Health Care Economics

Improving human health at sustainable costs on a global scale requires an understanding not only of medicine and public health, but also of the economic factors and incentives facing doctors, patients, and other participants in health care delivery systems.

A world-renowned team of health economists in MIT’s School of Humanities, Arts, and Social Sciences is dedicated to studying the economic aspects of health care. Their research, which has delivered new estimates of the patient benefits associated with medical procedures, as well as insights on the consequences of expanding health insurance coverage and of altering the patient cost of medical care, has made MIT a global leader in health care economics.

Ford Professor of Economics Amy Finkelstein PhD ’01 has pioneered the use of randomized controlled trials (RCTs) in studying health care delivery systems. RCTs are the gold standard of research in medicine and many natural sciences, but in the realm of health care policy, RCTs have been rare. This is now changing with Finkelstein’s leadership. Her recent research in Oregon is an example. When the budget-strapped state of Oregon announced a lottery to assign Medicaid coverage to a fraction of a potentially eligible population, the state created, unintentionally, the condition for a randomized controlled trial: two statistically equivalent groups. Recognizing immediately the opportunity to apply an RCT to a series of vital and contested Medicaid policy questions, Finkelstein led a team of researchers on the Oregon Health Insurance Experiment. Their findings have provided compelling evidence on how Medicaid affects health, health care use, and financial well being. One key discovery is that Medicaid coverage effectively eliminates the prospect that a person will experience catastrophic financial losses as a result of a health condition.

To further support the use of RCTs in health economics, and to provide rigorous evidence that can be used to improve health care delivery, Finkelstein and her colleagues in J-PAL North America (a research branch of the Abdul Latif Jameel Poverty Action Lab at MIT) have also launched the US Health Care Delivery Initiative. This effort builds partnerships between leading scholars, policy makers, and practitioners to generate policy-relevant research and to support evidence-informed policymaking.

Jonathan Gruber ’87, the Ford Professor of Economics, and another member of MIT’s distinguished health economics team, has studied the extent of health insurance coverage in the United States, and the interaction between private and public insurance. Gruber was a key adviser in designing the Massachusetts Health Care Reform Plan, and also consulted on the US Affordable Care Act (ACA). Gruber’s current research explores how consumers select insurance policies under the Medicare Part D program, which provides prescription drug insurance. In addition, he is studying how insurance markets have responded to the enactment of the ACA.

Assistant professor Nikhil Agarwal, who also has strong ties to health economics, studies economic aspects of the treatment for end-stage renal disease. Agarwal is exploring the factors that are contributing to the rising expense of dialysis, a common therapy for this disease, while also investigating ways to improve matching in the kidney donation market.

Professor Jeffrey Harris, who is both an MD and a PhD economist, explores smoking-related health issues, and the links between public policies that bear on tobacco use and population health outcomes. In addition to his MIT research, Harris serves as an internist at federally sponsored community health centers.

Heidi Williams, the Class of 1957 Career Development Assistant Professor of Economics and a recent recipient of a MacArthur Fellowship, is another core member of MIT’s health economics team. Williams has analyzed the economic forces that influence investment in cancer drug development, and has revealed a pattern of underinvestment by pharmaceutical firms in research for drugs to prevent cancer and to treat early stage cancers.

Her analysis suggests that pharmaceutical companies receive longer effective patent protection on drugs that can move quickly through clinical trials than on those with longer expected testing durations. As a result, these firms tilt their R&D spending toward quick-to-approve products, which often target very ill patients, rather than investing in slow-to-approve products that could help to prevent particular cancers. Williams, who is an expert on innovation and intellectual property issues, has proposed several policy reforms—such as using the effective date of new patents as the date of drug approval rather than discovery—that could reverse these incentives and help catalyze research on drugs for early-stage cancers, when the disease is easiest to treat, and for cancer prevention.

These MIT faculty members, along with their students, are undertaking sustained, fundamental research on health economics, with the goal of delivering new insights for policy and practices that will improve patient outcomes while also helping to control health care costs.