July 10, 2023

Economic questions raised by Alzheimer's disease

Corina Mommaerts discusses what economists can do to help policymakers address issues surrounding Alzheimer’s disease.

Source: TeroVesalainen

The costs of Alzheimer’s disease are significant. In 2021, it affected nearly 6 million Americans and accounted for an estimated 8 percent of total US health-care spending—about as much as cancer and heart disease combined. And those numbers are only expected to increase as the population ages.

In a paper in the Journal of Economic Literature, authors Amitabh Chandra, Courtney Coile, and Corina Mommaerts explain how economists can help provide insights into the numerous policy issues that Alzheimer’s disease raises. However, Mommaerts says that the disease also challenges core assumptions in the standard economics tool kit.

She recently spoke with Tyler Smith about cognitive constraints, incentives for providers, and encouraging more innovative treatments for Alzheimer’s disease.

The edited highlights of that conversation are below, and the full interview can be heard using the podcast player.


Tyler Smith: What prompted you to start asking what economists can say about Alzheimer's disease?

Corina Mommaerts: We had a couple of different motivations for why we got interested in writing this paper. The first one is just numbers. We spend hundreds of billions of dollars on Alzheimer's disease every year, both in direct health-care costs, and also in long-term care costs. And that's only part of the cost. There are lots of hidden costs that are related to informal, unpaid caregiving. We also don't have very good treatments for Alzheimer's disease. In fact, we don't even understand the basic science behind the disease very well, the way we understand other diseases. I think the social value for understanding the disease, better innovation, figuring out how we can provide better and cheaper care to people in current and future generations is enormous.

The second motivation is that we were noticing that there are a lot of fundamental economic questions that Alzheimer's disease highlights. We wanted to highlight those ideas for other people. Alzheimer's disease is a highly complex disease from a public policy perspective. And we think that economists have a tool kit that can provide insights, but also Alzheimer's disease challenges that standard tool kit.

Smith: Can you highlight some of the salient problems that arise whenever you have a consumer who has some cognitive impairment trying to make decisions on markets that are already pretty complicated to begin with?

Mommaerts: In terms of Alzheimer's disease, you might typically think there are health-care issues that arise. But there are also going to be long-term care issues. Do you need to go into a nursing home? And then there are financial decisions that everybody makes over their lifetime that are also going to be affected by Alzheimer's disease. 

In thinking about how to make financial decisions, there are lots of products that individuals are trying to choose as they retire. It's often complex even for people who have full cognitive capacity. Economists could be thinking about how to design products that are not as cognitively difficult. For example, maybe we should be buying more annuities. In terms of Alzheimer's disease, the nice benefit of it is you've made a decision about how your money should be spent or given to you earlier in life before Alzheimer's disease might kick in. You're not faced with these choices much later in life. 

Smith: It seems like if you are going to rely on markets and the private sector, a really important role for economists is making sure that incentives are lined up properly because you've got somebody who's not necessarily looking out for their own best interests. Do you see some areas that need more research from economists on aligning these incentives in the private-care sector?

Mommaerts: There are lots of questions related to provider incentives in providing care, especially to people who cannot necessarily advocate for themselves. For example, there's research that shows that nursing homes are sometimes selective in who they want to be in their nursing home. Individuals who are Medicaid funded are not going to provide as much bang for the buck to the nursing home. So they're less likely to want to accept a Medicaid patient. But if they do accept a Medicaid patient, there are ways that they can try to extract more money from them by sending them to a hospital for some reason. And then they can get other funding through the Medicare system, which pays more, before they go back to Medicaid funding. Those are some of the ways that providers play some games to try to extract more money from the system.

In thinking about how to make financial decisions, there are lots of products that individuals are trying to choose as they retire. It's often complex even for people who have full cognitive capacity. Economists could be thinking about how to design products that are not as cognitively difficult.

Corina Mommaerts

Smith: There is a lot of hope that we will be able to treat Alzheimer's disease, whether through new pharmaceuticals or behavioral interventions. But it sounds like we're not really close yet. Do you think there's much scope for economists to encourage more innovation in this area?

Mommaerts: Definitely. Economists are very good at understanding incentives, and there's been a lot of great work done recently on the economics of innovation. Alzheimer's disease is a classic example of this in a couple of ways.

For example, how long the patent period should be is a very important and very complex question. The reason is we don't necessarily want it to be very long because that means that the cost of that drug to consumers that are purchasing it today is very high. You also don't necessarily want it to be too short of a patent period because then it might not be worth it to pharmaceutical companies to invest in up-front research and development for the off chance that they then develop a successful drug. 

In terms of how this relates to Alzheimer's disease, there's an interesting feature of the patent system in that the patent life, which is often 20 years, starts before you've actually shown it to be efficacious and safe—so that 20 years starts ticking relatively early. For drugs that you can show are safe and effective quickly, you can start selling them quickly. With Alzheimer's disease—and other long-term degenerative diseases—it takes a very long time to prove that they work. It can take many years. That eats away at the patent life of these drugs. Some people think that there aren't enough incentives to develop drugs for Alzheimer's disease for those types of reasons. So those are the trade-offs that we're thinking about when we're thinking about the economics of innovation for Alzheimer's disease.

Smith: What advice do you have for graduate students who might be interested in pursuing academic research on Alzheimer's disease?

Mommaerts: I wouldn't necessarily just focus on Alzheimer's disease itself. I think what we're trying to show in this paper is that the core concepts of economics—incentive structures, trade-offs, cost–benefit—are very alive in this space. Making sure you have a good foundation of economic frameworks and models is the first way to go. Then after that, I think familiarizing yourself with the underlying institutions that are important for Alzheimer's disease and the related issues are very important. So understanding provider incentives and how people make decisions. If you're interested in innovation, try to understand how patents work. There's a lot of law and economics here on the innovation side of things. Get the foundation and then go deeper into the area of interest to you.

What Can Economics Say about Alzheimer's Disease?” appears in the June 2023 issue of the Journal of Economic Literature. Music in the audio is by Podington Bear.