Transcript Measuring the Value of Medical Research

The Economic Value of Increased
Longevity & Medical Research
Kevin M. Murphy
&
Robert H. Topel
University of Chicago
Two Goals of Today’s Talk
1. Review some research on the value of
increased longevity
2. Link the results of that research to
important policy questions
Review: Measuring the Value of
Medical Research
Q. How do we measure the economic value of
improvements in health and longevity?
A. We measure the value by what people are
willing to pay.
Q. How do we measure what people are
willing to pay?
A. By looking at the choices that they make.
Sources of Evidence on the Value
of Health and Longevity
• Responses to health information (e.g.
cigarettes)
• Choices of safety equipment (cars etc.)
• Occupational choices (what we use)
• What we order for lunch
Measuring the Value of Health
and Longevity
• Casual and empirical evidence suggests that
health and longevity are important to people
• Evidence from occupational choices
suggests that people are willing to pay
roughly $500 to reduce their annual
probability of death by about 1/10,000
• This translates into a value of about
$166,000 per additional year of life
What we do not do
• We do not measure the contribution of medical
research to GDP – jobs etc. – these are costs not
benefits
• We do not measure the contribution of the increase
in productivity from longer lives – people care
about much more than productivity
• We try to measure what health and longevity
contribute to individual well being – this is what
matters
Basic Results
• Historical improvements in life expectancy
have been very significant – improvements
in longevity from 1970 to 1998 were worth
roughly $73 trillion (or about $2.6 trillion
per year)
• Improvements in life expectancy have
contributed about as much to overall
welfare as have improvements in material
wealth
Gains at The Individual Level
Figure 4. Gains from Increased Longevity for Males 1970-1998
$400,000
Males90-98
$350,000
Males80-90
Males70-80
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
0
-$50,000
10
20
30
40
50
60
70
80
90
100
Aggregate Gains from Increased
Longevity 1990-1998
Aggregate Gains ( Billions of $1996)
1970-1980 1980-1990 1990-1998 1970-1998
Males
Females
Total
$21,215
$15,863
$37,078
$12,139
$6,979
$19,117
$13,223
$3,461
$16,685
$46,577
$26,303
$72,880
Basic Results (cont.)
• Potential future gains are also very large:
• Eliminating cancer is worth roughly $44 trillion
• Eliminating cardiovascular disease is worth roughly
$51 trillion
• Even modest progress has great value:
• 10% reduction in cancer deaths worth over $4
trillion
• Historical reduction in heart disease from 1970 to
1998 was worth about $32 trillion
Gain from a Permanent 10% Reduction
in Death Rates by Category of Disease
(Billions of $1996)
Males
ALL CAUSES
Females
Total
$10,016
$7,147
$17,163
MAJOR CARDIOVASCULAR DISEASES
DISEASES OF HEART
CEREBROVASCULAR DISEASES
$2,994
$2,471
$356
$2,149
$1,614
$399
$5,142
$4,085
$755
MALIGNANT NEOPLASMS
RESPIRATORY AND RELATED ORGANS
BREAST
GENITAL ORGANS AND URINARY ORGANS
DIGESTIVE ORGANS
$2,258
$793
$3
$271
$538
$2,101
$516
$421
$282
$393
$4,359
$1,309
$424
$553
$931
$498
$146
$644
INFECTIOUS DISEASES (Including AIDS)
Gain from a Permanent 10% Reduction
in Death Rates by Category of Disease
(Billions of $1996) (Continued)
Males Females
Total
CHRONIC OBSTRUCTIVE PULMONARY
$309
$295
$605
PNEUMONIA AND INFLUENZA
$192
$166
$358
DIABETES
$222
$227
$449
CHRONIC LIVER DISEASE AND CIRRHOSIS
$212
$98
$310
ACCIDENTS AND ADVERSE EFFECTS
MOTOR VEHICLE ACCIDENTS
$962
$514
$407
$244
$1,369
$757
HOMICIDE AND LEGAL INTERVENTION
$323
$90
$413
SUICIDE
$407
$101
$508
Longer Term Changes
• Recent improvements are reflective of
longer term gains in longevity
• Gains were actually somewhat greater in
earlier decades using a fixed valuation
profile (like fixed basis GNP accounting)
• Gains have become increasingly
concentrated at older ages in recent decades
Cummulative Gains from Increased Longevity Since 1900
$1,000,000
Males
Females
Per Capita Gain ($)
$800,000
$600,000
$400,000
$200,000
$0
1900
-$200,000
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
What About Health
Expenditures?
Table 4. Estimated Gains Net of the Increase in Health Expenditures
Gross Gains (from Table 1)
Increase in Expenditures
Gains Net of Expenditure Growth
Expenditure Increase(% of Gains)
1970-1980 1980-1990 1990-1998 1970-1998
$37,078
$19,117
$16,685
$72,880
$6,863
$12,485
$7,345
$26,693
$30,215
$6,632
$9,340
$46,187
18.5%
65.3%
44.0%
36.6%
Caveats to the Net Gains Analysis
• Gains include improvements from many
margins not just health care
• Health care costs include many
expenditures other than those directed at
longevity
• However, the comparison allows us to
compare the size of two important trends
Implications of the Analysis
• The economic value of disease reduction is
increasing over time
• The value of disease reduction is rising along with
the level of overall wealth
• The value of progress against any one disease rises
as we make progress against other diseases
• The value of disease reduction is increasing as the
U.S. population ages
• Appropriate efforts to control health care
costs will increase the value of research
Thinking More About Medical Research
• Due to distortions in the market for medical care
(third party payers etc.) increases in costs may
exceed the benefits for some advances
• These same distortions affect the composition of
research and medical advances
• Favors output enhancing over cost reducing
innovations
• Favors advances that can be patented over those
that cannot
• Funding for medical research and appropriate cost
containment are complementary
Thinking About Investments in
Medical Technology
• Growth in the market for health care
• Market growth favors fixed cost
technologies – drugs/ medical advances
• Growth in the demand for health care is
seen as a curse by most – but may be a
relative gain to fixed cost technologies
• Such technologies may be a key way to
control the long-term growth in costs
The Bottom Line
• Past improvements in health and longevity have
had enormous economic value
• Potential gains from future reductions in mortality
are also extremely large
• The results presented today should lead us to
revise our estimates of the value of research
upward
• Absent costs of treatment, very modest potential
reductions in disease would justify significant
expenditures on research. This leaves the cost of
treatment as the open issue.
THE END