Health Issues

Dr. Katherine Sauer Global Economic Issues ECON 241

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)


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

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

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


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

World Health Organization


World Health Organization


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

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

Global spending on health has reached $4.1 trillion. - majority is spent in developed nations

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.

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

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


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

The effect of disease in the labor market.
real wage wagea wage1 wageb


An epidemic can reduce the supply of labor. (SL2) With fewer people demanding goods and services, the demand for labor decreases.



The real wage may be higher or lower as a result. The quantity of labor is lower.15



QL1 Quantity of Labor

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


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


40% of the world’s 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 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 world’s 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 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 don’t finish medications - wrong treatments were prescribed On average, an adult with TB loses 3 – 4 months from work.


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

Estimated number of people living with HIV globally, 1986–2006
50 40

Number 30 of people living 20 with HIV
10 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Year



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


F. Pharmaceuticals Industry Basics Global Sales:


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 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


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 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)


Why pharmaceuticals sell for different prices in different countries: US price price Mexico

P* P*


MC MR D quantity

D quantity

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

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 WHO’s list of essential drugs, 95% are off-patent.

The main reason that medications aren’t 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 aren’t 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

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