SOCIAL WORTH OF PHARMACEUTICALS, THE

Journal of Third World Studies, Spring 2008 by Djolov, George G

INTRODUCTION

In an article in the Harvard Business Review, Spear1 observed that: "Medical miracles - improvements in fertility treatment, cancer cures, cardiac care, and AIDS management among them - are becoming so commonplace that we take them for granted."

If developments from drug therapy are becoming so expected and regular to the extent than we nowadays take them for granted, their beneficial outcome on health however should not. This ought to be radier seen as an outgrowth of an innovation-based process in the market place, which in concordance with conventional economic theory brings into play the marginal rate of substitution between products (goods or services) to reflect the rate at which people are willing to give up one good in exchange for more of another. In the present case this can be seen as the choice people make for pharmaceuticals in place of hospitalization, surgery, or prolonged medical (doctors') exams.

The aim of this paper is to quantify mis trade-off by reworking, i.e. extending the standard approach of pharmacoeconomics which looks at the benefits of individual drugs to instead look at valuing the social worth of pharmaceuticals to a country as a whole. In essence the switch is from a microeconomic to a macroeconomic level, to account for the move in examining the impact of specific drugs to pharmaceutical therapies overall. This is rather handy considering that at the macroeconomic level it is usually easy to obtain per capita data on productivity (via gross domestic product); spending on healthcare and pharmaceuticals; and life expectancy. This allows on the aggregate for a straightforward inspection of the benefits to arise from pharmaceuticals or innovations in them.

Political and economic reasoning supports the proposed approach. For instance the Charter of the New Partnership for Africa's Development2 notes that:

"Health ...contributes to an increase in productivity and, consequently, to economic growth. The most obvious effects of health improvement on the working population are the reduction in lost working days due to sick leave, the increase in productivity, and the chance to secure better-paid jobs. Eventually, improvement in health.. .directly contributes to improved well-being as the spread of diseases is controlled, infant mortality rates are reduced and life expectancy is higher."

As Schweitzer3 points out, given that the demand for pharmaceuticals is derived from people's demand for health, it is then consistent to postulate that me aforementioned benefits of health should readily accrue to pharmaceuticals or advances in drug therapy too. Examples of pharmacoeconomic studies demonstrate this empirically.4 They suggest that innovation in medicines, namely drug therapy, contributes to increases in life expectancy, the improvement of quality of life and the eradication of diseases at one time life threatening. By implication assuming that prescribing practices on the aggregate revolve around effective (usually new) drug therapies, then per capita total pharmaceutical spending should be expected to relate:

(a) Positively with per capita gross domestic product;

(b) Negatively with per capita total healthcare costs; and

(c) Positively with life expectancy.

Given the substitution role of pharmaceuticals to other inputs in healthcare, the inferred linkages with per capita total healthcare costs and life expectancy should be on a relative basis, that is to say, on the proportion pharmaceuticals take up in (per capita) total healthcare costs.

The supposed precondition that prescribing practices on the aggregate should revolve around effective (usually new) drug therapies if we are to observe the above relationships is not hypothetical provided we can study them in a real market where innovation in drug development is an indispensable part. There are a number of equally likely candidate countries proposed by the Organization for Economic Co-operation and Development, which has noted5 that the United States, United Kingdom, the Scandinavian Countries, and South Africa are among the preferred locations of choice for the clinical research and development (R&D) activities of the multinational pharmaceutical industry. South Africa is chosen for the purposes of the present investigation. Its pharmaceutical market is one of only few in the world enjoying pricing freedom and strong intellectual property protection.6 Recent studies reiterate its favorable stance as a preferred R&D location of choice. For instance Reekie7 informs us that:

"South Africa has ... large existing clinical research assets of both physical and human capital. Pharmaceutical firms have for decades carried out disproportionate amounts of clinical trial activity there. The country has a large tertiary medical sector and clinical access to both First World and Third World Diseases."

Results from latest surveys with comparable methodologies carried out by the United Nations Conference on Trade and Development8 and the United Nations Institute for New Technologies on which Rasiah9 reports, corroborate this. Chart 110 depicts these findings, showing that by international standards South Africa has a much higher multinational involvement in its total pharmaceutical R&D expenditure compared to die world norm, which incorporates both developed and developing countries.