Health Economics

[~Sophia~]

I attended Genome BC conference today and one of the topics presented was this organization's research in the area of Health Economics.

This "research" involves, for example, estimating the social value of a Quality Adjusted Life Year (QALY) - (don't ask me what that is - they used language like: 4 years extra life @ 0.6 quality of life = 2.4 now how do you put a number on individual's quality of life?).

They use this and various other similar methods to estimate benefits gained from a variety of medical procedures (benefits to whom?). Further they correlate this data with the proposed cost of the treatment (not only per patient but also, cost to the SYSTEM - how much it would cost them) to make a decision whether or not offer it to the public or fund a research projects dealing with a development of a new medical treatment. (mind you cost, in the beginning, is often high for many new technologies and tend to decrease in time due to many factors including technological improvements).

So in conclusion, a new, potenitally revolutionary treatment may NOT be developed or made available to the public because of this analysis. In a system in which the government has a monopoly on delivering health care that means patients are denied access to potentially life saving technology as there is no option currently within the system for an individual to be able to pay for such treatment himself. This also means that, for example, genetic predictive tests may not become available. Admittedly, the value of such tests varies depending on the type of genetic defect but it many cases such information about what risks one is facing maybe helpful.

Supposedly similar methods are being currently implemented in every country in the world with public medical system.

(Personally I was not THAT shocked and it actually made me feel a bit optimistic as I see it as one more nail in the coffin of socialized medicine).

Edited April 14, 2007 by ~Sophia~

[aequalsa]

they used language like: 4 years extra life @ 0.6 quality of life = 2.4

I have had to work a lot this year with less free time then usual, less sleep then I would prefer, but no serious health problems...What does that put the value of my life at? .8 or so? That seems so sad and rediculous. Any objective basis to it that you could see Sophia?

Edited April 14, 2007 by aequalsa

[~Sophia~]

I have had to work a lot this year with less free time then usual, less sleep then I would prefer, but no serious health problems...What does that put the value of my life at? .8 or so? That seems so sad and rediculous. Any objective basis to it that you could see Sophia?

I have not looked closely into how exactly they come up with those numbers.

I understand the need to measure in some way if a particular method is worth pursuing. If something is costly and only increases patient's life by a year developing it may not be worth while. Private research companies make such decisions all the time. But when this quality of life measurement comes to the picture vs. cost to the tax payer - my trust in their objective judgment goes down considerably.

[Galileo Blogs]

This type of rationing of medical care is inevitable when government becomes the principal payer. For the government, all expenditures on medical care are costs. Ideally, to minimize costs, the government would spend nothing on medical care. Since government officials cannot do that politically, they must figure out how to ration it. Rationing means deciding how much medical care to give Peter versus Paul. It also means deciding how much medical care to give Peter and Paul versus spending money for non-medical purposes. It also means deciding which innovations get "funded" and brought to market and which ones don't. There is no rational way to make these calculations.

In contrast, in a world of property rights each person decides for himself using his own, personal standard how much of something (such as medical care) he wants to buy. Then, if he can afford the price, he buys as much of it as he wants. Entrepreneurs provide him with that care and innovate new services to compete for the customer's dollars. The medical customer's purchase constitutes no harm to anyone else since it is his money he is spending. On the other hand, in a socialist world, spending some money on Peter means having less money to spend on Paul. Or, spending money on one innovation means having less money to spend on another innovation. Thus, the directors of socialized medicine must engage in such tortured "reasoning" as Sophia describes to decide whether to fund a medical innovation.

Ultimately, this bureacratic approach to innovation will mean less of it. We will all be sicker and have shorter lifespans as a result.

On a side note, the type of analysis Sophia describes is very common in the economics literature. A major branch of modern economics, called "welfare economics," tries to figure out how to "scientifically" allocate resources via government edict. It is completely fallacious because it violates the concept of individual rights. This branch of economics is also used to justify antitrust laws, tariffs and other government interventions. The "economists" use welfare economics to say that "society" is better off if government intervenes in the economy in order to effect a "proper allocation" of goods. Needless to say, the only proper allocation of goods is that which occurs spontaneously when free people, with fully protected property rights, produce and trade with each other.

[softwareNerd]

Great topic, Sophia, and one that affects us all, without us even knowing it. It's part of the hidden cost of the socialized health-care. Someone has to decide the kinds of things that they're trying to decide with those calculations; the problem is that the individual health-care consumer's valuations are not the root of the calculation. I agree with GB's analysis. Ludwig von Mises said something to the effect that calculation is impossible in such a system.

My own first experience with this was when my wife was pregnant. There was some test that could be done on the fetus, but it was not covered by insurance, and was not cheap. I found a paper by some researcher, addressing the issue of whether one ought to do the test. I think it listed risk factors in some form: e.g. if one of the parents is Asian then the probability of the child having this genetic defect is x%. It also listed cost information noting how much extra one would have to pay taking care of a child with the medical condition. Using the cost information and the probabilities, it worked out the types of situations where one would break-even and profit from the test.

What was eye-opening to me was that nowhere in the paper did it take into account the fact that this condition (some type of mental retardation) would almost fully destroy the reason any rational person would have a child in the first place. So, while it was adding up costs in the few thousands of dollars, it was ignoring the million-dollar (of "million-value") question. This was an expensive test, but not super-expensive. The math was being done on the wrong input. Instead, the consumer should be asked: would you spend $2,000 to tell if this fetus has a high likelihood of growing into a mentally retarded child?

The answer to that question might seem obvious, but only if one were willing to abort the fetus. In our "parents' pre-natal class", there was at least one pair who spoke up proudly, saying that they thought it was a waste of money, because they did not believe in abortion. Fair enough... it's their life. It would be highly immoral for a government bureaucrat to decide such matters for individuals, based on costs, and his estimate of what others should and should not value.

Under capitalism, both types of parents would be taken into account. The mix of both types of parents, and their buying power, would be aggregated in a calculation done by medical companies and their researchers. However, when people have to make such a decision in the absence of the profit motive, there is literally no way to do it without ascribing some of their own values to the consumers. This is what the communist bakery has to do when it decides what mix of brown and white bread to bake, and this is what administrators have to do under socialized medicine.

aEqualsA, You ask whether there is an objective basis to measure the quality of life. Sometimes people have to make decisions where they have to implicitly assign a value to an extension to their life. People will be told for instance, that they can undergo a particular medical procedure and that it will not solve their problem, but will extend their life for a year; or, they may be told that they will live but they'll be paralysed and in bed forever. In such instance, people do weigh the value against the cost. It isn't easy, but as long as the individual is doing it, there's no fundamental problem with it. With socialized medicine, a bureaucrat, or the law, decides.

Even though the system in the U.S. is not socialized in the manner of U.K. and Canada, the government has a huge influence in these types of decisions. The government has created a system that has moved individual decision-making away from the consumer -- not as much as in a socialized system, but enough for it to matter. From my own experience, I find that the system in the U.S. still works extremely well to solve diseases; however, it does not do too well in the area of preventive tests and procedures.

The example of the test I gave above is just one example; there are many other tests that insurances do not cover, based on their own estimate of seriousness and cost. When someone has a disease, they seek treatment and options. However, when it comes to tests and prevention, people are often unaware of risk factors they face and possible tests. In the context of U.S. health-care, it is particularly important to quiz your doctor. It is possible that he does not mention some test because it's expensive and insurance won't cover it. As a consumer, it's important to quiz him a bit to figure out if there is something he is hesitating to tell you. More long-term, it is also important to look for doctors who are less inhibited by insurance rules, and are willing to tell you what your options are, regardless of coverage.

People often condemn businessmen for trying to sell one unnecessary things. Doctors aren't an exception. So, the other side of the insurance-pays system, is that some doctors will prescribe tests that one does not really need, but which insurance will pay for. First, there are always bad-apples in any profession. Secondly, the unfairness of the insurance system actually encourages such behavior (... but this post is long enough already).