The Impact of Biopharmaceutical Innovation on Disability, Social Security Recipiency, and Use of Medical Care of U.S. Community Residents, 1998-2015

88% of privately-funded U.S. funding for biomedical research came from pharmaceutical and biotechnology firms. This study analyzes the overall impact that biopharmaceutical innovation had on disability, Social Security recipiency, and the use of medical services of U.S. community residents during the period 1998-2015. Most of the data come from the Medical Expenditure Panel Survey. The effect of biopharmaceutical innovation is identified by differences across over 200 medical conditions in the growth in the lagged number of drug classes ever approved. The FDA believes that 70% of first-in-class drugs offer a “significant improvement” compared with products already on the market. The estimates indicate that the probability of disability, Social Security recipiency, and medical care utilization is inversely related to the number of drug classes previously approved. The length of the estimated lag is generally 6-9 years, which is not surprising, due to the gradual diffusion of new drug classes. The effect of biopharmaceutical innovation related to a medical condition on the overall health of a person with that condition depends on the number of (other) medical conditions a person has: the smaller the number of conditions, the larger the effect. Previous innovation is estimated to have reduced: the number of people who were completely unable to work at a job, do housework, or go to school in 2015 by 4.5%; the number of people with cognitive limitations by 3.2%; the number of people receiving SSI in 2015 by 247 thousand (3.1%); and the number of people receiving Social Security by 984 thousand (2.0%). Previous innovation is also estimated to have caused reductions in home health visits (9.2%), inpatient events (5.7%), missed school days (5.1%), and outpatient events (4.1%). We estimate the value in 2015 of some of the reductions in disability, Social Security recipiency, and use of medical care attributable to previous biopharmaceutical innovation. This value ($115 billion) is fairly close to 2015 expenditure on drug classes that were first approved by the FDA during 1989-2006 ($127 billion). However, for a number of reasons, the costs are likely to be lower, and the benefits are likely to be larger, than these figures.