Thursday, March 08, 2007

How much would you pay for another year of life?

Lee Gomes has an article in Wednesday's Wall Street Journal about medical technology ("A Technology Writer Confronts Wizardry In Today's Hospitals" -- subscription required). After being admitted to a hospital for 10 days with pneumonia, Gomes marvels at the latest imaging and lab technology, but notes that the bill for his 10-day stay was $125,000 (not including physicians' fees). And then, he concludes:
...I doubt that I would have declined any of the high-tech wonders I was offered. Who would? And that attitude is a main cause of our soaring health care costs. The decisions that are in our best interest as individual patients, in the aggregate, help push things into crisis. We can't afford the remarkable system we've been smart enough to build.
Study after study has concluded that development and rapid introduction of advanced technologies are the main driver of health care cost growth in the US. Consumers don't face the price of such technology introductions because of insurance, but given the stakes involved, who among us wouldn't want our insurance company to pay any amount more to reduce our risk of dying by even 1 percentage point? The question is, as Gomes implies, how do we reconcile our individual desires to spend anything to increase the odds of saving our own lives, with the real affordability issues that it raises?

Economists have approached this question by sneaking up on people. Rather than asking directly, "how much should Harvard Pilgrim pay to save your life?", they look at how people evaluate risk every day, and then calculate what this implies about how much they "value" their lives. Or put another way, how much they would be willing to pay for this if they could make the assessment in a rational state of mind clear of the medical crisis that they're facing at the time, and they had to pay on their own?

For example, airbags are known to save lives, and there was a time when you would pay extra to have airbags installed in your car. Question is, how much were people willing to pay for airbags that would reduce their risk of serious injury by some known percent? Once you know that, you can make a guess as to how much value they're placing on their own lives.

Sounds dodgy, I know, but it turns out that researchers who've done this across a number of categories have found surprising consistency in peoples' valuations. David Cutler, an economist at Harvard, has done a lot of work in this area. He surveyed a number of studies and found that most value an additional year of life between $75,000 and $150,000.

So, back to the Gomes article. Is $125,000 too much to pay? Looking at his picture in the paper, I'm guessing that he's in his 40's, with many happy years ahead of him. Given the nature of his pneumonia (he was in the hospital for 10 days!), this technology probably reduced his risk of dying or having serious complications by a substantial amount compared to what he would have faced, say, 50 years ago.

Do the math and the conclusion seems obvious: Gomes got a bargain......


Richard Jennings said...

You can access that Wall Street Journal article for free with a netpass from:

This was on CNBC this am

Micky Tripathi said...

excellent, thanks for the tip!

David E. Williams of the Health business blog said...

One downside of the new technology was all the radiation he received from the CTs.