Is newer always better? Re-evaluating the benefits of newer pharmaceuticals

Law, Michael and Karen Grépin.
Journal of Health Economics 29 (2010) 743–750

Whether newer pharmaceuticals justify their higher costs by reducing other health expenditures has generated significant debate. We replicate a frequently cited paper by Lichtenberg on drug “offsets” and find the results disappear using a more appropriate model or updated dataset. Further, we test the suitability of similar methods using newer hypertension drugs. We find our observational results run counter to well-established clinical evidence on comparative efficacy and conclude that our model, as well as other studies that do not adequately control for unobserved characteristics that jointly determine drug choice and health expenditures, are likely subject to significant bias.