Does Pharmaceutical Innovation Improve Outcomes? The Case of Medication for ADHD

In 2012 there were five million U.S. children who had been diagnosed with attention-deficit/hyperactivity disorder (ADHD), a 20% increase from 2003. The Medicaid bill for prescription ADHD medications in thirty U.S. states in our data increased from $103 million in 1999 to $666 million in 2009, a 548% increase in real terms. Drug innovation is one of the drivers of increasing costs. While the newer drugs are certainly more expensive than their older counterparts, it is not yet clear if newer medications are more effective in improving patient health and/or whether they reduce spending on other types of medical care, by, for example preventing Emergency room visits. Nor is it clear whether new medications helped fuel the increases in the ADHD caseload. In this study, we first ask whether pharmaceutical innovation has affected the number of Medicaid children receiving ADHD medications, and then we ask whether it led to improved outcomes among children and teens diagnosed with the condition. We rely on two major sources of Medicaid claims data: the multi-state Medicaid Analytic Extract (MAX) for 1999-2012 and 2003-2013 South Carolina’s Medicaid claims data merged with data from the Department of Education and Vital Statistics records. The former allows us to exploit cross-state variation in Medicaid policies and the latter allows us to look at a wide range of outcomes that could be affected by ADHD medications, including not only medical indicators but also performance on standardized tests, suspensions, and grade progression. To our knowledge, we are the first to examine the cost effectiveness and benefits of new ADHD drugs. Our research will inform state Medicaid policy regarding the inclusion of new drugs into the program's formularies, the drivers of program drug costs, and more generally, whether consumers are capturing the benefits of innovation in this market.