This study investigates the effect of Medicare Part D on the elderly’s prescription drug use and out-of-pocket costs using a difference-in-differences research design. We estimate that Medicare Part D reduced user cost among the elderly by 18.4 percent, increased their use of prescription drugs by about 12.8 percent, and increased total U.S. usage by 4.5 percent in 2006. The estimated crowd-out rate was about 72 percent: Every seven prescriptions paid for by the government crowded out five other prescriptions and resulted in only two additional prescriptions used. This does not necessarily mean that Medicare Part D is an economically inefficient program.

I analyze the effects of four types of medical innovation and cancer incidence on US cancer mortality rates during the period 2000–2009, by estimating difference-in-differences models using longitudinal (annual) data on ∼60 cancer sites (breast, colon, etc.). The outcome measure used is not subject to lead-time bias. I control for mean age at diagnosis, the stage distribution of patients at time of diagnosis, and the sex and race of diagnosed patients. Under the assumption that there were no pre‐dated factors that drove both innovation and mortality and that there would have been parallel trends in mortality in the absence of innovation, the estimates indicate that there were three major sources of the 13.8% decline of the age-adjusted cancer mortality rate during 2000–2009. Drug innovation and imaging innovation are estimated to have reduced the cancer mortality rate by 8.0 and 4.0%, respectively. The decline in incidence is estimated to have reduced the cancer mortality rate by 1.2%. The social value of the reductions in cancer mortality attributable to medical innovations has been enormous, and much greater than the cost of these innovations. (JEL codes: C23, J11, I12, O33)

I perform two analyses of the relationship across diseases between pharmaceutical innovation and the burden of disease in developed and developing countries. Both analyses indicate that the amount of pharmaceutical innovation is positively related to the burden of disease in developed countries but not to the burden of disease in developing countries. The most plausible explanation for the lack of a relationship between the burden of disease in developing countries and the amount of pharmaceutical innovation is that incentives for firms to develop medicines for diseases primarily afflicting people in developing countries have been weak or nonexistent.