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Medical Progress Report
No. 2  October 2005


Press Release
October 7, 2005
Contact: Mackenzie Chambers, Press Officer
646-839-3313 or mchambers@manhattan-institute.org

Cheaper but Less Effective Drugs
Should that be the Model?

New Report: VA Formulary Costs Lives

New York, NY: A new Manhattan Institute Center for Medical Progress report released today warns against using the VA Formulary as a model for the new Medicare Drug Benefit. The report finds that the VA National Formulary reduces the well-being, life span and survival rate for those covered.

This timely report, "Older Drugs, Shorter Lives?: An Examination of the Health Effects of the Veterans Health Administration Formulary," researched and written by Columbia Business School Professor Frank R. Lichtenberg, delves into the history of the VA National Formulary and estimates its impact on the use of new drugs and on longevity.

The majority of the VA National Formulary's drugs are more than 8 years old-just 19% of prescription drugs approved since 2000 and 38% of prescription drugs approved between 1990-2000 are on the VA Formulary. Professor Lichtenberg estimates that "the use of older drugs in the VA system may have reduced life expectancy by 2.04 months, " and that the value of this reduction was almost $25,000 per person.

Additionally, he found that veterans' life expectancy increased significantly before the National Formulary was introduced (between 1991-1997), but did not increase and may have declined after the National Formulary was introduced (between 1997-2002). Yet, the life expectancy of all U.S. males increased both before and after 1997.

The VA National Formulary, used as a model, will cut health care costs for Medicare, but Professor Lichtenberg provides evidence that restricting access to new drugs under Medicare will reduce the well-being and life span of the Medicare population. "We shouldn't let the government decide who gets what drug and who lives longest," says Robert Goldberg, Director of Center for Medical Progress. "Congress must embrace medical technologies in order to progress."

Summary of findings:

  • From 1991-2001, 46% of the increase in life expectancy, from 73.24 to 74.99 years, was a result of the use of post-1990 drugs
  • The use of older drugs in the VA system reduced life expectancy by 2.04 months
  • The per-patient value of this reduction in longevity is $25,000
  • only 38% of prescription drugs approved by the FDA in the 1990's are listed on the VA National Formulary and, of the drugs approved by the FDA since 2000, just 19% are on the VA National Formulary
  • only 16% of all drugs approved since 1997 and 22% of the 77 priority-review drugs are listed on 2005 National Formulary
  • Veterans' life expectancy increased substantially before the National Formulary was introduced (between 1991-1997) but did not increase, and may have declined, after the National Formulary was introduced (between 1997-2002). Yet, the life expectancy of all U.S. males increased both before and after 1997

Frank R. Lichtenberg is the Courtney C. Brown Professor of Business at Columbia University Graduate School of Business, as well as a research associate of the National Bureau of Economic Research.

A copy of "Older Drugs, Shorter Lives?: An Examination of the Health Effects of the Veterans Health Administration Formulary" is available on the Manhattan Institute website, at: www.manhattan-institute.org/html/mpr_02.htm

The Manhattan Institute, a 501(c)(3), is a think tank whose mission is to develop and disseminate new ideas that foster greater economic choice and individual responsibility.

 


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MPR 02 PDF (200 kb)

PRESS RELEASE

SUMMARY:
This report analyzes the implications of the VHA’s National Formulary, implemented in 1997 to reduce overall pharmaceutical costs by discouraging access to new drugs. Author Frank Lichtenberg of Columbia University and the National Bureau of Economic Research finds that this policy has had a dramatic effect on survival; though veterans’ life expectancy increased substantially before the National Formulary was introduced, it did not increase, and may have even declined, after it was introduced. There are many proposals in Congress to adopt a system similar to the VA National Formulary for purchases under the new Medicare drug benefit, but these data suggest that this change could reduce well-being, life span, and survival rates among the Medicare population, raising serious questions about the wisdom of these proposals.

TABLE OF CONTENTS:

EXECUTIVE SUMMARY

INTRODUCTION

Addition of New Drugs to the VA National Formulary

Figure 1: Percent of Drugs on 2005 VA National Formulary, by Decade of FDA Approval

Comparison of VA versus Non-VA Use of New Drugs

Figure 2: Percent of 1999-2002 VA and Non-VA Prescriptions for Drugs Less Than 5, 10, and 15 Years Old

The Effect of Using Older Drugs on the Probability of Survival, or Life Expectancy

Life Expectancy of Veterans, 1991–2002

Figure 3: Life Expectancy of Veterans, 1991–2002

CONCLUSION

Figure 4: Veterans’ Life Expectancy vs. Life Expectancy at Birth of All U.S. Males

ABOUT THE AUTHOR

REFERENCES

ENDNOTES

APPENDIX

Table 1: Priority Review Drugs Approved After 1997 Not Listed on 2005 National Formulary

Table 2: Demographic Data on Veterans, 1991–2002

 


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