February 2001
Pharmaceutical Potency
by Martin Zelder
The motives of the pharmaceutical companies are often questioned. Witness
the latest screed from their attackers, ominously entitled Tales from the
Other Drug Wars (Barer, et al., 2000). Characteristic of its vitriol is
the claim that the employees of drug companies are "a brand of white-collar
mafia … [whose] tactics amount to thuggery, and are undertaken because
they are profitable and for no other reason" (Evans, 2000). If such claims
were true, the social benefits associated with the pharmaceutical industry
would have to be substantial to outweigh the purported cost of its malfeasance.
Two major pieces of recent evidence suggest just how large these benefits
are.
The first such piece comes from my recent research on the effects of Canadian government health spending (Zelder, 2000). This research evaluated the common claim that higher waiting times in some provinces (at some points in time) were the consequence of inadequate government health spending. Specifically, I analyzed whether provinces which spent more government money on health care, per person, had shorter waiting times over the period 1993-1998 (taking account of other differences among the provinces, including per capita income, percentage of elderly, the political party in power, and the frequency of health sector strikes).
My primary, dramatic finding was that government health spending was not related to waiting time; provinces that spent more per person had neither shorter nor longer waiting times. This implied that, within the configuration of the current system, increased spending was ineffectual. But there was one exception.
By dividing spending into seven functional categories such as "hospitals," "doctors," and "capital," I was able to assess if increases in any of those spending categories reduced waiting time. Only one type of spending did: spending on pharmaceuticals. How might drug spending reduce waiting time? It probably does so by serving as either a temporary or permanent substitute for surgery. Temporarily, some sufferers from back pain can postpone surgery by receiving more (and more effective) medication; ultimately, cardiac bypass can sometimes be entirely avoided if cholesterol-lowering medications are used, along with other lifestyle modifications.
The effects of a limited increase in drug spending are substantial. Specifically, I found that if governments increased drug spending by about $14.50 per person (from the $111 per person currently spent) per year, waiting time would fall by approximately 1 week per year. No other spending component was found to reduce waiting time. At the same time, despite the efficacy of drug spending, I found that governments were largely neglecting it as a tool to reduce waiting time, spending only about 1 cent of every new government health dollar on drugs.
Yet some might question whether drug spending yields only illusory, short-run benefits, convincing patients that they can substitute pharmaceutical for surgical treatment, and thus benefitting drug company investors but not helping (and perhaps even harming) patients in the long-run. An example of such scepticism is found in Tales from the Other Drug Wars: according to it, the pharmaceutical "industry has become quite adept at suppressing undesirable information when sales are at stake" (Mintzes, 2000). Such concerns have dubious logical foundations—executives in pharmaceutical firms are restrained from this type of short-termism by compensation in stock and stock options. But even more powerful is the direct evidence that the benefits of pharmaceutical use are long-lasting and significant.
This conclusion is drawn from a recent study by the economists Frech and Miller (2000). They, too, sought to address whether there were social benefits from health spending in general, and pharmaceutical spending in particular. Rather than focusing on waiting times, however, they attempted to determine whether life expectancy was improved by higher spending. This seemingly obvious connection has been an elusive one, however, with few studies finding significant effects of overall health spending (or health care consumption) on lifespan, especially in developed countries, and any statistically significant effects have been found to be small. Furthermore, despite the extensive medical literature reporting the mortality (and morbidity) consequences of individual drug therapies, there have been few studies, in medicine or economics, that evaluate the benefit of aggregate drug spending.
To remedy this, Frech and Miller analyze OECD data for 21 countries, attempting to determine if pharmaceutical and/or non-pharmaceutical health spending in 1985 influenced life expectancy at various ages (birth, 40, and 60) eight years later in 1993. In addition to these two per capita measures of spending, they also control for intercountry differences in per capita income, as well as smoking, alcohol consumption, and fat consumption.
They find, accounting for these other factors, that non-pharmaceutical health spending has no significant impact on life expectancy at any age. Conversely, countries which do more pharmaceutical spending per person have higher life expectancy at ages 40 and 60, although not at birth.
Because it is included in the sample of countries analyzed, Frech and Miller can estimate what the benefit of additional drug spending is for Canada, as well as for other individual countries. They estimate that for Canadian men, life expectancy at age 60 is increased by 1.8 days for an additional dollar of drug spending made eight years earlier, while for women, life expectancy at 60 in 1993 is increased by 2.3 days for an additional dollar of drug spending in 1985. Life expectancy at age 40 increases less due to an additional dollar of drug spending made eight years earlier—by 1.5 days for men and 1.7 days for women.1
While more analysis would be necessary to perform cost-benefit calculations regarding the effect of increased drug spending based on either the Frech-Miller study or my own work, both are suggestive of substantial benefits at relatively low costs. Given this, perhaps the burden of proof should lie with the drug companies' critics, who would better serve us by providing more evidence and less polemic.
Note
1 They estimate, of course, that the benefit of enhanced life expectancy diminishes as more is spent.
References
Barer, M.L., K.M. McGrail, K. Cardiff, L. Wood, and C.J. Green, eds. (2000). Tales from the Other Drug Wars. Vancouver: The Centre for Health Services and Policy Research, UBC.
Evans, Robert G. (2000). "Uses and Abuses of Research and the Research Process," in Barer, M.L. et al. (2000).
Frech, H.E. III, and Richard D. Miller Jr. (2000). The Productivity of Health Care and Pharmaceuticals: An International Comparison. Washington: The AEI Press.
Mintzes, Barbara (2000). "The Truth, the Half Truth, and Nothing Like the Truth. Regulation of Drug Promotion in Canada," in Barer, M.L. et al. (2000).
Zelder, Martin (2000). "Spend More, Wait Less? The Myth of Underfunded Medicare in Canada." Fraser Forum (August).
Martin Zelder (martinz@fraserinstitute.ca) is Director of Health Policy Research at The Fraser Institute. He has a Ph.D. in economics from the University of Chicago.
info@fraserinstitute.ca
4th Floor, 1770 Burrard Street, Vancouver, BC, Canada, V6J 3G7
Tel: (604) 688-0221 Fax: (604) 688-8539 Book Orders: 1-800-665-3558 ext. 580
You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.