Rewarding Research

The value to cancer patients of new treatment and detection techniques that allow them to live longer has been far greater than the money invested in finding those cures.

The war on cancer in the United States formally began with the passage of the National Cancer Act in 1971 under President Richard Nixon. The idea was that devoting billions of dollars to cancer research and development (R&D) would ultimately lead to finding a cure for this devastating disease. There has been tremendous progress since then. Scientists have identified many of the genes responsible for cancer, discovered new chemotherapeutic and biologic approaches to treatment, and developed new imaging techniques to detect cancer earlier. Along with these scientific advances, public health campaigns have led to improved screening and earlier detection.

Moreover, the five-year survival rate for all cancers diagnosed between 1996 and 2003 increased to 66 percent from 50 percent in the mid 1970s, according to the American Cancer Society. Improvements in survival have been particularly dramatic for breast cancer, colon cancer, and non-Hodgkin's lymphoma, all of which have benefited from advances in treatment, screening, or both.

Critics, however, are unconvinced and feel that too much money has been poured into cancer research with unimpressive results. They say that whatever progress has been made is due to the development of very expensive treatments that only marginally prolong life. Moreover, critics argue that too much effort has been given to developing costly treatments at the expense of focusing on prevention and early detection. "There is a concern that the war on cancer is not being won," says Eric C. Sun, PhD '06, MD '10.

To get to the bottom of this debate, Sun and his coauthors, University of Chicago professor Tomas J. Philipson; Darius N. Lakdawalla and Dana P. Goldman of the University of Southern California; Anupam B. Jena of the Massachusetts General Hospital; and Carolina M. Reyes of Genentech, Inc., take a closer look at whether the billions of dollars that have been spent on cancer research have paid off.

The study titled "An Economic Evaluation of the War on Cancer" evaluates the costs and benefits of cancer R&D that began with the war on cancer in the 1970s. Cancer research can affect survival through three mechanisms. First, technological advances or efforts to increase screening can detect a malignant disease at earlier stages. Second, therapeutic advances can improve survival, even for late-stage cancer. Third, the development of vaccines and new screening tests to identify a pre-malignant disease can help prevent cancer. In this study, the authors count only the benefits that accrue to individuals who acquire cancer.

The authors find that between 1988 and 2000, improvements in cancer survival created 23 million additional years of life and $1.9 trillion of additional social value. Compared to an estimated $300 billion in R&D spending, this suggests that cancer research has led to very large gains relative to the costs incurred in their pursuit. While some cancers have experienced larger reductions in morbidity and mortality than others, today's cancer patients can expect to live longer and healthier lives than their counterparts from earlier decades.

Cancer care providers—drug companies, hospitals, doctors, and health professionals—earned at most about $400 billion in profits. Thus, most of the social surplus generated from cancer R&D went to cancer patients themselves. Policy makers and the public would no doubt be disappointed by a research program that only benefited firms. "At the end of the day it is a story about cancer patients," says Sun. "They are the real beneficiaries because they are living longer."

Valuing the Gains in Survival

The study assesses the impact of cancer R&D spending from 1971 to 2000, but only the benefits that accrue from 1988 to 2000 are taken into account. This is partly due to data limitations and also to recognize the lags inherent in the medical R&D cycle. Drug development typically takes 10 to 15 years from inception to launch. As a result, the authors' calculation of the social surplus from cancer R&D is likely to be conservative because spending on cancer research in the late 1990s is included even though much of its benefits have not yet been realized.

The authors find that overall life expectancy increased by 3.9 years between 1988 and 2000 for all cancers combined. Among the individual cancers studied there were sizeable increases in life expectancy for breast cancer, colorectal cancer, and non-Hodgkin's lymphoma, and more modest gains were noted for lung cancer and pancreatic cancer. This improvement was mainly driven by large improvements in life expectancy for early-stage cancer patients. During this period, the probability of detecting cancer at an early stage increased for breast cancer, colorectal cancer, and non- Hodgkin's lymphoma, but it changed little for lung cancer and pancreatic cancer.

To effectively compare the costs and benefits of cancer R&D spending, the authors must first estimate the value to patients of the survival gains observed above. To do this, the authors calculate how much a cancer patient in a particular year would be willing to pay to avoid the less favorable survival prospects of 1988. In other words, how much is a patient willing to pay for new treatment and detection procedures that would improve his or her chances of surviving cancer?

The authors' estimates suggest that survival gains between 1988 and 2000 were of tremendous value to individuals with cancer. For all cancers combined, a patient whose disease began in 2000 was willing to pay about $293,319 to avoid the less favorable survival probabilities of 1988. This implies that a year of life is worth roughly $75,210. The implied economic value of a year of life is calculated by dividing the willingness to pay for improved survival by the observed increase in life expectancy of 3.9 years.

Lung cancer, non-Hodgkin's lymphoma, and pancreatic cancer patients were willing to pay the most for better survival prospects. This is not surprising for non-Hodgkin's lymphoma patients since cancer R&D has allowed them to live 3.5 more years. However, pancreatic cancer patients were willing to pay more even though their probability of surviving improved by only less than a year.

This makes sense, according to previous research by Philipson and Chicago Booth professors Gary Becker and Kevin Murphy. A person who is about to die and who is not planning to leave a bequest might be willing to pay everything he or she has to live even just a week longer. Because the value of wealth at death is close to zero, the willingness to pay for even small improvements in longevity may be large at the end of life. In fact, this may be one explanation for the emergence of expensive biologic treatments for cancer, which increase life expectancy quite modestly and yet still face high demand.

The study also shows that individuals who got cancer in 2000 would be willing to pay a significant fraction of their income—nearly 57 percent—in order to avoid the less favorable technologies of 1988, particularly among wealthy patients. Even those in the bottom 10 percent of the income distribution would be willing to pay around 40 percent of their income in order to take advantage of the latest treatment and detection methods generated by cancer R&D.

These results suggest that health or improved longevity is somewhat of a "luxury good" in the sense that patients with higher incomes are willing to pay a larger share of their earnings to live longer. Wealthy people would rather spread their enjoyment of consumption and leisure over many years by "buying" longevity rather than purchasing yet another car or home.

Since improvements in cancer survival may be driven by advances in both treatment and detection, the authors also separate these benefits into the portion that is due to treatment and the part that is due to detection. Advances in treatment, such as the development of new chemotherapeutic regimens or surgical techniques, improve survival by delaying the progression of the disease or eliminating it outright. The development of new detection techniques and public health efforts to increase screening, on the other hand, improve survival by allowing more patients to be diagnosed and treated earlier.

The authors find that the total value of cancer survival gains from 1988 to 2000 was mainly due to advances in treatment rather than detection. For all cancers combined, more than 90 percent of this value was driven by the willingness to pay for the latest cancer therapies. Improved treatment technologies have been particularly important in the case of non-Hodgkin's lymphoma and pancreatic cancer. For breast cancer and colorectal cancer, advances in early cancer detection have also played a significant role, but better treatment is still the primary reason why these patients are living longer.

The Rate of Return to the War on Cancer

To compute the total benefit generated from cancer R&D from 1988 to 2000, the authors take the value of survival gains—minus the increase in cost of cancer care—for all patients and add that to the profits earned by cancer care providers, such as hospitals and pharmaceutical companies, for each year. In other words, the total benefit from cancer research is the sum of the consumer and producer surpluses.

Combining across all years, the study finds that cancer patients have gained a consumer surplus of roughly $1.9 trillion. The authors estimate producer surplus to be anywhere between $98 billion and $393 billion. Thus, even with the most generous assumptions, the profits that accrue to hospitals and drug companies are small relative to the gains experienced by cancer patients.

The authors then deduct the amount of money spent on cancer R&D from the producer and consumer surpluses to find the bottom line—the return to society of investing in cancer research. Assuming that the total value of National Cancer Institute spending between 1971 and 2000 represents 25 percent of all cancer R&D, they estimate that cancer R&D spending was at most $300 billion. Thus, the gains to society far outweigh the money invested in finding new treatment and detection procedures that save and prolong the lives of cancer patients.

The message that cancer patients have benefited enormously from cancer R&D is encouraging, especially as policy makers scrutinize more than ever how to allocate health care dollars. Although the study shows that the war on cancer on the whole has been worthwhile, it is possible that the size of cancer R&D spending has been too large or small on the margin. A high average return does not imply that the additional return generated from an additional dollar spent on cancer R&D is always larger. Since further investments in cancer R&D should be driven by the marginal return to cancer R&D, estimating the marginal return is one important area for future research.