Clinical evaluation vs. economic evaluation: the case of a new drug

To economically evaluate a new drug or other medical innovation one must assess both the changes in costs and in benefits. Safety and efficacy matter, but so do resources costs and social benefits. This paper evaluates the effects on expenditures of the recent introduction of cimetidine, a drug used in the prevention and treatment of duodenal ulcers. This evaluation is of interest in its own right and also as a "guide" for studying similar effects of other innovations. State Medicaid records are used to test the effects on hospitalization and aggregate medical care expenditures of this new medical innovation. After controlling to the extent possible for potential selection bias, we find that: 1) usage of cimetidine is associated with a lower level of medical care expenditures and fewer days of hospitalization per patient for those duodenal ulcer patients who had zero health care expenditures and zero days of hospitalization during the presample period; an annual cost saving of some $320.00 (20 per cent) per patient is indicated. Further analysis disclosed, however, that this saving was lower for patients with somewhat higher levels of health care expenditures and hospitalization in the presample period, and to some extent was reversed for the patients whose prior year's medical care expenditures and hospitalization were highest.