aging population, increasing disposable income, and expanding insurance coverage.
Aggregate pharmaceutical costs have increased much faster than overall health care costs in recent years. Examination of the drivers of aggregate pharmaceutical costs shows that increased use of existing drugs is a more important driver than the use of new drugs, while unit price increases of existing drugs have been very similar to increases in the overall Consumer Price Index for all goods and services. In 2000, pharmaceutical spending was 13.6 percent higher than in 1999. Of this increase, 3.9 percentage points can be attributed to unit price increases of existing products, 7.5 percentage points to increases in the utilization of existing products, and the remaining 2.2 percentage points to the use of new drugs (IMS Health, 2001). Other recent year-on-year increases have shown a similar pattern.
Increasing use of existing drugs is the result of the treatment of more patients and the application of new science (Dubois et al., 2000). More people are being treated because the population is aging and there is a narrowing of the gap between prevalence rates and treatment rates for many diseases. Further, science is identifying new ways of using existing drugs. Increased use of prescription pharmaceuticals also reflects in part a greater understanding of their value offsetting other health care costs (Lichtenberg, 1996, 2001) and improving workplace productivity (Kessler et al., 2001).
The debate about health care largely focuses on its costs as though its benefits have little or no value, which is far from the case. One speaker estimated the social benefit of medical research by placing a value on aggregate improvements in longevity. To do this he first estimated the average amount an American would pay to add an extra year to his/her life. Using data on what workers are paid in occupations with differing risks of jobrelated death, the speaker estimated the value of an additional life-year to be about $150,000, a figure that varies with age. Using these age-dependent values of an additional life-year he estimated that increased life expectancy over the period 1970-1990 is valued at roughly $57 trillion or about $2.8 trillion per year (Viscusi, 1993; Tolley et al., 1994; Cutler et al., 1998; Cutler and Richardson, 1999; Lasker Foundation, 2000; Topel and Murphy, Forthcoming). Expressed another way, over the period 1970– 1990, improvements in life expectancy have contributed about as much to overall welfare as have improvements in material wealth.
Another speaker showed that the returns on investment in medical technology for cardiovascular disease applications are very significant. For someone 45 years old, half of the 9-year increase in life expectancy over the period 1950-2000 is a result of reduced cardiovascular disease mortality. The speaker attributed roughly two thirds of the cardiovascular benefits (3 extra years) to improvements in medical treatment and roughly one third