Externalities in Infectious
Disease
Ramanan Laxminarayan
Resources for the Future
Overview
• Common theme – externalities
– Across sub-populations
– Across institutions
– Across national borders
• Antibiotic resistant hospital infections
• Antimalarial resistance
2
3
Estimated MRSA-related hospitalization rate*,
1999–2005 United States
MRSA-related hospitalizations per 1,000 hospitalizations
10
9
8
7
6
5
4
3
2
1
0
1999
2000
2001
2002
2003
2004
2005
Klein, Smith, Laxminarayan, Emerg Infect Dis, Dec 2007
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Hospital Incentives
• Antibiotics are a
substitute for infection
control
• Antibiotics are billable
to payers (unlike
infection control)
• Hospitals may actually
benefit from longer
stays
9
Who pays for these infections?
• Medicare/Medicaid bear greatest
burden of additional cost
• 76% of 11,668 HAIs in 2004 billed to
federal Medicare ($1 billion cost)
• Rest to Medicaid ($372 million cost)
• $20 billion burden on Medicare
nationwide
10
11
Is the scale of the problem, the
hospital?
• Hospitals are “sources”
for colonization with
resistant pathogens
• Health facilities often
“share” patients (humans
are the vector)
• Positive external benefits
of active surveillance and
infection control
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Hospital 1
Hospital 2
Community
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Smith, Levin, Laxminarayan PNAS, 2005
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Smith, Levin, Laxminarayan, 2005 PNAS
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Multi-institution epidemics
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Smith, Levin, Laxminarayan, 2005 PNAS
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Regional coordination
• Dutch experience: frequency of MRSA
infections is < 0.5% after an intensive
‘‘search-and-destroy’’ campaign, compared
with 50% in some areas
• In Siouxland (Iowa, Nebraska, S. Dakota), an
epidemic of VRE was reversed
• Regionally coordinated response to epidemic
• Does this explain higher prevalence of ARB
in areas with high concentration of health
care institutions?
• Will this work in the United States?
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Hospital 1
Hospital 2
Subsidize
Infection control
In hospital 1
Community
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Hospital 1
Hospital 2
Subsidize
Infection control
In hospital 2
Community
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Using treatment subsidies
• Greater infection control in the
subsidized hospital
• Indirect network effect on
unsubsidized hospital
• Which hospital to subsidize depends
on economic returns to infection
control within that hospital
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How do hospitals respond to
subsidy?
Cooperators
Spend more than they would have
without subsidy
Free riders
Spend less than they would have
without subsidy (but overall infection
control increases to small extent)
24
How do hospitals respond to
greater infection control in other
hospitals?
Cooperators
Increase infection control
Free riders
Lower infection control
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Cooperator
Free-rider
Subsidize
infection control
In cooperator
Community
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Cooperator
Free-rider
Subsidize
infection control
In free-rider
Community
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Result
A. Subsidizing cooperators increases their
infection control but decreases infection
control in free-riders
B. Subsidizing free-riders makes a small
difference to their infection level but
increases infection control in cooperators
Indirect (network) effects outweigh
direct effects so solution is to
subsidize free riders
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Summary
1. Drug resistant hospital infections
are increasing
2. Economic incentives strongly
influence incentives for hospital
infection control
3. Regional coordination and hospital
subsidies can lower prevalence of
drug resistant hospital infections
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www.extendingthecure.org
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Global spread of chloroquine-resistant strains
of P. falciparum
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Qinghaosu
• Artemisinin and derivatives extensively
tested in China beginning in late 1970s
• Used widely to treat malaria by 1980s
in China, 1990s in other Asian
countries
• Very rapid-acting, well-tolerated,
minimal toxicity
• Short half-lives necessitate
combination therapy
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Slide Courtesy: Phil Rosentha
No Country is an Island
• Misuse or artemisinin monotherapy
in any single country could have
consequences for malaria control
worldwide
• Need for global strategy to ensure
that resistance is delayed to extent
possible
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Global subsidy for Artemisinin
Combinations (ACTs)
• Global subsidy for
artemisinin drugs
• Make ACTs as
cheap as
chloroquine
40
What would a subsidy do?
• Save lives and lower burden of
malaria
• Discourage monotherapy by
lowering price of ACTs
• Stimulate the ACT market and allow
for lower prices by ensuring a stable
demand
• Maintain the impetus to produce new
antimalarial drugs
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Why a global subsidy?
• Allow ACTs to flow through both
public and private sector channels
• Give the international community
leverage to discourage production of
monotherapies
• Minimize administrative costs of
subsidy
• Minimize incentives for counterfeit
drugs, diversion and smuggling of
ACTs
42
Could a subsidy increase the
likelihood of resistance?
• Possible if the effect of a subsidy on
lowering monotherapies is less than
effect on increasing ACT use (and
overuse)
• Depends on how ACT use and
Artemisinin/partner drug
monotherapy change in response to
the subsidy
Laxminarayan, Over, Smith, World Bank Policy Research Paper, 2005
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Main Findings
• Regardless of the degree of
responsiveness of antimalarial
consumption to price, a subsidy to ACT
would save lives even if it hastened the
arrival of parasite resistance to
artemisinin-based drugs.
• Consequences of a delay in instituting a
subsidy
• Multiple first line treatments
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Other applications
• Financing malaria elimination
• Species conservation in
transnational parks
• Reporting of disease outbreaks
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Summary
• Infectious diseases involve
externalities
• Challenge is in incentivizing subpopulations to behave in ways that
are not consistent with their selfinterest
• Useful application of game theory to
infectious disease models
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