Sunday, June 28, 2009

Smartest man at Chicago

Great interview of Kevin Murphy, the smartest person I met at Chicago (and that's saying something). Every time I listen to him, I learn something new. Latest learning (re: healthcare):
What really does matter is the cost of treatment. If treatment costs are $10 trillion, the project has a negative net present value even if the research is free. With $2 trillion in treatment costs, the net gain from success is $3 trillion, so that we would get a good return even if the probability of success was one in 30. So when you think about research, it’s not the dollars you spend that matter—what matters is the cost of implementing the treatment that might be discovered. The downside to research is not failure, but unaffordable success.

I think the following message comes out of that exercise: Cost containment and health progress are complementary. That is, if we can control costs, that makes research a much more attractive option.

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