Tuesday, December 14, 2010

Health economics –unnecessary treatment and economic costs of illness... and goodbye

This blog has been quiet lately.  The evidence is mounting in support of much of my earlier analysis of Australia’s housing market, while the Government attempts one more manoeuvre to bolster the market.  The supreme risks to the market are no longer a secret, and our chronic supply shortage has been receiving far less airtime.  There is very little for me to add to the current discussions.

One reason for the lack of posts is that I am studying for the GAMSAT test that one needs to pass before commencing a graduate degree in medicine.  Yes, my disillusionment with economics has driven me to seek a more useful profession. And despite my rational nature, I will give up quite a deal of income for it.  At least this economist knows that money doesn’t buy happiness.

In this final sign-off post it may be worthwhile taking a look at economic issues surrounding medicine and health care.  This is a burgeoning field, with demand growing for paper shufflers of this particular specialty, and universities eager to fill the void with a qualification.

My core argument in this field has been that increasing preventative health care, while having the benefits of a healthier and long life, often come at increased total lifetime health costs, rather than decreased costs as is often proposed.  Remember, we all die some day, and any potential cause of death postponed will allow another to take its place, which of course has its own health costs.  Alternatively, a more healthy existence may make us more productive for longer and lead to us contributing more in taxes over our lifetime than the potential increase in health costs which were paid through the tax system for our preventative care.

Governments, and subsequently economists, worry about these things because many health care costs are borne by others though tax revenue, yet the net economic effect is anything but straightforward.

In light of these concerns a cottage industry of economic analysis has developed pandering to the interests of particular interest groups involved in medical research.  Each disease these days seems to have a lobby group, and to ensure funding for further research it is necessary to argue in terms of economic costs and benefits of a cure or treatment. 

Over at Catallaxy Files there is an interesting take on the abuse of economics and shady use of statistics when consulting firms are asked to produce reports on the economic cost and impact of a particular disease. After prodding around the reports from one firm, the author notes that:

Adding up the estimated economic cost of all these conditions begins to exhaust the GDP, which suggests that the estimates of the economic costs are grossly exaggerated for a number of reasons.  This should not come as any surprise of course since the sole purpose of these studies – they have no academic credibility – is to provide RHETORIC  to bolster the case for the RENT SEEKERS who are attempting to prize out additional taxpayer monies to support their particular activities, worthy though they may be.

One of the real problems with these studies is the double/triple/…  counting associated with these studies as many people have multiple pathologies.  Moreover, the projections of the numbers afflicted by these conditions in the future should be treated with a grain of salt (probably box).

These studies also conflict with the findings of the Productivity Commission in their work undertaken in relation to the National Reform Agenda. In large part because most people with chronic conditions manage to continue their working life, the PC’s estimates of the cost of most chronic conditions (including mental illness) are not especially high.

The interesting work of Eric Crampton at the Canterbury University – great paper delivered at the Mont Pelerin Society – also shows that government studies of the economic costs of alcohol use are grossly exaggerated. There are typically  both conceptual and measurement mistakes.

I have a slight problem comparing the sum of a total cost of over time (total economic cost) with a flow of production in a single time period (GDP), but the general practices of double counting, including a potential undiagnosed population, and taking the extreme assumptions of the diseases impact and applying to every candidate, are intentionally misleading.

This is perhaps one reason why proponents of preventative medical treatments overstate the aggregate benefits to the community and subsequently the reduction in health cost borne by the taxpayer. Another reason preventative health care does not always provide net benefits can be explored at an individual level.

Movember have been a huge promotional success, yet at the heart of the charitable event is a desire to raise awareness of prostate cancer and promote early detection and preventative treatment.  However, this particular cancer is possible one case where the cure is worse than the disease at an individual level.

This article argues the case against early screening for prostate cancer.

They know that prostate cancer is overwhelmingly a disease that kills men late in life. The average age of death for prostate cancer in Australia is 79.8 years, while the average age for all male cancers combined other than prostate cancer is 71.5.

The average age of death for an Australian man is 76 so on average, men who die from prostate cancer actually live longer. In 2007, just 2.8 per cent (83 men) who died from the disease were under 60, and 10 (0.1 per cent) were in their 40s.

The author notes that the unnecessary treatment undertaken by many men as a result of early testing often leads to impotence and occasionally incontinence, when there was a very high probability that they would have died from another cause before the cancer severely impacted their health. 

Medical associations and governments try hard to examine these issues prior to funding and promoting preventive health care.  Where current screening techniques return too many false positives the chances of over treatment are severe. One the other hand, a screening technique returning a high number of false negatives may not be such a concern if the disease develops slowly and screening is recommended periodically.

In all, it seems that the health industry is not immune to manipulative economic analysis and rent seeking behaviour.  I am sure there are positive ways economics have been contributing to debates on public health, yet in the haze of spin it gets very little publicity. 

Thanks to all my readers for contributing ideas and thoughts on this blog in the past few years. 

Merry Christmas.



  1. Thank you Cameron for your informative economic analysis.

    Good luck with GAMSAT and Merry Christmas.


  2. I too thank you Cameron for some thought provoking reads. I am sure you will make a fine caring and committed medico and have no doubt as to your future success.

    I would say that there is somewhat more than a cottage industry of advisors and analysts in the preventative health sphere, more like an army. At some point, if this country is to maintain an adequately functioning universal health system more will come to question the wisdom, both financial and medical, of various forms of intervention.

    Not directly related, but briefly: father 81 diagnosed with NHLymphona, advised 3-5 years to live. Further advised by very pro-active oncology department to undergo aggressive chemo. Outcome, dead at 83, almost constantly seriously unwell for his final two years, many extended periods in hospital and ICU. Suffered terribly. Taxpayer picked up the tab. Who benefitted - certainly not the patient! Nor the taxpayer!

    Good luck in the future and Merry Christmas.


  3. I will dearly miss your blogs. Thanks for sharing your wonderful ideas and opinions on a range of interesting things.

    Good luck on the GAMSAT

    ckm ;-)

  4. dude

    the scam with healthcare is really fundamental - it's about the nature of healthcare as a good, even. Basically what's going down here is that as income goes up, you demand more of it but paradoxically you need less of it.

    So people in sub-saharan africa are more worried about how much grain they can buy given their budget constraint as against dental work - the marginal cost of provisioning healthcare therefore remains massive, because not much dental work gets done so no economies of scale, and the marginal benefit of dental work in a population like that is probably also through the roof.

    At the same time idiots in beverly hills cruise down to the rhinoplasty surgery to give their teenage daughters botox.

    The person who figures out how to make marginal benefit and cost work in tandem as against pull against one another in healthcare provisioning will basically get rid of the sight of plastic faces on TV and also cause a productivity miracle in the poorest parts of the world as their working populations suddenly become healthier and get tons more stuff done.

    Seriously hanging out for this hey.

  5. Cameron - I'm kind of with Stephen - you will see misuse of resources and the public purse, as well as corruption on various scales in every area of endeavour.

    I do thank you for your very honest blogs where you have laid out not just your analysis of the economy, but your very soul into each and every post. It does show, or perhaps more precisely - it shines.

    Cameron, all the best for the future.

  6. Good Luck and Best Wishes in your future studies and career.

  7. thanks cam for many thoughtful and provoking views on a wide range of issues -from cargo bikes to banking. i feel very few young men in their 20's see or even try to understand the life issues as you do and simply accept what is served up to us in 30second news briefs and photo opportunities from spin doctors. well done and good luck - keith

  8. This is the worst post I've read on this blog. Its so bad, I've been coaxed out of lurker-dom. Personally, its terrible news on both the blog and the GAMSAT fronts.

    You'll be sorely missed. Good luck mate.


  9. Thanks for the fantastic blog. Your insights and writing style will be missed. I am sure you have influenced quite a few people (and definitely me) to think about important issues facing our country and our world.

    Hopefully the study and practice of medicine fulfils you - I am sure you will be successful.

    PS - good blogs never die... they just go on hiatus for a while!

  10. I'm sure you'll be better at your chosen career than you were at economics.

    Check out the recent IMF report - Crash extremely unlikely. So 90% of your blog can now officially be deemed less than worthless.... a complete waste of bandwidth......

    Charlimi :)

  11. Thanks for reading everyone. I will say that I have learnt quite a bit from the informative comments as well. I appreciate that.

  12. Thanks for a great blog Cameron. I read often and this is the first time I posted I think. I will really miss your insights and your articles focusing on the most important events of the time. I hope you will still make the odd 'guest appearance. Best wishes for the future.

    Tom Kline
    My Blog - Australian Housing Myths

  13. you will be better off in medicine cameron. this is not your sweet-spot.

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  16. Hi Cameron,
    My friend Angus (from your work) told me about your blog. Very interesting! I'm a medical student at UQ -- good luck to you with GAMSAT etc. Certainly the profession needs as many independent-thinking people as it can get. Though you won't get much encouragement for it.

  17. Best of luck with your efforts to change direction towards medicine.

    Even in medicine economics remains a factor, so no real need to change the title ;-)

    Still post here - whenever you feel like it, on whatever and sure we all shall continue reading.

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