HOW DOES TECHNOLOGICAL CHANGE AFFECT HEALTH CARE EXPENDITURES? The Case of a New Drug

The expenditure consequences of the drug cimetidine for the period 1977-1979 are investigated. Using Medicaid data for the State of Michigan, it is found that expenditures for the first year of treatment of duodenal ulcers are reduced between 26 % and 70%. The methodology employed can be applied to the assessment of other medical technologies. / his article evaluates the health care effects on expenditures of a new drug, cimetidine. Since its introduction in September 1977, the drug has become very important in the treatment of duodenal ulcers and some other digestive disorders. It accounts for over $300 million in U.S. sales per year (more than 40 % of total U.S. sales of anti-ulcer and related drugs) and is now the world’s leading prescription drug in value of sales. The set of data used consists of a subset of the accounting records for all Michigan Medicaid recipients in the calendar years 1977 through 1979. The effect of technological change on total health care expenditures is clearly of interest to administrators of medical assistance programs, particularly in the current fiscal climate and in light of the growing percentage of the GNP that is being devoted to medical care-4.5 % in 1950, 7 % in 1970, and over 10 % today (U.S. Department of Commerce, 1982). Expenditures may also be of interest in social benefit-cost analysis, since under some conditions changes in expenditures reflect changes in net social benefits or costs. The nature of this relationshi