Study claims high drug prices lead to more long-term savings

A study released by Frank R. Lichtenberg of the Montreal Economic Institute said while the price of prescription drugs remains high, the implementation of medical innovation leads to more savings in the long run.

Studying both Canadian and American healthcare systems, the health benefits were calculated using health indicators including longevity, overall health, use of other health services, and rate of hospitalization.

The study gave examples such as the long-term investment of cancer medications which lead to a large amount of savings for the healthcare system of Canada. The billions of dollars in savings was more than the overall spending on new medications.

“If no new drugs had been registered during the 1980-1997 period, there would have been 1.72 million additional cancer patient hospital days in 2012, at a cost of C$4.7 billion in hospital expenditure, whereas total spending on cancer drugs (old and new) in 2012 was an estimated C$3.8 billion,” the study said.

The correlation between medical innovation and drug prices was also present when analyzing the U.S. system. The study said that if the market had a 10 percent decrease in the price of drugs through re-importation than the rate of medial innovation would decline about 5-6 percent. When looking long-term, the high costs of new medicines are offset by the savings they cause in the long run.

With a “decrease the costs of drugs in the short term, it would do so in an artificial way that would increase healthcare costs in the long run,” the study said. “Medical innovation would decline because the profits made from medicines in the U.S. are utilized to finance the next generation of life-saving and life-improving prescription medicines. In turn, this results in higher long term healthcare costs due to a lack of cures for a variety of illnesses.”