The effort to discover and develop new pharmaceuticals is a risky and costly enterprise. For diseases that affect few patients, the barriers to development maybe especially great, since the drugs' small markets may make it difficult for firms to recoup their initial research and development investments. The Federal Government has sought to reduce these barriers through incentives first adopted in the Orphan Drug Act of 1983 (Public Law 97-414). The transfer of technology from Federal laboratories such as the National Institutes of Health to the pharmaceutical industry can also reduce the cost and risk of drug development for firms. Although such incentives may result in important new therapies, their price to patients and insurers may still be high.

As part of our assessment, Government Policies and Pharmaceutical Research and

Development, requested by the House Committee on Energy and Commerce and its

Subcommittee on Health and the Environment and the Subcommittee on Antitrust,

Monopolies, and Business Rights of the Senate Committee on the Judiciary, OTA

commissioned researchers at Stanford University to examine the development and provision of alglucerase, an important new treatment for Gaucher disease. Gaucher disease is a rare inherited disorder in which the body lacks an enzyme necessary to break down fats. This background paper describes the development of alglucerase, illustrates the role that both the Federal Government and private sector can have in making new therapies available for orphan diseases, and lays out some of the tradeoffs that can exist between developing new medical technologies and controlling health care costs.

The adoption by Medicare in 1983 of prospective payment using diagnosis-related groups (DRGs) has stimulated research to develop case-mix grouping schemes that more accurately predict resource consumption by patients. In this article, the authors explore a new method designed to improve case-mix classification for newborns through the use of birth weight in combination with DRGs to adjust the unexplained case-mix severity. Although the findings are developmental in nature, they reveal that the model significantly improves our ability to explain resource use.

EXOSURF is a protein-free surfactant composed of 85% dipalmitoylphosphatidylcholine, 9% hexadecanol, and 6% tyloxapol by weight. A single dose of 5 mL of EXOSURF per kilogram body weight, which gave 67 mg of dipalmitoylphosphatidylcholine per kilogram body weight, or 5 mL/kg air was given intratracheally in each of two controlled trials: at birth to neonates 700 through 1350 g (the prophylactic trial, n = 74) or at 4 to 24 hours after birth to neonates greater than 650 g who had hyaline membrane disease severe enough to require mechanical ventilation (the rescue trial, n = 104). In both studies, time-averaged inspired oxygen concentrations and mean airway pressures during the 72 hours after entry decreased significantly (P less than .05) in the treated neonates when compared with control neonates. Thirty-six percent of the treated neonates in the rescue study had an incomplete response to treatment or relapsed within 24 hours, suggesting the need for retreatment in some neonates. In the rescue trial, risk-adjusted survival increased significantly in the treated group. There were no significant differences in intracranial hemorrhages, chronic lung disease, or symptomatic patent ductus arteriosus between control and treated infants in either trial.

Abstract

Although economic research has not yet produced accurate estimates of the total cost of prenatal substance exposure, there is growing evidence that this exposure may result in large short-term expenditures for newborn medical intensive care and probably even larger long-term medical, social, and educational expenditures. The annual short-term economic costs due to maternal smoking are estimated to be from $332 million to $652 million (in 1986 dollars). Long-term costs due to maternal smoking are estimated at $351 million to $852 million (in 1986 dollars) per year. In comparison, the short-term economic costs for perinatal cocaine exposure are estimated at $33 million to $650 million (in 1989 dollars). The cost estimates for cocaine vary widely because accurate estimates of the number of infants born exposed to this drug each year are not available.

Programs aimed at reducing the number of women who use drugs during pregnancy, and thus reducing the overall rate of low birth weight and the need for neonatal intensive care, may be extremely cost-effective. Because of the high cost of neonatal intensive care, even moderately effective programs that address maternal substance abuse may be cost-effective and may rapidly yield savings. Substantial long-term costs may also be saved by avoiding the need for subsequent medical care and for social and special education services that may be consequences of prenatal substance exposure.

The authors apply a conditional choice model to simulate the results of patient and physician choices of hospitals for a specific surgical procedure in response to improvements in quality or changes in charges. The model includes all zip code areas and relevant hospitals in a large metropolitan area and estimates the impact on admissions at each hospital. It can be used to estimate both the impact of decisions by a given hospital and the potential responses of competitors, as well as the effects of selective contracting with hospitals by certain payors.