Measuring the Value of Medical Research

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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

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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.

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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

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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

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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

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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

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

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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
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421
424
GENITAL ORGANS AND URINARY ORGANS
271
282
553
DIGESTIVE ORGANS
538
393
931
INFECTIOUS DISEASES (Including AIDS)
498
146
644
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Gain from a Permanent 10 Reduction in Death
Rates by Category of Disease(Billions of 1996)
(Continued)
Males Females Total
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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?
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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

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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

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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

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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

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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

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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.

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THE END
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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

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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

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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

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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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