“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

“…the age of chivalry is gone. That of sophisters, economists, and calculators has succeeded; and the glory of Europe is extinguished forever” Edmund Burke 18 th century British statesman

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

“ When the sentimentalist and the moralist fails, he will have as a last resource to call in the aid of the economist.” Edwin Chadwick 19 th century leader of public health reform in Britain

Important Similarities Between Physicians and Economists Realistic approach to life’s problems Reliance on quantitative information Often must make difficult choices in the face of uncertainty Good decisions require comparing benefits and risks (costs)

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

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)

A Production Function The slope of the curve at any point is the marginal product of health with respect to medical care Quantity of medical care Health 0

Effect on Women-Years of Life Extended As Frequency of Pap Smear Varies Number of screens every 10 years 0 Years of life extended per 100 women

A Basic Problem of Health Economics Q1 is the socially optimal amount of care Q2 is the technologic (medical) optimal amount of care Quantity of medical care Euros Marginal benefit Marginal cost Q1Q2 0

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

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

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) Lung, menLung, women Other, men Other, women Percent change per annum Year

Annual Rate of Change of U.S. Age-adjusted Death Rate (5 year moving average centered on middle year) Percent change per annum Year

Annual Rate of Change of U.S. Age-adjusted Death Rate: Cardiovascular, Cerebrovascular, All Other Causes (5 year moving average centered on middle year) Cardiovascular Cerebrovascular All Other Causes Percent change per annum Year

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

“ His [the physician’s] 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