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JAMESTHORNTONEconomics professor

a&qcasenotes: Was there a particular teacher who influencedyour decision to become an economist? Thornton: Professor Peter Danner at Marquette taughtme that economics is a way of thinking about what moti-vates, guides and organizes human behavior. He showedme that by mastering a small set of economic concepts,such as scarcity, opportunity cost, rational choice andeconomic incentives, I could better understand why peo-ple behave the way they do in a wide variety of social sit-uations, not just commercial interactions. I was intriguedby the way Professor Danner applied the tools of eco-nomic analysis to problems such as criminal behavior,discrimination, and even the choice of whether to attendor skip his class. After completing his class in my secondsemester junior year, I changed my major from psycholo-gy to economics. My only regret is that I didn’t also com-plete my psychology major.

casenotes: Everyone is worried about the rising cost of healthcare. Are increases inevitable, or can they be contained? Thornton: It is true that share of gross domestic prod-uct (GDP) devoted to health care keeps growing. Thisyear we will spend about $2 trillion on medical care,which is about 15 percent of the GDP. From an economicpoint of view, additional spending on any good or service,such as personal computers, automobiles, education orhealth care, is desirable if it brings net benefits to society.The problem is that much of the medical care we con-sume involves waste and inefficiency, what you might calllow-benefit, high-cost care. For example, the governmentestimates that almost half of antibiotic prescriptions aremedically unnecessary and written for the treatment ofviral conditions for which they have no positive effect onhealth. There are other factors that appear to be drivingthe increase, such as income growth and the aging of thepopulation. The single most important factor, though, istechnological change. I think a better approach would beto give more carefully consideration to health benefits andcosts through greater use of government-sponsored tech-nology assessment and cost-effectiveness analysis.

casenotes: Why are prescription drugs generally so muchcheaper in Canada?Thornton: The main reason is that the Canadiangovernment regulates drug prices, while in the U.S. wedon’t. Clearly, the easiest way to stop drug prices fromrising is to make price increases illegal, but this couldresult in shortages and other unintended outcomes thatare worse than paying higher prices. My own prefer-ence would be to promote greater price competition inthe market for pharmaceuticals. One way to do this isto provide patients and third-party payers with informa-tion about the cost-effectiveness of alternative drugs sothey can make more informed drug choices.

casenotes: Is it still economically feasible for a doctor tobe a solo practitioner? Thornton: For a typical physician the answer is no.Increased competition and rising medical practiceexpenses have given doctors an incentive to formgroup practices to lower costs and provide a wider mixof services to better compete in the current environ-ment. I believe the biggest incentive doctors have tojoin a group practice involves the managed care revolu-

Jim Thornton is a widely published pro-fessor of economics with a special interest inhealth issues. He joined EMU’s faculty in 1991,the same year he was awarded his Ph.D. ineconomics from the University of Oregon inEugene, Oreg. Professor Thornton’s under-graduate and master of art degrees are fromMarquette University in Milwaukee, Wisc. Hetaught economics at Valparaiso University inValparaiso, Ind., for six years before com-mencing his doctoral work. Dr. Thornton is anavid runner who averages about eight milesper day.

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tion, which started in the 1990s. Today, more than 90percent of physicians have contracts with managed-carehealth plans. Group practices have greater marketpower and are better able to negotiate favorable con-tracts and market their services to managed care organ-izations, which I think provides a strong economic incen-tive not to practice solo.

casenotes: Is it true that fear of being sued for malpracticeis what motivates physicians to order so many medicaltests? Thornton: It’s called “defensive medicine” when a doctorrecommends unnecessary medical care services to mini-mize the likelihood of a successful malpractice lawsuit. Tounderstand the problem I have with the defensive medi-cine argument, consider the following scenario: Supposemy doctor, who belongs to a group practice that owns amagnetic-resonance imaging machine, recommends that Ihave an MRI to help diagnose my condition. When I ask ifthis diagnostic procedure is really necessary (which I prob-ably won’t if insurance pays for it), he responds that itprobably isn’t but he needs to protect himself against mal-practice liability risk. However, he also has a financialincentive to recommend the MRI because he makesmoney. So is my doctor’s motive to reduce the chance of alawsuit, make money or both? I believe that many types ofmedical tests fit this scenario.

casenotes: Why are there so many TV commercials now forprescription drugs, especially for erectile dysfunction pills? Thornton: Recent study estimates that for each dollarspent on advertising directly to consumers rather than doc-tors, pharmaceutical companies get an additional $4.20 in

sales, which is a pretty good return on investment. TheFood and Drug Administration helped to make this profit-maximizing strategy feasible when it relaxed restrictions onthis kind of advertising in 1997. In most other countries,it’s still prohibited. From a social welfare perspective, Ithink the important question is, “As a nation, are we betteroff or worse off because of it?” If advertising provides infor-mation to consumers about health conditions and treat-ments, and makes them more educated patients, then thesocial benefits might be worth the $3 billion per year beingspent. However, if this sort of advertising simply creates ademand for unnecessary treatment, increases drug prices,and takes money away from the development of new, ben-eficial drugs, then as a nation we are clearly worse off. Mypreference would be to spend this $3 billion on publichealth ads that inform people about the benefits of makinghealthy lifestyle choices like diet, exercise and smokingcessation.

casenotes: You’re just back from a full-year sabbatical; tellus a little about your research project? Thornton: My research project addressed the ques-tion, “Is increased spending on medical care worth it?”I developed and estimated an econometric model ofpopulation health outcomes using annual state leveldata for the period 1983 to 2000, which I collected froma variety of sources. My results suggest that develop-ment of new medical technologies explains much of thedecline in death rates over the past several decades. Iconcluded that spending more money to develop newand better medical technologies may well be worth it,but spending more to increase intensity of services fromexisting technology isn’t, at least in terms of mortalityand life expectancy.

casenotes: What’s the market like for those graduatingwith a master’s degree in economics? What kind ofinteresting jobs are EMU students getting? Thornton: The market for [master of arts students] ineconomics seems to be quite favorable. In our MA pro-gram, we teach students how to model and analyze dataand use their results to draw conclusions and makedecisions. In today’s world of data-based decision-mak-ing, these sorts of skills are very marketable. Studentswith an MA from our program have landed jobs as finan-cial, health care, industry, market, policy, research anddata base analysts; international, labor, and businesseconomists; foreign exchange dealers, and variousmanagement positions.

casenotes: Every lawyer knows a good lawyer joke,what’s your favorite economist joke? Thornton: A doctor tells a woman she has six monthsto live, and advises her to marry an economist. Thewoman asks, “Will this cure my illness?” The doctoranswers, “No, but six months will seem to last forever.”

“ My preference would be tospend this $3 billion onpublic health ads ....”[ ]