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II. SAMMEC AND ECONOMIC COST COMPUTATIONS Since SAMMEC II has been recently developed, it is important to understand exactly what the software contains and how it has been used. More importantly, perhaps, some fundamental assumptions about the calculation of economic costs attend SAMMEC II and virtually all health cost assessment programs. While these assumptions -- relating to the economic concept of costs -- are fairly well known, an examination of them provides a foundation for analyzing the SAMMEC II methodology. What is SAMMEC II? SAMMEC II employs mortality statistics, economic "cost" data, and smoking prevalence estimates to calculate the alleged disease impact of smoking in "large" populations to make calculations specific to these populations. While large municipalities might be able to use the software, SAMMEC developers stress that the technology is primarily intended for use in states since "small communities and counties will produce unreliable estimates of disease impact if their populations are less than a few hundred thousand persons" (SNR, SAMMEC, p. 1). Similar caveats are issued by the project staff for developing nations or countries with non-representative smoking prevalence data, poor quality mortality data, and economic data "not similar to the United States." 3 TIMN 445039

The authors also issue warnings about data intervals in the program. Since SAMMEC II's smoking-attributable disease impact estimates are not a "surveillance system," they warn that data intervals should be large (3 to 5 years) because changes in disease incidence and in spending for diseases which are claimed to be associated with smoking are calculated (that is, by a mathematical formula) and are not based on any actual disease incidence or actu costs. Thus, users of the software (states and their public health departments, primarily) must supply raw mortality data for the most recent year available by disease category, five-year age group, and sex. Users must also supply current and former smoking prevalence data, either developed in their own state health departments or from national surveys that include state-specific information. SAMMEC II supplies (see section IV of the SAMMEC manual: Schultz et al. 1990) data by appropriate age group, smoking status, and sex from the 1985 Current Population Survey and from the 1988 Behavioral Risk Factor Surveillance System (BRFSS). SAMMEC II also provides users an option on cost data: provide personal health-care cost data (from states or local sources) or use SAMMEC's raw economic cost estimates for the states. (Cost data is provided for 1987, but users are invited to adjust it by multiplying the state per-capita cost in 1987 by population in later years.) How SAMMEC Has Been Used The most publicized use of the SAMMEC methodology has been the so-called Sullivan Report which was splashed across the pages of virtually all U. S. newspapers in 1990. According to Secretary of Health and Human Services Louis W. Sullivan in his second National Status Report on Smoking and Health to Congress (1990), "Each and every American, including 4 TIMN 445040

those who don't even smoke, is paying a hidden tax of approximately $221 per person per year for the consequences of smoking -- a tax that adds up to $52 billion annuallx. "3 Use of the SAMMEC II program led to the following breakdown of cost estimates in the Sullivan Report: DIRECT MEDICAL COSTS (hospitalization, physician's services, etc.) $23.7 billion INDIRECT MORBIDITY COSTS (essentially an economic "cost" of reduced labor productivity and increased absence) $10.2 billion INDIRECT MORTALITY COSTS (forfeited future earnings assuming "premature" deaths of smokers) $18.5 billion TOTAL COSTS $52.4 billion These numbers were developed as a direct application of the SAMMEC methodology. This means that the government relied on historical records on illness and mortality developed for SAMMEC and computed gross differentials between smokers and nonsmokers. These differences were then used as the basis for computations of costs. Computational adequacy of any and all estimates depends critically upon the methods by which estimates are developed and on the quality of the data employed. Of even more significance is the question of the conceptual logic that undergirds the entire SAMMEC-software-Sullivan Report output. Economic Project Evaluation and the Concept of Cost An immediate and critical issue is raised by the Sullivan Report estimates (based on SAMMEC II): correctly interpreted, does the assumption that P--y "social costs" exist with respect to smoking have actual or logical merit? A related question is whether SAMMEC should 5 TIMN 445041

be examined and exposed for the scientific leaps and lapses it contains given that the answer to the first question may be "no"? First, consider the issue of social and private costs, and the related issue of cost-benefit calculations. A private cost is one that is borne directly by the choosing individual. Benefits and costs are attributable to these rational choices. "Social costs" are those that are imposed on other members of society by the actions of individuals. In accepted economic analysis, all of the "costs" contemplated by SAMMEC II and those appearing in the Sullivan Report (discussed above) are private in nature. Costs and benefits, if any, of smoking behavior are all borne by the individual. Any reduced income from medical expenses or reduced labor input or productivity would all be experienced by the individual who smokes. Direct mortality costs -- those due to forfeited future earnings due to alleged "premature" death -- are all paid by the individual who dies. In spite of Sullivan Report claims to the contrary, all insurance costs and risk costs the Report associates with smoking are individual costs and not "social costs." The SAMMEC/Sullivan anti-smoking activists admit that the issue of whether [in the aggregate] smoking creates net costs (presumably, after benefits are taken into account) is unresolved (SNR, SAMMEC, p. 9), but they persist in discussing "social costs" from smoking behavior where no "social costs" appear to exist.4 For example, consider the logic used in calculating full foregone income from "premature" death which SAMMEC developers treat as a cost. They argue that "the individual, not just the output he or she contributes in excess of consumption, is valued by society. Economists today generally agree that consumption should not be deducted" (SNR p. 13) and they cite Mishan (1971). But rational individuals, in calculating risks, assess not only their own consumption foregone, but that of the foregone 6 TIMN 445042

savings. This does not mean that benefits would not have flowed to "heirs and assigns" but that all property rights and property dispositions belong to the individual alone in voluntary exchange. Here Mishan's actual argument (not one attributed to him by SAMMEC II developers) is valid: "Insofar ... as additional risks associated with the service or facility are all voluntarily assumed, there is no call for intervention in the allocative solution to which the market tends. As for project evaluations, insofar as benefits are calculated by reference to estimates of consumers' surplus, no allowance need be made for additional risk of loss of life. For the sum each person is willing to pay for the services provided by the project is net of all the risks associated with them." (1971, p. 698) The quotation from Mishan raises yet another critical and related issue for the fundamental adequacy of the SAMMEC/Sullivan study -- the fact that no benefits are assumed to flow to the individual or societ,y from smoking.5 While we assess the SAMMEC study on its own grounds (no benefits), it is worthwhile considering the conceptual inadequacy of such a project. With respect to (perceived) "social costs" only, SAMMEC inventors admit that "the net economic effect of cigarette smoking in future scenarios is speculative" (SNR, p. 8) but, simultaneously, they refuse to consider any possible benefits from smoking. From an economic perspective, there are, of course, enormous benefits from tobacco production and sale. All manner of production and marketing inputs are employed as billions of dollars in income, jobs, and taxes are generated. But benefits from tobacco (excluding taxes) even considering~its, association with certain health conditions flow to individuals. Again, more careful attention to Mishan (1971), who is completely misinterpreted by SAMMEC developers, would have given some scientific validity to the software. Mishan, in a provocative discussion, emphasizes a net benefit to individuals from smoking. Within a framework of Pareto estimation in the presence 7 TIMN 445043

of any claimed risk, Mishan emphasizes that only involuntarv risks need be counted and he uses tobacco as an example: "If [hypothetically] smoking tobacco causes 20,000 deaths a year, no subtracting from the benefits, on account of this risk, need be entered in a cost-benefit analysis of the tobacco industry inasmuch as smokers are already aware that the tobacco habit is [assertedly] unhealthy. And if, notwithstanding their awareness, they continue to smoke, the economist has no choice but to assume that they consider themselves better off despite the risks" (p. 996). Mishan goes on to say that the benefits to smokers, net of any risk are reflected in the demand schedule for tobacco. He notes that once the area under the demand curve has been estimated and used as an approximation of the benefit smokers derive from the use of tobacco, any further subtraction for such claimed risks would entail "double counting" (p. 996). There are, in short, two good reasons why one might consider the SAMMEC software to be of questionable scientific value and unreliable at the outset: (1) SAMMEC makes no distinction between private and "social" costs and, if it did, none of the costs supposedly it attributes to smoking could be found to be "social" in nature; and (2) Any social and individual benefits from smoking and tobacco production and sale are assumed to be non-existent. This omission means that no cost/benefit study of the commonly-accepted type -- where benefits to individuals and society are included as in product or project evaluations -- is being conducted. These considerations raise an important question: if, logically and in generally accepted practice and analysis, there are no "social costs" due to smoking, should SAMMEC methods and software be analyzed for the conceptual errors it contains, based upon SAMMEC II's assumptions that "social costs" exist? We believe that the answer is yes. Even if policymakers at state and other levels believe that smoking creates "social costs," they and the community at 8 TIMN 445044

large should be aware that SAMMEC-based computations are unreliable. Such an exposure shows just how far organizations will go in order to further policy conclusions. Further, it is noteworthy that SAMMEC developers openly invite policymakers or state or not-for-profit ("goodwill") organizations to employ the software results "packaged in understandable and concise terms" to influence politics in a community or state. As noted above, SAMMEC II users are exhorted to explicitly eschew any possible benefits from smoking or from tobacco production and sale. Specifically, SAMMEC II states that "the smoking-attributable economic cost data produced by SAMMEC II should not be used in cost-benefit analysis of the value of tobacco versus illness in society." Presumably, this is because the health community (federal or state agencies and goodwill, not-for-profit entities) might lose some support, financial and otherwise, if benefits and actual costs were fairly considered. Scientific objectivity appears to be a secondary concern to SAMMEC developers. As they readily admit, "disease impact estimates are a form of argument and have a political as well as a scientific reality." The technology implied by SAMMEC II software "enhances the credibility and perceived authority of disease impact estimates" (SNR, p. 9). Incredibly, on the same page (SNR, p. 9), the authors admit that ". .. the issue of whether smokers cost nonsmokers money, or vice versa, is unresolved." It is our purpose, in what follows, to investigate the basis for SAMMEC II's estimate of "scientific reality." 9 TIMN 445045

III. THE METHODOLOGY OF SAMMEC II In attempting to quantify the "costs" of smoking, SAMMEC II (Smoking-Attributable Mortality, Morbidity, and Economic Costs) identifies three categories of costs: (1) indirect mortality costs, (2) direct morbidity costs, and (3) indirect morbidity costs. In the view of SAMMEC II, the indirect mortality costs of smoking are the lost earnings which result from "premature" death which SAMMEC II attributes to smoking. The second category of costs, direct morbidity costs, are the costs of prevention, detection, treatment, and rehabilitation of diseases claimed to be linked to smoking. Finally, the indirect morbidity costs are the productivity losses due to illness and disability which they attribute to smoking. SAMMEC II treats the sum of these three components as the economic "costs" of smoking. To generate estimates of these estimates, SAMMEC II identifies certain illnesses which are claimed to be smoking-related. This list is summarized in Table 1 (SNR Table 6A, p. 24) and is compiled from illnesses identified by the American Cancer Society plus certain perinatal conditions identified by McIntosh (McIntosh, 1984, pp. 141-148). Users of SAMMEC II can base their cost estimates on this list of illnesses, or they can add additional illnesses at their discretion. 10 TIMN 445046

Table 1 Diagnosis Set SANIlVIEC II Software ICD-9-CM Code I. Adults: Male and Female; Ages 35-85 + (5-year age groups) Infectious Diseases 010-012 Neo lasms --~ - - 140-149 150 157 161 162 180 188 189 Cardiovascular diseases 410-414 380-398, 401-404, 415-417, 420-429 430-438 440-448 Respiratory Diseases 490-492,496 Respiratory tuberculosis Diagnoses Lip, oral cavity, pharynx Esophagus Pancreas Larynx Trachea. lung, bronchus Cervix uteri Urinary bladder Kidney, other urinary Coronary heart disease Other heart disease Cerebrovascular disease Other arterial disease Chronic obstructive pulmonary disease Other respiratory disease 890-899 Burn deaths 11. Children: Male and Female; Age: < 1 Perinatal Conditions 765 Short estation-low birth wei ht 769 Respiratory distress syndrome 770 Res iratorv conditions of the newborn Si ns and Svm toms 798.0 Sudden Infant Death Syndrome 11 480-487, 493 Injuries TIMN 445047

SAMMEC II is designed to facilitate attempts to quantify the costs of smoking for a particular city, county or state. Therefore, it enables users to supply data which are particular to the area under study. In particular, the user must supply: (1) mortality statistics -- deaths from the purportedly smoking-related illnesses identified in Table 1 by gender and five-year age category for ages 35-85+, (2) smoking prevalence rates -- the percentage of the population who are current and former smokers for ages 35-64 and 65+, (3) population data -- the number of persons in the group under study by gender and five-year category for ages 35-85+, (4) health care costs -- total personal health care expenditures for hospitalization, physician fees, medications, nursing home costs, and other professional services, and (5) earnings data. In addition, the user has the option of providing several other types of data relating to relative risks, life expectancy, earnings, and labor force participation. In cases where this optional data are not provided by the user, SAMMEC II provides the relevant data on a national and state-by-state basis and allows the user to select the data set on which cost estimates are to be based. Indirect Mortalitv Costs In the view of SAMMEC II, the indirect mortality cost of smoking consists of the lost income due to "premature" death. In order to generate such estimates, SAMMEC II first attempts to determine the number of deaths assertedly due to smoking. The critical element, upon which SAMMEC II's estimates rest, is the so-called smoking-attributable fraction (SAF). The SAF is defined as the "maximal proportion" of deaths (or disease cases) that purportedly SAMMEC II regards as linked to cigarette smoking. SAF is defined as: 12 TIMN 445048