Thursday, April 9, 2009

Pricing Human Life

The New York Times ran an article last month entitled "Pricing Human Life," which uses pricing models and economics to explain the functioning of the nation's health system. This article is part of an interesting column called Economix, which is designed to educate people in "the science of everyday life."

I thought I would share as it is another unique example of how pricing principles are applied. The article also gives examples of cost effectiveness modeling in the healthcare industry.
"From an economic perspective, a nation’s health system can be thought of as a giant bazaar that presents the rest of society with a price list for wrestling from nature better health, or longer life, or both, through a variety of medical interventions.

"If one arrayed this price list from low to high, one might end up with a supply curve such as the hypothetical one shown in the graph below. It shows that each additional step toward better health will rise in cost by increasing increments.



Represented on the horizontal axis of this graph are so-called "quality-adjusted life-years," or QALYs.

QALYs are a metric widely used now in cost-effectiveness research. They are meant to adjust for the fact that not all years added to people’s lives are equal. A medical intervention yielding a given number of additional life-years in perfect health makes a greater contribution to human well-being than an intervention that yields the same number of life-years in less-than-perfect health. QALYs are used to adjust for that difference in a patient’s quality of life.

Read the full article here: "Pricing Human Life." Warmly, Eric

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