A Perspective on the Cost-Benefit of Drug Therapy

Abstract

Cost-benefit analysis is an important tool in assessing the impact of drugs on society. The purpose of this paper is to assess the cost-benefit of drugs to society and specifically to consider whether it is cost-beneficial for insurance and entitlement programs to include drug coverage in their health benefits package.

Although prescription and over-the-counter drugs represent only 7.5 percent of total health care costs, drugs have been responsible for dramatic improvements in the health status of the public in this country.

If we had the same diseases and mortality rates in recent years that we had at the turn of the century, we would have foregone billions of dollars annually due to loss of life and loss of work days. Our calculations demonstrate that even if drugs accounted for only 10 percent of the improvement in mortality and morbidity figures, the benefits of drugs definitely exceed the annual expenditures (costs) for drugs.

The evidence indicates that it is very cost-beneficial for employers, insurance carriers, and third-party payors to include drug coverage in their insurance package. Drugs are an important factor in reducing the costs in areas such as labor absenteeism as well as the more costly interventions such as hospitalization and surgery.