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Measuring the Value of Medical Research

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Two Goals of Today s Talk Review some research on the value of increased longevity Link the results of that research to important policy questions Review: Measuring ... – PowerPoint PPT presentation

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Title: Measuring the Value of Medical Research


1
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2
Two Goals of Todays Talk
  1. Review some research on the value of increased
    longevity
  2. Link the results of that research to important
    policy questions

3
Review Measuring the Value of Medical Research
  • Q. How do we measure the economic value of
    improvements in health and longevity?
  • 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.

4
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

5
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

6
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

7
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

8
Gains at The Individual Level
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Aggregate Gains from Increased Longevity 1990-1998
11
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

12
Gain from a Permanent 10 Reduction in Death
Rates by Category of Disease(Billions of 1996)
Females
Males
Total
ALL CAUSES
10,016
7,147
17,163
MAJOR CARDIOVASCULAR DISEASES
2,994
2,149
5,142
DISEASES OF HEART
2,471
1,614
4,085
CEREBROVASCULAR DISEASES
356
399
755
MALIGNANT NEOPLASMS
2,258
2,101
4,359
RESPIRATORY AND RELATED ORGANS
793
516
1,309
BREAST
3
421
424
GENITAL ORGANS AND URINARY ORGANS
271
282
553
DIGESTIVE ORGANS
538
393
931
INFECTIOUS DISEASES (Including AIDS)
498
146
644
13
Gain from a Permanent 10 Reduction in Death
Rates by Category of Disease(Billions of 1996)
(Continued)
Males Females Total
14
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

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What About Health Expenditures?
17
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

18
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

19
Medical Research and Costs of Medical Care
  • Investments in medical research are small by
    comparison
  • About 35 billion in 1995
  • About 3.5 of direct health expenditures
  • Potential gains from medical research are large,
    but could be offset by increased cost of care
  • Key issue is the potential costs of care more so
    than direct expenditures on research need to
    focus more on the outputs of research rather than
    inputs

20
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

21
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

22
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.

23
THE END
24
Our Approach
  • Provides a simple but flexible formulation for
    measuring what people are willing to pay for life
    extending innovations or improvements in health
  • Draws on existing evidence on the value of life
  • Can be extended to allow for improvements in
    health in addition to gains in longevity

25
Goals of our Research
  • Measure the gains to improvements in health and
    longevity
  • Expand our measures of economic well being to
    include medical advances
  • Provide some perspective on the cost/benefits of
    medical research and medical care more generally
  • Measure the potential gains from future medical
    progress

26
Empirical Results
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Additional Results
  • The economic value of disease reduction is
    increasing significantly 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

33
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
  • Very modest potential reductions in disease would
    justify significant expenditures on research (the
    cost of treatment is the more significant
    question)

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