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SOME ECONOMIC CONSEQUENCES OF TECHNOLOGICAL ADVANCE IN MEDICAL CARE - THE CASE OF A NEW DRUG



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University of Wisconsin Madison Institute for Research on Poverty Discussion Papers John Geweke Burton A Weisbrod SOME ECONOMIC CONSEQUENCES OF TECHNOLOGI CAL ADVANCE IN MEDICAL CARE THE CASE OF A NEW DRUG I DP 602 80 SOME ECONOMIC CONSEQUENCES OF TECHNOLOGICAL ADVANCE IN MEDICAL CARE THE CASE OF A NEW DRUG John Geweke and Burton A Weisbrod Institute for Research on Poverty University of Wisconsin Madison Revised April 1980 Research support and access to data were provided by Pracon Inc We wish to thank Don Roden Vice President of Pracon for his cooperatiOn and Steve Edison and Bernd Luedecke for research assistance We are solely responsiple for views expressed and any errors Abstract This paper has two goals 1 to develop a methodology for examining the economic consequences f any medical care innovation and 2 to apply that methodology to the case of a new drug Specifically we attempt to determine the effects on medical care expenditures of a new drug cimetidine used for the treatment of duodenal ulcers Using the health care expenditure records of 1206 individuals participating in the Texas Medicaid program between September 1 977 and July 1978 we have found that the new drug therapy appea fs to reduce treatment expendi tures compa red to the average of other technologies Total health care expenditures with an associated diagnosis of duodenal ulcer are from 40 percent to 63 percent lower and days hospitalized are from 15 percent to 33 percent lower Estimating the effects of health care innovation on medical expenditures is not equivalent to undertaking a social benefit cost analysis However since reduced expenditures reflect both savings in resource costs and increases in social benefits resulting from improved health it is likely that the reduction we found does reflect net social benefits from the new treatment mode I Introduction How should a technological change be evaluated Conceptually we would like to know whether the present val ue of its discounted future



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