## July 01, 2009

### The Value of Real Disease Cures and Inexpensive Tests

A blog makes a point that the healthcare funding battles are like generals fighting the last war. The new healthcare should focus on cures and cheap tests.

This site covered the detailed statistics that most of the healthcare costs are focused on the chronic diseases for the sickest 5% of people.

Curing cancer is worth \$50 trillion to the USA alone according to a 2006study by Kevin M. Murphy and Robert H. Topel of the University of Chicago.

- A 10% reduction in cancer death rates has a value of roughly 5 trillion dollars to current and future Americans
- Reducing cancer death rates by 10% would generate roughly 180 billion dollars annually in value for the U.S. population
- These figures don’t even count any gains from reduced morbidity and improved quality of life
- Gains in longevity from 1970 to 2000 were worth roughly 95 trillion dollars to current and future Americans
- This amounts to a gain of over 3 trillion dollars per year (roughly 25% of annual GDP)
-Value of reducing the death rate by 1/10,000 worth roughly \$630 to one person
- This corresponds to a value of a statistical life of \$6.3 million

A critical factor is not to implement care that is more expensive then the value of the benefit in order to improve the economics of healthcare. (Only pay for what we can afford.) This is illustrated in the following example.

Simple Example
200 billion dollar “war on cancer”
50% probability of success – 50% probability of total failure
Success = 10% reduction in cancer death rates
Based on Murphy & Topel – value of success = \$5 trillion

Costs of care Two scenarios:
“good” outcome = treatment adds 2.5 trillion (50% of value) to costs of care
“bad” outcome = treatment adds 10 trillion (200% of value) to costs of care

Assume each scenario is equally likely
Three potential outcomes:
50% chance of “Failure” = -\$200 billion
25% chance of “Good Success” = +\$2.3 trillion
25% chance of “Bad Success” = -\$5.2 trillion
Expected gain = -\$825 billion

What matters in this calculation?
* Costs of research are small by comparison to costs and benefits (making them \$100 billion or \$300 billion has little effect)
Probability of success matters some but not much
Expected costs of care matter a lot
* Question: What can we do to improve the situation?
* Answer: Make good care decisions!

* Improve care system = don’t implement if costs of care are high
* Chance of “failure” now 75%
* But expected gain now +\$425 billion
* Bottom line: appropriate cost containment RAISES the value of research by eliminating the major downside
* The potential downside to research is not failure but unaffordable “success”

Best solution: improve incentives and decisions in the delivery system – research will follow
Second best: change the direction of research to look only for lowest costs solutions
Both enhance the case for more research

Improve incentives for doctors and patients to control costs
Use technologies appropriately – not all or nothing – many treatments will be cost effective for some patients not for others
Focus on treatments with low incremental costs – reduces problem of over use

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