Thursday, April 21, 2005

The Value of Life

Arnold Kling, one of the authors of the always interesting economics blog, EconLog, wrote an essay for Tech Central Station on estimating the value of life.

He discusses several interesting issues regarding the benefits of medical interventions (which would apply to either diagnostic testing or therapeutic interventions).

For example, he talked about some of the rather irrational economic decisions made by physicians to appease anxious patients:

Recently, at a social occasion, I met an American doctor, an internist. I asked her opinion about high medical spending in the United States. She cited MRI's, pointing out that when patients come in with lower back pain, she usually orders an MRI, even though the treatment would be the same regardless of whether or not the MRI shows a ruptured disc. Her rationale is the MRI is paid for by insurance (she would be more hesitant to order the MRI otherwise), and patients feel reassured.
The logic here is that, although the physician doesn't believe that the MRI will alter her treatment decisions, the societal cost of the study would be worthwhile in terms of patient reassurance.

Unfortunately, it isn't as simple as this. First of all, the study could lead to a false positive finding, i.e. a spinal tumor that isn't really there. The end result is heightened patient anxiety plus the cost of further testing and possibly even the costs and risks of operating on something that either isn't there or isn't causing a problem. Nor is this merely theoretical. It happens all the time when a test is ordered without a very good reason for ordering it.

In fact, it can be proven (using an equation called Baye's Theorem) that the likelihood of a positive result being a false positive increases the worse the reason for ordering the test to begin with.

Consider the following event that happened when I was a medical student working in a Veterans Administration hospital. A very healthy patient came to an outpatient clinic to be cleared for a minor surgical procedure. The intern who examined him thought he heard a heart murmur. Rather than clear the patient for the surgery, he ordered an echocardiogram which was equivocal in that it couldn't confirm a significant heart problem.

The patient was then given an cardiac angiogram which didn't identify any significant heart problems. Unfortunately, the patient actually died getting the test (a rare event but one that is occasionally seen). There are always hidden costs to seemingly inconsequential testing (in this case the test of putting a stethoscope to a patient's heart)!

Kling's discussion of estimating the value of a year of life is also intriguing and provocative. I've never thought to link it's value to the average annual GDP contribution per person and then determine whether that was sustainable.

I'm not an economist but I've always thought that the value of something is determined not so much by any calculation but instead by what people are willing to actually pay for it. In other words for a given person, wouldn't the value of an extra year of life be whatever he'd be willing to pay for it? Clearly this would vary from person to person and even for a given person from situation to situation (is an extra year of abject agony worth the same as a year of "quality" life?)

In medicine, I've not seen examples of the type of calculations he's done. We don't usually give an estimate of the value of a year of life but we frequently calculate the cost of providing a year of life as he's done. We also frequently calculate the cost of preventing any type of adverse outcome i.e. the cost per life saved through a particular intervention.

For example, if a medication will lower the probability of an adverse outcome from WOM (the probability of an adverse event without the medication) down to WM (the probability of an adverse event with the medication), we call the difference (WOM - WM) the excess risk of not giving the medication. The reciprocal of this number is called the number needed to treat (NNT) that is, the number of patients you need to treat to prevent one bad outcome with that medication.

By multiplying the NNT by the cost of the medication, that will give you the cost of preventing one such adverse event. During my medical training, one never used to see such calculations in the medical literature. Now that the cost of medical interventions is considered such an important policy issue, we see these estimates in almost all articles discribing new technologies. Times have changed.

As an aside, I have read some years ago that the FAA places the value of a single air traveler at four million dollars or at least they did when I read this. This number was then used to determine whether a particular safety intervention should be made mandatory for the airlines to follow. This is based on the cost of the intervention to the airlines as a whole and the number of passenger deaths it would be expected to prevent. If this number is less than four million dollars per life saved, then the safety feature is made mandatory. Otherwise, it's optional.

Such calculations may sound ghoulish but they are necessary. Otherwise, you'd have to require ALL conceivable safety interventions to be mandatory no matter what the cost. We'd all be flying in armored aircraft with dozens of back-up engines, twenty pilots, hopeless redundancy, etc. Who knows how much a flight to Vegas would cost!

Likewise, the cost to society of absorbing the cost of every imaginable diagnostic exam and therapeutic intervention will become unbearable as medical technology continues to advance. One factor that may help limit such cost escalation is the rising economic incentive for academia and industry to develop lower cost treatments of medical conditions.

Hopefully, the medical industry will take advantage of the fact that there is big money to be made in saving money.

2 Comments:

Blogger Henry Stern, LUTCF said...

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VERY interesting item. Econlog looks at it from an economist's view, and your take is from a cost/benefit view.

Both valid, obviously.

My industry has a long-established theory, as well, first promulgated by Dr Solomon S. Huebner, in 1927. It's called the Human Life Value approach. The premise of HLV is that

a person who works has capitalized earning capacity over his or her lifetime. Therefore, although everyone is unique and irreplaceable, "each human life potentially has an economic value, which is derived from its earning capacity and the financial dependency of other lives on that earning capacity." Human Life Value is the present capitalized value of a person's net future earnings after subtracting self-maintenance costs, income taxes and life insurance premiums being paid.

Source:
http://www.advisortoday.com/archives/2002_january_dulisse.html

This calculation is the basis for most life insurance recommendations (or should be).

April 21, 2005 11:49 AM  
Blogger Henry Stern, LUTCF said...

.
Oh, and one more thing (he says, channeling Columbo):

Don't forget the impact of defensive medicine. How many of these tests are done to avoid -- or at least mitigate -- future litigation?

April 21, 2005 1:57 PM  

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