Introduction

In this chapter we review the current state of the literature on the value of pharmaceuticals and provide estimates of the value of pharmaceuticals in Canada following the Murphy and Topel (2005) methodology.

Because this literature has become so vast and has morphed in so many different ways, we focus on a subset. Specifically, we review three types of studies. First, we review evidence based on comparisons of spending and outcomes across Organization for Economic Cooperation and Development (OECD) countries. Second, we describe a number of studies focusing on specific countries (namely, the United States and Canada). These studies have examined the impact of pharmaceutical spending levels on health outcomes using variation across administrative units and over time within individual countries. Finally, we introduce the growing literature examining the value of pharmaceuticals relative to specific disease areas.

All the studies reviewed rely on health care or pharmaceutical spending rather than on health or pharmaceutical output as a proxy for health care received by consumers. One unintended interpretation of a positive relationship between dollars spent and outcomes would be that health care price increases alone could extend life. In reality, of course, increased spending reflects a combination of increased quantity, increased quality, and increased price of pharmaceuticals. Since these three factors cannot be separated and since pharmaceutical prices are increasing even after controlling for quality, the relationship between spending and health outcome will understate the true underlying relationship between spending and the combination of quality and quantity increases.