Health Issues

Dr. Katherine Sauer

Global Economic Issues
ECON 241
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How is health a global economic issue?

The increased movement of goods and people increases the

opportunities for the spread of disease.

Disease, poor health, and malnutrition result in a loss of economic

resources.
- in the location of the problem
- in other locations (migration / trade partners)

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A. Globalization forces have strong implications for health
outcomes.

flow of goods
Food: + access to fresh produce year round
+ access to food in times of shortage/crisis
- may be contaminated during growing, harvesting,
storage, processing, or transport
- many countries have limited capacity to regulate
- diseases like mad cow (bovine spongiform
encephalopathy) and avian flu have serious
implications for the movement of beef and poultry
- junk food issues

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Medicines:
+ access helps successfully treat/prevent/eradicate diseases
- safety issues
- many countries have limited capacity to regulate

Hazardous materials:
- increased exposure or chance of incident

flow of investment

Increased investment in the health sector:

+ improve infrastructure and health facility sophistication
- often new facilities cater to a minority of the population
- internal brain drain: public sector health care providers
move to jobs in the private sector

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flow of people

Travel:
- infectious diseases, which could be contained as a local
epidemic, can become pandemics in just weeks

(epidemic: disease appears as new cases in humans at a rate faster

than expected --- pandemic: epidemic that spreads across large
regions or worldwide)

Migration
- illegal migrants are not covered by health services
- more vulnerable to disease
- source for spreading disease

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 - brain drain movement of qualified health professionals
from developing to developed nations

World Health Organization

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World Health Organization

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impact of ICTs

+ health sector has benefited from access to ICTs especially

the internet/email
+ telehealth and telemedicine are now possible
- internet sales of pharmaceuticals have raised safety issues

B. The World Health Organization

objective = attainment by all peoples of the highest possible
level of health
health: state of complete physical, mental, and social
well-being

193 member countries

founded April 7th , 1948 8

WHO has three broad targets
1. the Millennium Development Goals
- target poverty linked diseases
- maternal/child health care
- HIV/AIDS, TB, malaria

2. chronic diseases
- cardiovascular and metabolic
- cancers
- injuries
- neurological and psychological disorders

3. health crises
- epidemics
- natural disasters
- conflict
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Global spending on health has reached $4.1 trillion.
- majority is spent in developed nations

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UC Atlas of Global inequality ---- 2000 data
WHO estimates that there is a shortage of 4.3 million
doctors, nurses, midwives and other health professionals.

The shortage is most severe in sub-Saharan Africa.

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C. Spread of infectious diseases

4 modes of disease transmission

- airborne
- waterborne
- direct contact
- vector

Infectious diseases have been with us throughout history.

Originally, diseases spread along trade routes.

2nd century: measles spread between Rome and Asia
3rd century: smallpox spread along trade routes
13th /14th centuries: Mongol horseman carried fleas infected
with Bubonic plague from Burma to
Eastern Europe --- rats spread it
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15th century: smallpox, measles, typhus, and more were carried to
America from Europe
- also, the slave trade was begun and malaria and
yellow fever were brought to Europe from Africa

Today: an infected person can carry a disease to any point in the

world in less than 36 hours
- people can travel faster than the incubation period
for many diseases

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D. Economic consequences of an epidemic

There are both direct and indirect costs.

- spending on treatment and prevention
- increased sick time
- decreases productivity
- decreases income (which also decreases the tax base
and can reduce the funds that a
government has available for spending
on health)
- increases mortality
- smaller labor force
- smaller skilled population
- loss of international investment and tourism
- slower economic growth

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 The effect of disease in the labor market. An epidemic can
SL2 reduce the supply
real of labor. (SL2)
wage SL
With fewer
wagea people
wage1 demanding goods
wageb and services, the
demand for labor
decreases.

DLa
DL The real wage
DLb may be higher or
lower as a result.
QLb QLa QL1 Quantity of Labor
The quantity of
labor is lower.15
If an epidemic occurs, what is the true cost to society?

The traditional approach is to estimate the cost of illness (COI).

COI = prevalence x per-illness cost

prevalence: fraction of the population that is currently

infected

per-illness cost: treatment cost and foregone earnings

But this method neglects the cost of disease avoidance behaviors.

- we spend time and money avoiding a disease

Alternative: treat diseases like a tax

- taxes reduce your income (treatment, forgone wages)
- taxes cause avoidance behavior and a welfare loss 16
E. Three Global Diseases

Malaria

Malaria is a life threatening but curable disease that is transmitted

by mosquitoes.
- one cell parasite called plasmodium

Symptoms occur 9 to 14 days after a bite.

- fever, headache, flu-like

If not treated, it rapidly progresses to life threatening.

It can be prevented.
- spraying pesticides
- treated mosquito nets over beds
- medication 17
40% of the worlds
population is at risk of
contracting malaria.

300 500 million people are

infected annually.
- mostly in warm,
damp climates

1 3 million people die each

year.
- 85 90% in
sub-Saharan Africa
- one death every
30 seconds

Countries with a heavy 18

burden have 5x lower GDP.
Tuberculosis (TB)

TB is a curable disease which usually results in lung problems.

It is transmitted through the air, like a common cold.

Globally, one person is infected every second.

1/3 of the worlds population is infected with TB.

- in most cases, TB lies dormant and becomes active
if the immune system is weakened

Only people who are sick are contagious.

- an untreated person with TB will infect on average 10 to
15 people per year

5 10% of people infected with TB will become sick (without 19

HIV)
In 2005, 1.6 million people died from TB.
- highest proportion in Africa

TB can be treated with antibiotics.

50 years ago, there were no treatments for TB.

Today, there are new drug-resistant strains of TB (MDR TB
and XDR TB).
- people dont finish medications
- wrong treatments were prescribed

On average, an adult with TB loses 3 4 months from work.

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HIV/AIDS

AIDS first appeared in a CDC weekly report in 1981.

- caused by human retroviruses HIV-1 and HIV-2

HIV is spread by sexual contact, contact with blood/blood

products, other bodily fluids, and between mothers and infants.

It is an incurable disease which damages the immune system.

Globally, HIV/AIDS is a pandemic

- 40 million HIV cases worldwide
- 45% women
- 25.4 million people in sub-Saharan Africa
- about 1 million cases in US (half million died)
- since 1981, 25 million people have died
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 Estimated number of people living with HIV globally,
19862006

50
Million

40

Number 30
of people
living 20
with HIV
10

0
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Year

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When treated with anti-retroviral medication, life can be prolonged.
- medications are often expensive and are not always available

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F. Pharmaceuticals

Industry Basics

Global Sales:

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Global Sales by Region (2007)

The industry has a long and costly R&D process.

- On average, it takes 10 15 years and $800 million to
$1.2billion to develop one new drug.
- One out of every 10,000 potential medicines becomes
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an FDA approved drug.
Process:
1. drug discovery
- screen / engineer thousands of compounds
2. pre-clinical tests
- lab/animal tests (3-6 years, 250 compounds enter)
3. Investigational New Drug application filed with FDA
4. clinical trials
- humans (5 compounds enter)
5. New Drug Application
- 100,000 pages (1 compound)
6. FDA review/approval
- 10-15% of applications rejected
- 16.9 months to review
7. on-going studies

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Once a new drug has been approved, the actual production
costs tend to be low.

High R&D costs coupled with low production costs means that
patents are extremely important in the industry.

Patents
Pharmaceutical firms rely on patents to protect their large
investments in R&D.

patent: exclusive rights granted by a government to an

inventor/assignee for a fixed period of time in exchange for
public disclosure of the details of the invention
- right to exclude/prevent others from making, using,
selling, or importing
- lasts for 20 years from filing date
- once expired, any firm can manufacture/sell the 27
generic version of the drug
Rationale for patents:

1. disclosure --- the details go into the public domain

2. incentive undertake costly R&D --- patent grants monopoly

rights so firms can re-coup expenses
- three phases: R&D (costs)
patent protected sales (revenue)
generic competition (small profit margin)

3. productization investment --- many industries have high fixed

costs and low production cost. If copies can be made cheaply,
there is less incentive to commercialize the product.

4. design around efforts --- patents encourage other firms to

develop work arounds to existing patents (improvements and
alternatives are invented) 28
 Why pharmaceuticals sell for different prices in different
countries:

US Mexico

price price

P*

P*
MC MC

MR D MR D

Q* quantity Q* quantity

1. differences in demand (income, preferences, insurance)

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2. many governments control the price of pharmaceuticals

Developing Nation Issues

Millions of people are suffering from diseases that can be treated

with existing medications. Some are on patent, many are not.

Africa (53 nations)

TB: 11 drugs available; off-patent in 94% of countries
Malaria: 13 drugs available; off-patent in 94% of countries
HIV/AIDS: 15 available; on average only 4 on patent

On WHOs list of essential drugs, 95% are off-patent.

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The main reason that medications arent in the hands of those in
need is not due to patent protection/high prices but from poor (or
lacking) infrastructure.
- poor/non-existent local health systems
- too few medical professionals
- storage/distribution problems (meds are stolen or spoiled)
- poor roads/transportation

Also, many developing nation diseases arent profitable for firms

to invest R&D in, but
- there has been a movement by many firms toward
corporate citizenship.
-Merck: billions of free drugs to cure river blindness
-Pfizer: free/discounted drugs to S. Africa
-GSK: developing treatment for drug-resistant
malaria
- public-private cooperation has also been increasing 31