Do drugs reduce utilisation of other healthcare resources?

Background: Drug expenditures per capita have drastically increased over the last quarter century in Canada, with a share of overall healthcare costs rising from 8.8% in 1980 to 16.8% in 2002. Pressure to curb expenditure on drugs has increased accordingly, but containing drug expenditure might increase costs elsewhere in the healthcare sector. Objective: To measure substitution patterns between drugs and other healthcare resources over the last 25 years and thus assess whether containing drug costs might result in higher expenditure elsewhere in the healthcare system. Methods and data: A production function approach was used, in which life expectancy was modelled as a function of per capita drugs and non-drug healthcare resources, among other factors. Estimates are used to calculate a marginal rate of substitution, or trade-off, between drugs and non-drug healthcare resources, for a given level of life expectancy in the population. The model is estimated from a societal perspective, with panel data techniques using Canadian provincial-level data on health expenditure and spending on physicians per capita for the period 1980-2002, as well as individual survey data on lifestyle habits such as cigarette consumption and body mass index.. Result: Using life expectancy at birth for males as the production function, increasing drug spending by $Can1.00 (constant 2003 values) was accompanied by a decrease of $Can1.48 in non-drug, non-physician healthcare resources over the study period, without affecting life expectancy at birth. Results using life expectancy at birth for females as the production function showed a decrease of $Can1.05 in non-drug, non-physician healthcare resources over the same period. Conclusion: Using life expectancy as a general health indicator, results suggest that increases in drug spending could be more than offset by decreases in other healthcare spending without affecting the health of the population. This suggests that better access to drugs may be an effective strategy to decrease overall healthcare costs. Freeing up healthcare dollars by reallocating spending towards drugs could provide opportunities for overall healthcare cost savings without negatively impacting the health of the population.