reliable estimate of the overall effect of new
cancer drugs on the longevity of cancer
patients can’t be obtained by simply surveying
previous clinical studies of specific drugs and
cancer sites.
38
FDA approval years of chemotherapy agents with
approved uses for 3 cancer sites
151 Malignant neoplasm of stomach
174 Malignant neoplasm of female breast
188 Malignant neoplasm of bladder
LEUCOVORIN CALCIUM
1952
METHOTREXATE SODIUM
1953
METHOTREXATE SODIUM
1953
CYCLOPHOSPHAMIDE
1959
METHOTREXATE SODIUM
1953
FLUOROURACIL
1962
FLUOROURACIL
1962
CYCLOPHOSPHAMIDE
1959
DOXORUBICIN
HYDROCHLORIDE
1974
DOXORUBICIN
HYDROCHLORIDE
1974
VINBLASTINE SULFATE
1965
1978
CARBOPLATIN
1989
DOXORUBICIN
HYDROCHLORIDE
1974
CISPLATIN
MITOMYCIN
1981
PACLITAXEL
1992
CISPLATIN
1978
ETOPOSIDE
1983
VINORELBINE TARTRATE
1994
1996
DOCETAXEL
1996
DOCETAXEL
1996
GEMCITABINE
HYDROCHLORIDE
EPIRUBICIN
HYDROCHLORIDE
1999
GEMCITABINE
HYDROCHLORIDE
1996
CAPECITABINE
1998
TRASTUZUMAB
1998
EPIRUBICIN
HYDROCHLORIDE
1999
Sources: NCI Thesaurus; Drugs@FDA database
39
Cumulative number of chemotherapy agents approved by the FDA with
accepted uses for six types of cancer, 1975-2005
151 Malignant neoplasm of stomach
13
162 Malignant neoplasm of trachea, bronchus, and lung
170 Malignant neoplasm of bone and articular cartilage
174 Malignant neoplasm of female breast
11
188 Malignant neoplasm of bladder
189 Malignant neoplasm of kidney and other and
unspecified urinary organs
9
7
5
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
3
40
Estimates of utilization of cancer drugs, relative to their utilization in the
year they were launched (approved by the FDA)
25
21.7
19.7 20.1
20.1
20
17.4
15
12.5
11.0
10.6
10
8.8
8.5
7.3
6.8
6.2
4.3
5
5.2
1.0
0
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15+
Years after FDA approval
41
Methodology
• I analyze the correlation across cancer sites (breast,
prostate, lung, etc.) between changes in the
mortality rate of people previously diagnosed with
that cancer and changes in the number of drugs that
have been introduced to treat that cancer.
• I control for variables likely to reflect changes in
diagnostic techniques
–
–
–
–
cancer stage distribution
age at diagnosis
number of people diagnosed (incidence)
use of surgery and radiation
42
Data sources
• Data on cancer-site-specific drug introductions
were constructed using
– the NCI Thesaurus
– the Drugs@FDA database
• Data on all other variables were obtained
from the NCI’s SEER 9 Registries Database, an
authoritative source of information on cancer
incidence and survival in the United States
43
Results
• Cancer sites with larger increases in the lagged stock
of approved drugs had larger reductions in the
mortality rate, ceteris paribus.
• The impact of the stock of FDA approvals on the
mortality rate tends to increase steadily for a number
of years, peak about 8-12 years after launch, and
then decline.
• This finding is consistent with evidence about the
product life-cycle of cancer drugs: utilization tends to
increase steadily after FDA approval, peak about 6-10
years after launch, and then decline.
44
Results
• New cancer drugs introduced during the period 1968-1994
were estimated to have increased the life expectancy of
cancer patients by almost one year (0.94 years).
• Although the health of cancer patients is less than perfect, the
increase in quality-adjusted life-years is not necessarily less
than the increase in life expectancy.
• Since the lifetime risk of being diagnosed with cancer is about
40%, the 1978-2004 increase in the lagged stock of cancer
drugs increased the life expectancy of the entire U.S.
population by 0.38 years. This represents about 8.8% of the
overall increase in U.S. life expectancy at birth.
• The cost per life-year gained does not exceed $6908, which is
far below recent estimates of the value of a statistical lifeyear.
45
Extensions
• Different country: Chemotherapy innovation
accounted for at least one-sixth of the decline
in French cancer mortality rates during 20022006, and may have accounted for as much as
half of the decline.
• Different technology: Diagnostic imaging
innovation (CT scans and MRIs) has also
prolonged the lives of American cancer
patients
46
Summary
Expected private return on R&D investment
Amount of R&D investment
Number of new drugs, medical devices, and procedures
Population health, longevity, and productivity