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Spending Brings Greater Value to Health Care Research

Cost containment and medical progress work together, according to Kevin Murphy, George J. Stigler Distinguished Service Professor of Economics.  “These are not independent important things, they are actually intimately related. If we become better at controlling costs the value of advances will be much greater,” he told the Healthcare and BioPharma Alumni Roundtable at Gleacher Center on February 1.

“The bottom line is that appropriate cost containment raises the value of research by eliminating the major downside—the chance that we discover things that are more costly to implement or generate than the value they generate,” he said. “If you cut that out, there is very little downside.”

Murphy’s remarks were part of a presentation of research featured in Measuring Gains from Medical Research: An Economic Discussion, which he coauthored with Robert Topel, Isidore Brown and Gladys J. Brown Professor in Urban and Labor Economics, and David Meltzer, associate professor in medicine, associate professor in the Harris School of Public Policy and Economics, and director of the Center for Health and the Social Sciences at the university.

Topel pointed out that in 1900, about 18 percent of males died before their first birthday; in 2000, 18 percent of men didn’t die until after their 62nd birthday. Attributing a dollar value to medical research advances based on the value of being alive (about $300,000 for a 50-year-old male), he said a 10 percent decrease in cancer mortality would have a present value today for all living Americans and generations of future Americans of about at $4.7 trillion, or one third of the United States’ annual GDP.

“There’s a lot of value on the table,” he said. However, he cautioned, while medical researchers and drug companies love the idea of dollar value benefits, they don’t take into consideration the costs of medical advances.

One way to offset them is to improve incentives and decisions in how care is delivered, Murphy said. “If you make the delivery system make good decisions, then the research will follow because people won’t invent things that won’t get used.” He proposed improving incentives for doctors and patients to control costs, using technology appropriately (particularly using treatments only when cost-effective), and focusing on treatments with low incremental costs.

Meltzer said cost effectiveness analysis is being used increasingly to  estimate the value of research. He offered concrete clinical examples demonstrating how statistical analysis can be used to asses when additional research on a new treatment is likely to be worthwhile, and how this has been used to shape policy decisions.

Yet he also emphasized the importance of considering how a technology will be used in determining the value of research about it. “If you can get the right treatment to the right person, it would be hugely valuable,” he concluded. “We can think about research as creating new technologies, but research is really about creating information; that information may explain how to use the technology, which may be some of the most valuable information we produce through research.”

—Jenn Q. Goddu