Adoption of pharmaceutical innovation and the growth of drug expenditure in Taiwan: Is it cost effective?

Objective: To investigate the impact of adopting pharmaceutical innovations on the growth of pharmaceutical expenditures, focusing specifically on Taiwan's experience. Methods: We first provide a descriptive analysis of cost impacts of introducing new drugs into Taiwan's national formulary using data from Taiwan. We then use a statistical method to decompose the growth of pharmaceutical expenditures during 1997-2001 into three components: 1) treatment expansion; 2) treatment substitution; and 3) price effect. By incorporating the estimated benefit from prior studies, we calculate the incremental cost-effectiveness ratio for new drugs as a whole. Results: We find that from 1997 to 2001 public expenditures on pharmaceuticals grew 57%. The primary drivers of this expenditure growth were treatment expansion and treatment substitution. Prices declined by 18%. Cost per life-year gained resulting from introduction of new drugs was US$1053 (in 2003 dollars) from the perspective of the public payer and US$1824 from the perspective of society as a whole. Conclusions: Overall, our analysis provides evidence with previous studies that the drug reimbursement price is not the primary driver of increased spending. Rather the introduction of new drugs into the formulary leading to expansion of treatment, expansion and substitution of the new drugs for existing drugs may increase spending. Although the adoption of pharmaceutical innovation is costly, the estimated benefit of adopting pharmaceutical innovation generally far exceeds the cost, indicating that the adoption of pharmaceutical innovation is on the whole worthwhile.