As used in this paper, the terms "cost-effectiveness" and "cost-benefit" analyses refer to systematic economic analytical techniques that compare the negative consequences (costs) and positive outcomes (effectiveness, benefits) resulting from drug therapy. A drug is cost-effective when it achieves the same result as another form of therapy at a lower cost. A drug is cost-beneficial when it confers benefits that exceed costs.

Studies of vaccines (Reports 2 and 3) show that they are cost-effective because they prevent diseases at lower costs than the diseases can be treated. Studies of cimetidine demonstrate that it is extremely cost-effective because it averts the need for more expensive duodenal ulcer surgery. The importance of other drugs as lower-cost substitutes for hospital or other institutional care is shown by the studies of anti-microbial and anti-psychotic drug therapy (Report 4).

The studies reviewed in these reports, however, contain methodological limitations -- some inherent in the analysis but others avoidable if the proper methodology had been used. In Report 4, Judith L. Wagner, Director of Technology Research Associates, stated:

"Consistent definitions and methods of measuring the direct and indirect costs of illness do not exist....Perhaps the greatest shortcoming of the literature is the inadequacy of attempts to deal with the psychological benefits and costs that cannot be captured as indirect costs."

In response to this criticism, a model was developed for cost-effectiveness analysis of pharmaceuticals (Report 5). In addition, the feasibility of applying survey research techniques to measuring the psychological benefits and costs associated with drug therapy was analyzed (Report 6).

In applying this cost-effectiveness model to beta-blocker drugs (Reports 7, 8 and 9), it was found that their benefits far outweighed their costs in preventing second heart attacks and in treating glaucoma and angina. The benefit-cost ratio was estimated to be as high as 14:1, even without the inclusion of psychological benefits.

SOCIAL BENEFITS OF PHARMACEUTICALS

(Report 1)

The development of safe and effective medicines is of relatively recent origin, as explained by John G. Adams, former PMA Vice President for Scientific and Professional Relations, in Report 1.

As late as 1930, drug companies in this country were still essentially simple manufacturing enterprises that undertook little research and development. At that time, there were no antibiotics, no

corticoids, no tranquilizers, no anti-hypertensives, no anti-histamines and no vaccines against polio, measles, mumps and whooping cough. More than three-quarters of the prescriptions written by physicians were

compounded by pharmacists.

New Therapeutic Age

It was the development of sulfanilamide in 1935 and of penicillin in 1941, combined with needs brought about by World War II, that produced the modern drug industry in the United States-and ushered in a new therapeutic age. A number of drug companies launched crash programs during the war to develop methods to mass-produce penicillin. Thereafter, the companies increasingly engaged in other research efforts that transformed the industry into a high-technology business based on scientific progress.

During 1948-1958, pharmaceutical companies introduced 4,829 new products and 3,686 new compounds. According to a recent study, 150 of the 200 most frequently prescribed drugs in 1982 were developed since 1950.

As a result of this pharmaceutical research, enormous progress has been made in conquering disease. The value of modern medicines has perhaps been most succinctly stated by Victor Fuchs in his examination of health-economic issues, Who Shall Live? (Basic Books, 1974):

"Surgery, radiotherapy, and diagnostic tests are all important, but the ability of health care providers to alter health outcome...depends primarily on drugs....Our age has been given many names--atomic, electronic, space, and the like but measured by impact on people's lives it might just as well be called the drug age."

Anti-Infective Agents

Many contagious diseases that once were leading causes of death in the United States have been controlled through the development of anti-infective drugs. The use of medicines, particularly antibiotics and other antibacterial agents, also has led to a reduction in surgery for such conditions as osteomyelitis, mastoid infection and brain and lung abcess.

Since that time, the

At the turn of the century, just three infectious diseases-tuberculosis, influenza and pneumonia-accounted for more than 25 percent of all deaths in the United States. death rate from tuberculosis has been dramatically reduced in this country partly as a result of the development of effective medicines. Some 10 pharmaceuticals-including several antibiotics-developed since the 1940s have helped to control the disease. In 1980, there were 27,749 tuberculosis cases and only 1,770 deaths caused by the disease in the United States compared to 84,304 cases and 19,707 deaths in 1953—a 91 percent reduction in deaths.

Vaccines

Similarly, anti-infective medicines and vaccines have helped to cut the death rates in this country from influenza, pneumonia and such other serious diseases as cholera, puerperal sepsis, scarlet fever, meningococcal meningitis, typhoid fever, dysentery and syphilis.

Dramatic successes have been achieved against smallpox and polio. During the 1920s, there were more than 530,000 cases of smallpox reported in the United States. Because of widespread vaccination, not one confirmed case of smallpox has been reported in this country in more than 25 years not one throughout the world since 1977.

As recently as 1952, 57,879 cases of polio were reported in the United States. The Salk vaccine was introduced in 1955, followed by the Sabin vaccine six years later. The result: only eight cases of polio reported in 1983.