Expenditures for pharmaceutical

Data on Expenditures for Pharmaceutical Research and Development", Food and Drug Administration, Rockville, Maryland, 1978 (mimeograph). 

Pharmaceuticals are among the most widely used interventions in health care today. They are used in both the prevention and treatment of disease and amelioration of symptoms to improve patient outcomes. The relative importance of pharmaceuticals in health care is growing in most industrialized nations, as the percentage of health care expenditures for pharmaceuticals continues to increase. Spending on prescription drugs in the United States is increasing at a rate of 12% annually and will continue to increase approximately 10% per year over the next 8 years." ... 

Because effective corporate tax rates in Puerto Rico are substantially lower than in the United States, this tax credit represents a major form of Federal tax expenditure for pharmaceutical firms. Although little actual pharmaceutical R D is done in Puerto Rican locations (245), the credit may lead to more manufacturing jobs in the... 

Bozette et al. (2001) examined expenditures for the care of adult HIV-infected patients since the introduction of highly active antiretroviral therapy. They interviewed a representative random sample of 2,864 patients in early 1996 and followed them for up to 36 months. They estimated the average expenditure per patient per month on the basis of self-reported information. According to their calculations, the mean expenditure was US 1,792 per patient per month at base hne in early 1996, but it decbned to US 1,359 for survivors in 1997, since the increases in pharmaceutical expenditures were smaller than the reductions in hospital costs. After adjustments for the interview date, clinical status, and deaths, the estimated annual expenditure declined from US 20,300 per patient (1996) to US 18,300 (1998). 

Poliak (1998) has estimated the cost of R D for the pharmaceutical industry to be about 16 % of the expenditure for new drugs. For intermediates this percentage is certainly lower but still significant. 

Figure 1 shows pharmaceutical expenditures, both prescription and nonprescription, per capita in industrialized countries in 1997. Comparing the numbers in this figure with those in Table 2, it is possible to estimate per capita pharmaceutical expenditures for... 

The present Spanish system of price control is inefficient, as it provides notable negative incentives for pharmaceutical consumption and expenditure it would be desirable to replace it with a more flexible system such as an overall profit control system, or a combination of price-cap regulation and rate of return regulation. 

In the third section we analyse expected effects from a microeconomic perspective, and we discuss to what extent the neoclassical microeconomic theoiy of demand is applicable to the case of pharmaceuticals. We explore the effects of co-payment on consumption and expenditure, and how it is shared between user and insurer, but also the possible effects on the health of individuals and populations. Equity considerations are inevitably raised in this analysis. The elements on which the analysis hinges in this section are price and income elasticities of demand for pharmaceuticals the role of the doctor as an inducer of demand consumer sovereignty discontinuities in demand functions and other notable exceptions to the classical ma.rgina.1ist. theoiy of demand. These exceptions require special microeconometric models and methods. 

Lobato s work19 makes at least four contributions. First, it seeks to quantify the demand for pharmaceuticals and argues that those variables that are employed in an attempt to approximate physical consumption, such as the number of prescriptions or packages, are not useful because they sum heterogeneous units. Monetary valuation presents the problem (considered below) of what price indexes are to be applied as deflators when studying the evolution of demand and expenditure over time. 

The journal Fulls Econdmics del Sistema Sanitari34 published a monograph on pharmaceutical provision in its issue number 33 (November 1999), in which the most notable contribution is the article by Puig.35 It features comparative data for pharmaceutical expenditure in Europe and an analysis of measures taken recently in Spain to contain this expenditure, on both the demand side and the supply side. 

Direct costs include both medical and nonmedical expenditures for the detection, treatment, and prevention of disease. Direct medical costs reflect resources consumed in the "production" of health care, such as pharmaceutical products and services, physician visits, and hospital care. Direct nonmedical costs reflect expenditures for products and services that are not directly related to disease treatment but are still related to patient care. Examples of direct nonmedical costs include transportation to a pharmacy or physician s office and housekeeping during the illness period. Indirect costs account for changes in productivity of an individual because of illness. The monetary value of lost or altered productivity is typically used as a measure of indirect costs. Intangible costs and consequences are nonmonetary in nature and reflect the impact of disease and its treatment on the individual s social and emotional functioning and quality of life. Table 12.2 provides examples of these types of costs and consequences. 

At the same time, expenditures on pharmaceutical products continue to grow and often outpace expenditures for other consumer products. Pharmaceutical expenditures concern not only consumers, but government payers, private health plans, and employers as well. Generic drugs offer opportimities for significant cost savings over brand-name drug products. 

More recently, DiMasi, Hansen, and Grabowski (2003) employ a similar methodology to provide updated estimates of research costs. They examine development expenditures for a sample of 68 randomly selected new drugs introduced by 10 leading pharmaceutical companies during the 1990s. These firms accounted for 42% of industry R D expenditures (p. 157). They then... 

While expenditures on pharmaceuticals have risen, there is empirical evidence that innovation in pharmaceuticals has been an important contributor to improved health of the population in many countries (Cutler 2004). Pharmaceutical innovation, such as new drugs for hypertension and high cholesterol, accounts for about one-third of the reduction in cardiovascular disease in the United States (Cremieux et ah. Chapter 12 Cutler and Kadiyala 2003). 

The economic benefits alone are also driving the adoption of biotechnology. BASF has reduced the production process for Vitamin B2 from eight steps to one through biotechnology, while DSM s bioroute for Cephalexin has also substantially reduced the number of process steps. These examples and those of dozens of pharmaceutical intermediates demonstrate that cost savings of 50 percent and more are not unlikely. The savings may come directly from lower variable costs, but also from reduced capital expenditures for simpler production assets, or from reduced scale and therefore lower risk, transportation costs, and/or overcapacity. 

Yet, as explained in the preceding chapter [1], the immediate prospects for the pharmaceutical industry are fairly bleak While the expenditures for research and development continue to rise almost exponentially, the outcome in terms of new successful drugs has shown a clear tendency to decline, and today the development costs for a single dmg can easily run into the one billion Euro bracket Moreover, two out of three drugs fail in the last phase of the development process, at a stage where enormous investments in time and money have already been made. 

In recent years, the pharmaceutical industry has come under increasing pressure to reduce the time as well as the expenditure for the discovery and development of... 

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