Assessing the Value of America's Investment in Medical Research

Neen Hunt



How does a venture capitalist decide where to invest his money? He compares the potential for return against the risk, and when the return appears to be significant and the risk isn't too great, he invests. As our country makes decisions about its future investment in medical research, it might apply a similar standard. In order to do so, however, policy makers first need to understand how we can best evaluate the return on the investment in medical research. This is the subject of scholarly papers available online at reports/pdf/economicvalue.pdf and soon to be published by the University of Chicago Press in early 2003 in a book entitled, Measuring the Gains fromMedical Research: An Economic Approach, edited by University of Chicago economists Kevin Murphy and Robert Topel. The leading scholars who contributed to the papers report that federal investments in medical and health research provide human and financial benefits to the US economy that dwarf all other forms of government spending. They find that the returns from the national investment in medical research -- both in the past and what is likely to be delivered in the future -- are exceptional and far greater than is appreciated by either policy makers or the public. The new analysis concludes that the economic benefits of medical research are $2.8 trillion a year, far in excess of the current annual investment in medical research.[1]

The formal study was commissioned by the Funding First program of the Mary Woodard Lasker Charitable Trust. The Trust, furthering the legacy of Mrs. Lasker to encourage the federal government to accept its responsibility for insuring human health through the funding of basic and clinical research, is committed to broadening public funding debates by providing scholarly, objective, and fact-based studies focusing on the social, economic, and health benefits of research (see footnote). The Trust is furthering understanding in this area by partnering with the National Institute for Aging at the National Institutes of Health (NIH) to engage economist David Cutler of Harvard University to undertake a study considering, in part, the economics associated with reductions in morbidity.

What is the current state of medical research funding? Presently, the United States invests more than $45 billion annually in medical research from public and private sources. Since 1995, the NIH budget has grown by an astounding 108%, 2 times faster than the overall federal budget. Since 1998, with the initiation of a campaign to double the NIH budget, and with annual increases averaging about $2.9 billion, the NIH has been the beneficiary of the most generous federal budget increases in its history. However, only 1% of the federal budget is spent on medical and health research; and just 19 cents per person/per day is spent on medical and health research from federal sources.[2]

Perhaps business leaders best understand that federal support for basic research can have a massive payback in terms of healthier people who are working longer, new products that generate revenue, and cash. Indeed, conventional analyses offer evidence that medical research supports hundreds of thousands of jobs at universities, academic medical centers, and companies across the country. Each year, biotechnology companies generate billions in sales. Equally impressive are the cost savings of diagnostics and treatment procedures for particular diseases. Studies have concluded that the development of lithium for the treatment of manic depressive illness, for example, results in health cost savings of more than $9 billion annually; that preventing hip fractures in postmenopausal women at risk for osteoporosis saves $333 million annually; and that a 17-year program that invested only $56 million in research on testicular cancer has led to an annual savings of $166 million.[3]

Analysts, however, have made remarkably little effort to quantify the value of medical research in terms of its impact on the length or quality of life -- and there are virtually no studies on how research-related reductions in mortality and morbidity should be translated into dollars and cents. Lasker/Funding First commissioned its study to address this research gap. To be sure, there are complex issues associated with the progress of medical research that are not covered by this study. For example, the study does not address the question of the costs of longevity; nor does it acknowledge that there are ethical considerations that may influence policy decisions about medical research. Many of the ethical and legal issues emerging from recent advances in biomedical research will be examined at a forum sponsored by the Lasker Trust on May 15 and 16, 2003, to be held at the American Association for the Advancement of Science. The forum is cochaired by Donald Kennedy, Editor of Science and former President of Stanford University, and Harold Shapiro, Professor of Economics and former President of Princeton University.

The authors of Measuring the Gains fromMedical Research: An Economic Approach concur that medical research surpasses every other source of rising living standards in our time, and that every sign points in the direction of an equally large payoff in the future. Although not always possible to pin down cause and effect, improvements in health account for almost one half of the actual gain in American living standards in the past 50 years. The economists conclude, specifically, that increases in life expectancy in just the decades of the 1970s and 1980s were worth $57 trillion to Americans -- a figure 6 times larger than the entire output of tangible goods and services in the year 2000. The gains associated with the prevention and treatment of cardiovascular disease alone totaled $31 trillion. Medical research that reduced deaths from cancer by just one fifth would be worth $10 trillion to Americans.[4]

How were these conclusions reached?

First, the economists began by taking note of the fact that life expectancy at birth in 1900 was less than 50 years, while today it is 77 years -- a gain of almost 4 years in life expectancy per year. Second -- and this is their new thinking -- they assigned a value of $160,000 to each year of added life. That figure is the result of rigorous research conducted by many economists asking the same question: How much do Americans value this "product" we call "life"? The answer is based on the value that individuals put on a life when asked how much they are willing to spend when buying health insurance, purchasing smoke detectors, or adding safety devices to their automobiles. Similarly, the answer is determined by calculating the additional compensation employers must provide when recruiting employees for work that is associated with physical risk. Third, the economists asked how much of this increase in life expectancy over the past 20 years could be attributed to medical research. Conservatively, and again, using a variety of studies to make this determination, they estimated it to be about 30%.

Using these conclusions and applying the math, economists now estimate that medical research is an investment with a return that should be measured in the trillions rather than billions of dollars. More specifically, they conclude that the historical gains from increased longevity have been on the order of $2.8 trillion annually from 1970 to 1990. When these numbers are compared against the amounts the federal government has invested annually in medical research over that same period of time, the conclusion is that the multiplier that many policy analysts have been using for the past 40 years to justify the federal investment grossly underestimates the real return.[1] Though critics might point out that there are costs to medical research and its progress that are not accounted for in this analysis, the fact remains that the return on investment would still be considerable even if it was reduced by half of the authors' claim.

Looking forward, we know from knowledgeable scientists that the likely benefits from medical research -- ie, reduced suffering and extended life -- will be even greater than those achieved over the past 20 years.[5] Although the momentum for breakthroughs spurred by this new age of science and increasing levels of funding for the NIH bode well for the immediate future, they do not ensure continuing support in the years ahead. Mary Lasker led the national effort for government funding for medical research for 50 years. She never wavered in her conviction that it is the responsibility of the federal government to protect human health. This lesson in persistence must not be forgotten.

The 6 papers that comprise this report were not previously published in professional journals. They were presented and reviewed by a gathering of economists, budget analysts, policy makers, and scientists at a conference in Washington DC in December 2001.