1
WHAT SHOULD PHYSICIANS KNOW ABOUT HEALTH
ECONOMICS?

• Victor R. Fuchs
• Henry J. Kaiser Jr. Professor Emeritus
• Stanford University
• Universita Cattolica del Sacro Cuore
• Rome, Italy
• 8 October 2002

2
the age of chivalry is gone. That of
sophisters, economists, and calculators has
succeeded and the glory of Europe is
extinguished forever

• Edmund Burke
• 18th century
• British statesman

3

• A very romantic and aristocratic view
• For most Europeans, life was nasty, brutish, and
  short
• Life expectancy at birth was about 35 years
• Poverty, violence, and disease were widespread

4
When the sentimentalist and the moralist fails,
he will have as a last resource to call in the
aid of the economist.

• Edwin Chadwick
• 19th century leader of
• public health reform in Britain

5
Important Similarities Between Physicians and
Economists

• Realistic approach to lifes problems
• Reliance on quantitative information
• Often must make difficult choices in the face of
  uncertainty
• Good decisions require comparing benefits and
  risks (costs)

6
Big Difference Between Physicians and Economists

• Physicians are usually concerned with an
  individual patient
• Economists are usually concerned with large
  aggregations organizations, industries,
  governments, society as a whole

7

• Economics is not primarily about saving money
• It is about using scarce resources as efficiently
  as possible
• Useful concepts
• A production function
• The margin (i.e. incremental change)

8
A Production Function
Health
0
Quantity of medical care

• The slope of the curve at any point is the
  marginal product of health with respect to
  medical care

9
Effect on Women-Years of Life Extended As
Frequency of Pap Smear Varies
Years of life extended per 100 women
18
17
16
15
14
13
12
0
11
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Number of screens every 10 years
10
A Basic Problem of Health Economics
Euros
Marginal benefit
Marginal cost
Q1
Q2
0
Quantity of medical care

• Q1 is the socially optimal amount of care
• Q2 is the technologic (medical) optimal amount of
  care

11
Advances in Knowledge shift the production
function upwards over time
Health
Time 2
Time 1
0
Quantity of medical care

12
Advances in Knowledge come in many forms from
different kinds of research

• New diagnostic procedures
• e.g. MRI and CT scans
• New therapeutic procedures
• e.g. CABG, PTCA
• New drugs
• e.g. ACE inhibitors, statins
• New uses for old drugs
• e.g. aspirin to prevent AMI
• New understanding of disease
• e.g. cigarettes cause lung cancer,
• treating mild hypertension extends lives

13
Annual Rate of Change in U.S. Age-Adjusted
Mortality, by Sex, Lung Cancer and Other
Malignant Neoplasms (Five year moving average
centered on middle year)
Percent change per annum
8.0
Lung, men
Lung, women
Other, women
Other, men
6.0
4.0
2.0
0.0
-2.0
1963
1968
1973
1978
1983
1988
1993
Year
14
Annual Rate of Change of U.S. Age-adjusted Death
Rate(5 year moving average centered on middle
year)
Percent change per annum
Year
15
Annual Rate of Change of U.S. Age-adjusted Death
Rate Cardiovascular, Cerebrovascular, All Other
Causes(5 year moving average centered on middle
year)
Percent change per annum
Cardiovascular
4.0
Cerebrovascular
All Other Causes
2.0
0.0
-2.0
-4.0
-6.0
-8.0
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
Year
16
Partial Agenda For Physician-Economist
Collaboration

• Development of better data as the basis for
  preventing and treating diseases
• Analysis of time trends and cross-sectional
  differences in mortality and utilization of
  medical care
• Incorporation of patient preferences in physician
  decisions
• Evaluation of benefits and costs of new
  technologies
• Increased quantitative knowledge of how
• incentives affect behavior of patients and
  physicians

17

• His the physicians position in society, the
  task assigned to him and the rules of conduct
  imposed upon him, changed in every period. They
  were determined primarily by the social and
  economic structure of society and by the
  technical and scientific means available to
  medicine at the time
• Henry Sigerist
• Historian of medicine,
• Yale University, 1941