I'll start by responding to Matt Steinglass, who I greatly respect.
Megan's arguments is predicated on the contention that reform will lead to the effective disappearance of private health care, and complete government dominance of both the health insurance and health care markets. That's what she means by the "camel's nose". The problem is this: countries that have the Bismarck model of universal coverage through regulated private health insurance do not move to single-payer government-controlled systems. Germany started the first Bismarck-style system 126 years ago. It still has it. France, the Netherlands, Switzerland--they all started with regulated private insurance backed by a public plan for the needy, and they all still have regulated private insurance backed by a public plan for the needy. Except for the Netherlands. They used to have a public plan for the needy, but in 2006 they scrapped it and moved to an all-private health insurance system, with subsidies for those who can't afford private coverage. What they have, roughly and leaving some bits out for simplicity's sake, is what the US would have if it passed the current House bill, then eliminated Medicare and Medicaid, and funded the system by handing out subsidies or vouchers so everyone can afford coverage. The direction that Megan envisions things "naturally" going is precisely the opposite of the way they actually went in the Netherlands over the past 20+ years.
I don't think Matt understands what worries me about national health care, or else he doesn't actually understand how the system in the Netherlands works underneath his interaction with an insurance company. It isn't the cost. It isn't the taxes. It isn't the redistribution. It isn't even the mandate, which is borderline plausible to me in the way that mandatory auto insurance is, and forced retirement savings might be: the moral hazard is huge, because your neighbors won't let you die.
My objection is primarily, as I've said numerous times, that the government will destroy innovation. It will do this by deciding what constitutes an acceptable standard of care, and refusing to fund treatment above that. It will also start controlling prices.
Now, at this point in the discussion, some interlocutor starts chanting what I've come to think of as "the mantra": othercountriesspendlessandhavelongerlifespans. Then they ask me how I can ignore the overwhelming evidence that national health care is superior to our terrible system. Now, what's odd about this is that all of those countries do precisely what I am concerned about: slap price controls on the inputs, particularly pharmaceuticals. Their overwhelming evidence indicates that I am 100% correct that a government run system in the US will destroy the last really profitable market for drugs and medical technology, and thereby cause the rate of medical innovation to slow to a crawl.
To which Matt rejoinders that all the Dutch insurance companies are private. Indeed they are, but they're essentially tightly regulated utilities. There's no market discovery of drug prices; instead, the prices are set by looking at an average of the rates paid by government systems in nearby countries. The government decides what is reimburseable. It further defines the basic health package that everyone gets, though as I understand it most people also purchase top-off insurance. The supplemental insurance functions more like an actual insurance market. As I understand it, there's considerable pressure to stop that. And the markets are in peripheral services that mostly aren't reimbursed by health insurance here, either, like eyeglasses and dental.
The things that make markets innovate--profit potential--have been mostly squeezed out of the system. The things that hasten market discover--prices--have also been increasingly relegated to central authority. Having something like that in the United States would produce exactly the outcome I'm worried about. So if Matt is right, and this is where the slippery slope ends up, my nightmare will have been realized.
Perhaps this is soothing to some other conservative--one who's worried more about waits at doctor's offices, or government operation of the healthcare system. But that's not me. I'm fundamentally worried about a utilitarian calculus. As long as I think that single-payer will fundamentally depress innovation, I'll remain opposed.
And I do so think. Profits are the pull on the overwhelming majority of the innovation that actually results in a new drug or piece of equipment--not a good target, not an intriguing idea, but something you can actually use on a patient. By pointing to the Netherlands as our possible future, Matt concedes that we'll end up removing those profits from the system. Which I believe anyway, because how can we credibly expect politicians to hand fat profits to pharmaceutical companies now on the grounds that it will help voters twenty years from now maybe get access to new drugs?
Critics of our system say that it is horribly wasteful and inefficient. I quite agree. But innovation is horribly wasteful and inefficient. It's quite common for drug researchers at mean-old profit-oriented pharma to go their entire lives without working on a drug that actually makes it past Phase III trials and into patients. Those kinds of crazy bets are exactly the kind of thing that the centralized, rational, efficient systems that progressives like to build (or at least, dream of building) have the hardest time allowing. And when such systems do make start spending big, they don't tend to get made where the biggest market is--i.e. the most patients with the strongest demand. Instead the decisions are political: which disease has the best organized interest group to lobby the government?
Those are just inherent qualities of a government system. They're the qualities of the systems that progressives lionize in government--the reason that othercountriesspendless. I acknowledge that it can work very well as long as there are some irrational, decentralized, uncontrolled countries in the mix figuring out how to deliver the technology you'll eventually use, for the same reason that a really surprisingly large number of children can forego vaccination without risking disease. But at this point, the US is the only country left providing a hefty incentive for inventing new treatments. If we stop, the whole world suffers, and we along with it. So for all the many bad points about our system, for now, I'd like to stick with it.
Maybe we're facing a choice of where we innovate? What if, as speculated here, the high cost of health insurance in the US is stifling innovation in areas outside of health care?
Sure, the plural of anecdote is not data, but a friend of mine reports that:
While you've linked to an interesting argument (with some truth), you've summarized it incorrectly. The argument is not that the "high cost of health inusrance" is stifling innovation. The argument is that that problem of losing your insurance if you change jobs is stifling innovation.
Economists agree on that. One possible solution, of course, previous forwarded by some like Jason Furman, would be the system ascribed to Denmark above:
"What they have, roughly and leaving some bits out for simplicity's sake, is what the US would have if it passed the current House bill, then eliminated Medicare and Medicaid, and funded the system by handing out subsidies or vouchers so everyone can afford coverage"
But that's almost exactly what Senator McCain proposed in the 2008 campaign, and Senator Obama absolutely blistered him over the proposal, spending $75B to spread fear and uncertainty. As far as I'm concerned, President Obama is only reaping what he sowed. He lost all sympathy from me on health care reform after he ran those ads. He cannot be trusted to argue honestly or in good faith on the issue.
The reason people don't want to change jobs is because the individual health insurance market sucks. Making a plan that forces people into the individual health insurance market isn't going to be popular.
The individual market sucks because it's a secondary market. If you get rid of the employer based market that won't be true.
And there is a way to prevent change for those currently covered. Their plans don't end, but rather are "distributed" to the employees at a specific date. Same coverage, same doctors, same contacts.
The individual market sucks because it's a secondary market. If you get rid of the employer based market that won't be true.
Right, which makes it a huge collective action problem. We're trapped in a local maximum (due primarily to government interference in the market), and getting out is very hard politically. Especially when politicians like Obama will gladly demagogue incremental steps in that direction, as John Thacker noted.
Brian 2,
All true. But we should do it anyway.
Two advantages: (1) By going from critic to planner Obama's had it easy. He could criticize the very plans he either continued or now supports. He and other supporters of reform can't any longer.
(2) There's just not that much change for people currently covered by their employer. The employer's gone, but that's it. You have the same doctor, same insurance numbers, same card. You just own it now.
The clear offsetting benefit is that you can now switch if you want to. That's a pretty reasonable trade I think most people will agree is a net positive.
I am no fan of our current system. But someone might want to point out a high deductible plan to that guy. I pay $4200 a year for two people. Now if someone gets sick, i gotta shell out 10 grand before anyone gives me a hand. Sure, that sucks. But if that guy's paying 3200 a year more (for less people, mind you) it'd just take him 3 years of no major illnesses to save up (or repay) that $10,000. Makes a helluva lot more sense to me. (And of course if he doesn't get sick he gets to keep the money).
How much is the high deductible policy? Maybe your friend should look into that instead. Or if they currently use lots of health care, maybe the policy makes sense for them. If you use the doctor's services you have to pay the doctor. Asking others to do it for you is like asking them to buy your food for you.
What makes you think that the number of small businesses is the best (or even a good) proxy for innovation? Wouldn't something better be the number of new patents per capita (or, better still, if it were available: the number of commercialized patents per capita). You really think Greece is more innovative than the U.S. because it has more small businesses per capita? I covered this in a post a while back ("Questioning the Conventional Wisdom about Microfinance and Encouraging Entrepreneurship"), but most small businesses aren't innovative and are in overcrowded niches.
No, because patent systems differ widely between states in terms of how deeply the patents are examined.
It's not a perfect proxy (which is why I pointed out that commercialized patents would be a better one), but it's certainly a much better one than the number of small businesses per capita.
Example: Over the last decade Australia vastly increased the number of small businesses/capita just by changing tax laws so that all the tradesmen who used to work for big companies became independent contractors.
No real effect on innovation. Apparently a fair improvement in productivity, but this is confused by many other factors.
Possibly a significant long term change politically, all those union members are now small business owners, sooner or later they may start to vote that way. Probably the reason the (right wing) government of the time made the change.
My one hope is that China and India eventually take up the role of big, uncontrolled market for health care. They're large enough to drive it, and at least moving in the direction of getting rich enough. (Since each can provide as large a market as we can as soon as a quarter of their population has the income approaching that of the average American, long before they reach First World status overall.)
But I think this decade is too early for that to be a realistic option. I agree that someone has to provide that market to drive innovation, or we won't see as much. (It may not be fair for the locomotive to do all the work. But adopting the policies of the other railcars won't get it-- or them-- the same result, unless there's something else out there to do the pulling.)
I've been hoping that too. This is starting to happen in some other fields: ie electronics.
You will, however, get comments about how we should just have more govenment-funded research to replace it, and about how this will be far more efficient without those nasty profits. (But don't call the approach socialist!) Of course, the same free-rider and biggest economy problem will exist as they do now (just like it does for, say, asteroid and hurricane detection); logic will lead the US to subsidize the rest of the world. Paying to research a drug for the rest of the world doesn't make sense when you're a small country, but if you're big it might be worth it selfishly even if you then subsidize the rest of the world. (Perhaps the EU becoming more of a single nation would help with the free riding.)
That brings up another point: What do the calculations of "percentage of GDP spent on health care" cover? If one system, like the US, has doctors paying high tuition at medical school, which is then passed on to consumers as higher health care costs, but another system has doctors' tuition paid "for free" out of other tax money, do these comparisons count the subsidized doctor education as part of "health care costs?" Or is that slid into "these countries spend more on education and less on health care?" Similarly, if a country decides that it wants to research pharmaceuticals through government research instead of using the profit system, are the taxes used to pay that counted as "health care costs" or as "this country saves on health care costs so it can spend more on science and research?"
John,
I have been trying to find a well-accounted answer to the question you raised in the last paragraph, I have repeatedly come up empty. That is definitely a good research topic for anyone needing a thesis topic in health care academia.
An effect that is certainly much decreased once you count for violence and accident among the young (and poor) in the USA, though.
And it stays decreased when you account for violence and accident among the young (and poor) in "othercountries"?
Yes, it does. In fact, one paper I saw claimed that the US has the highest natural life expectancy in the OECD. The US has somewhat higher rates of murder than most Western European countries, and, more importantly, much higher rates of death from auto accidents.
I don't know for sure whether the analysis of that paper was correct, but what I do know is that no one who regards raw life expectancy as a good proxy for "health care outcomes" is qualified to have an opinion on...well, anything more complicated than ice cream flavors, probably, but definitely not on health care policy.
Nicely explained stance Megan.
To another commenter: India and China are exploding as markets for pharma research to be conducted in. But they aren't where the pharma companies are headquartered. China has a history of stealing technology and innovation, but they have alot of potential to become the superpower that provides for the rest of the world in many ways.
I guess the question is: What sane superpower restrains itself with the hope that another, more populous country will takes it's place in innovation and development?
In accordance with Megan, but expanded upon, my gut feeling is that the greatest possible good is served by the current population having the most freedom to innovate and share those innovations with the world. For in the long run, those things will reduce suffering the most.
FYI, we're about to hit 7 billion people in the world....1/2 of that number wouldn't be able to be fed except for the innovations in food growing and distribution made in the last 60-80 years.
Joe
Bravo. And while you're at it, please take on the related canard (approaching conventional wisdom in progressive circles) that prizes are an acceptable substitute to patents for medical innovation. Name me a prize that funds the cost of researching a failure. There isn't one. Without a means to compensate innovators for failures (such as profits on successes) then you don't get the effort that results in new treatments.
But would it not make for a very powerful prize committee?
http://www.businessweek.com/bwdaily/dnflash/content/sep2006/db20060913_099763.htm
We have many states that are the size of european countries that spend a reasonable amount on healthcare and offer the life expectancies we are apparently demanding.
Perhaps we should model our health care off of those states?
Joe
P.s. There was sarcasm in that post, in case you missed it. I probably didn't display it prominently enough.
I'm sorry, but this has been a remarkably uninformed series of posts. A large proportion of medical innovation goes towards drugs, medical devices, and procedures designed for chronic illnesses in a population that is largely over 65. And, guess what, for people over 65 we have a single-payer system, with the option to supplement care through private means.
If you're going to write about health care, you should think about it first. This is dumb. I wish conservatives, libertarians, or whatever the hell the pseudo-intellectual who writes this blog thinks she is, could put together a more logical argument.
(There is an argument to be had over the dangers posed to medical innovation, but it's a broader argument that has to include escalating costs that neither the Medicare drug plan nor the large base of individual customers may not be able to bear in the future. That's actually an interesting argument, since there are private sector, public sector, and mixed solutions to debate.)
Bas,
Can you cite your assertion? Because speaking as someone who has worked on ~40 Phase III trials in the last few years, they are almost all aimed at 18-65 years of age, or 45-75, etc.
Older people are absolutely a huge provider of income to these companies, as they tend to use such treatments more often.
But medicare functions as a price depressor, so these companies need to make their profits in a non-medicare environment.
It's a shame, I'm actually struggling to grasp a widespread treatment that is designed for chronic illnesses in a population mainly over 65 years of age....heart catherizations? Sure, but there's tons of men between 35-65 who get them. Joint replacements definitely.
I'd really love to see what you are citing, because I'm struggling and maybe I'm just blanking right now on what particular large-scale treatments are almost unique to the medicare population.
Which also makes me wonder: Have we depressed medical innovation for end-of-life treatment options because of the single payer system for those individuals?
for people over 65 we have a single-payer system, with the option to supplement care through private means.
And pretty well everyone concedes that single-payer system is rapidly going bankrupt while sucking the life out of the increasingly smaller portion of the entire health care system that is private.
And your answer is to make the part that works (badly) emulate the part that everybody agrees sucks?
Megan, I am curious about your point. Could you refer us to studies (not anecdotal evidence) showing in which countries drug innovations have been happening over the last years/decades.
Unless the companies in those countries aren't selling in the US market (or are having their prices here controlled), that wouldn't tell us much.
This data would not support the conclusion. The relevant data would be the treatments not developed without the benefit of the enlarged US medical market. But drugs are developed on the basis of the global return regardless of the country origin. A reduction in the projected US return reduces the chances of possible treatments everywhere meeting the required returns to move forward.
It is pretty clear that diseases that don't have a rich market to pay for them lose out in terms of research and innovation, even if they have a large total number of patients. (Hence the Gates Foundation's efforts to redress this somewhat for tropical diseases.)
But I'm not sure if there are any conditions with significantly higher incidence in Europe than in the US-- if so, that would be at least be something to look at. (Whether everything else could be controlled for enough to allow a persuasive conclusion is another matter.)
I agree this is hard / impossible to determine. That's why people try to use the other figure. My point was simply that the other data point is meaningless. You could, I suppose, try to end all international trade in the medical field to see (a) if the European companies relocate, and (b) how the innovation process works afterward. But I'm pretty sue we don't want this data that bad.
Well, that was much more clear an exposition of your position than I've seen here in a while, at least.
Given this argument I'd be interested to see some research/commentary on medical research and innovation. Specifically, it would be interesting to look at "new" medicine (procedures/drugs/techniques/etc) and ask where have we seen the innovation that has contributed most to improved health? Contributed most to increased efficiency? Differences in these trends in different countries? Most cost efficient improvements in health? Etc.
The reason I ask is that it occurs to me to wonder how much medical "innovation" exists for which there is no market at all. For instance, pre-op checklists. I seem to recall a study (Australia?) indicating that having a surgical team run through a simple checklist before surgery drastically improved outcomes. But I don't see how there could be a market for developing and selling checklists like this.
My gut instinct is that pharma's record, overall, on the health benefit to cost ratio of their innovations would be much better than most progressives give them credit for, but not nearly as good as their libertarian boosters (like Megan) would seem to believe.
But I certainly haven't seen any in depth commentary on the different areas of medical innovation on this blog, that's for sure. Be nice if that changed, since Megan seems to care so much about it.
Why couldn't there be a market for checklists? If your surgeries go better than anyone else's, you can advertise that fact pretty easily. It sounds like the sort of thing more likely to come from academia, but medical consultants could easily flog such things.
Is it really our innovation that's made all of the other countries have higher lifespans? If other countries really are piggybacking off US success, then there ought to be a steady increase in lifespan across the rest of the world, roughly tracking with the rate of advances in the US. (Leaving out things like 3rd-World countries, or places where HIV has totally skewed the life expectancy). Is this actually the case?
There is more to life expectancy than quality of care.
I have one question. Why should insurance companies be allowed to make money when people who live in trailers have no teeth?
That isn't fair.
I hope this is sarcasm.
The only thing it takes to keep teeth is to care for them properly. Visits to the dentist simply reinforce that you should care for your own teeth.
Rarely does one develop a cavity or other tooth problem if one is brushing properly and eating properly.
So, if people in trailers have no teeth, why is that my problem?
Megan could have saved herself thousands of words and tons of ridicule if she had posted this last week or the week before. Unfortunately, she has yet to make any sort of argument that this would actually be the case, preferring instead to the same old same old and merely repeat her uncited assertions and have others do the research to prove her wrong. Why libertarians, conservatives, etc think this debating strategy will win converts instead of making most people disgusted at them for using the "if you can't make me say I'm wrong I win" strategery(intentional) is beyond me. But so it goes.
She says it all the time. She did a whole friggin' bloggingheads on it.
http://bloggingheads.tv/diavlogs/20370
LMAO! She has made this argument multiple times, and in the last month. Do her critics even make past the first sentence (or the title), before writing the "tons of ridicule"?
Too bad repetition doesn't increase validity. Megan's argument places a premium on medical innovation, and uses the mere possibility of it being stifled in the future as a basis for being against healthcare reform in the U.S. today.
Placing such a high premium on medical innovation is obviously a luxury that only someone who already has quality health insurance (as well as anyone whose survival they sincerely care about) can do, so while her argument might be persuasive to those similarly situated, it is a flawed perspective from which to make public policy, which necessarily takes into account the plights of all citizens, including the millions who DO NOT have access to quality health insurance RIGHT NOW.
Not only are Megan's concerns speculative, but her argument does nothing to address the very real and undeniably imminent failures in the way our market currently delivers healthcare services to consumers, so its hard for me to see hers as a constructive contribution to a near-universally recognized problem.
In 1993, I experienced the onset of ulcerative colitis. After my diagnosis, I grabbed the first reference book at hand to find out a little bit more. I didn't notice that it was a book my parents had picked up, second-hand, in college. It talked about a life of frequent attack, not infrequent internal bleeding, days - even weeks - away from work to recover from episodes, etc. To put it another way, for about ten minutes - till I find a more up to date reference - I knew what it was like to be a patient living with a horrible chronic illness in 1957 - less than 30 years before.
As it is, I've had two attacks in my lifetime - the first in 1993, the second two years ago. Both were readily controlled with oral medications. By watching what I eat and working to stay in halfway decent health in general, I'm fine 95% of the time and the rest of the time the meds put me back on track pretty quickly.
It's real easy to talk about "placing a high premium on medical innovation" as some wasteful luxury that is obviously superfluous to expanding basic care. But a lot of today's basic care wouldn't be basic care without the superfluous innovation of years past. To put it more simply, my life - and lots of other lives - would be drastically worse had they noticed the beginning of the trend in growing health care costs and nipped it in the bud with a program to provide for cheaper and more equitable distribution of limited resources for healthcare. Can you imagine, for examply, where we'd be with AIDS and cancer if it weren't for all that superfluous spending on people who rarely survived more than one or two years after getting sick? You want to talk about going overboard on end-of-life health care spending! The funny thing is, now they're starting to figure out enough about targeting drugs and other fancy-schmancy stuff that it isn't wasteful end-of-life care anymore.
A useful health care reform will take into consideration the plight of all citizens. The current proposals seem pretty much focused on the plight of the uninsured, without giving sufficient consideration to those who have decent provision for their health care. Likewise, with the President's chatter about the red pill and the blue pill, the proposals seem to be focused on those we currently know how to treat and capably, with far less concern for those whose lifespans and quality of life alike might be considerably improved by what we learn about what is and isn't working from today's wasteful end-of-life care.
Having been uninsured, I appreciate the need for better health care access. But we need to steer clear of the mindset that the solution of all our problems is take the pretty good care we have today and split it up more equitably, because frankly, today's care sucks compared to what we'll have in fifty years - as long as we don't kill the goose that lays the golden eggs of medical innovation. This doesn't mean, of course, that we can't do more to extend access. But it does mean that making sure we don't stifle innovation is not a trivial matter for silly people. Take it from someone whose lousy research approach gave him a real appreciation for how far we came between 1957 and 1993.
Megan argues that the other countries are free-riding on American innovation. Shouldn't she also consider that, even if *everything* she said is true, those other countries will start innovating more if they can't free-ride any longer? (Maybe they will do it by government funded research that might be less innovative. (Maybe we will also do that.) But the total innovation might still be larger if the whole world is investing instead of just us. Possibly.)
Or it could just as easily be smaller.
I did use words like "maybe" once or twice there.
My point is that it seems like the freeloaders would likely pick up at least *some* of the slack if they are no longer able to freeload. Yet, in Megan's world, for some reason all those countries wouldn't respond at all to the change in incentives.
Their systems are even more political than the US one. Imagine being the Minister of Health for Italy or Germany, and telling your voters that you're going to be throwing gobs of money at evil Big Pharma for reasons that aren't going to benefit anyone in the next 10-20 years, after you've already negotiated them down to make your healthcare budget stop bleeding all over your bottom line quite so badly.
That's why it won't happen.
"Shouldn't she also consider that, even if *everything* she said is true, those other countries will start innovating more if they can't free-ride any longer?"
This isn't true unless you're referring to solely government funded and directed action. If you are this brings the political and central planning problems into play.
It's the benefit (profit) that drives the development effort. The only way these countries could replace us would be to voluntarily increase the prices they pay. What evidence is there that any country would respond this way? None that I know of.
Unfortunately, she has yet to make any sort of argument that this would actually be the case, preferring instead to the same old same old and merely repeat her uncited assertions and have others do the research to prove her wrong.
I thought the argument was essentially that other countries (the ones with the excellent lifespans and lower costs) do these things, so it is to be expected that, in seeking to be more like them, we will, um, become more like them.
As to whether controlling prices/denying expensive care will lower innovation, well, it might not in some areas even if quite explicit controls are put in place. Orthopedic surgeons will continue to think up clever new methods of securing tissue, for instance. But what can't help but be limited is the willingness of companies to take these innovations to a broader market, which requires FDA approval and is therefore very expensive.
That is to say, innovation might not actually suffer, but the widespread diffusion of innovation can't help but suffer, because it's not getting any cheaper.
Of course, for all I know, private companies are already denying expensive care left and right, so having the government do the same won't change anything.
What about something like patent buyouts or prizes? The government could set up an auction for a pharmaceutical patent for the purpose of price discovery. Then they buy the patent for winning bid and make it generic. I think there are still methods of encouraging innovation with some sort of universal health insurance. I'm also confused, given that we have Medicare, Medicaid, SCHIP, state high risk-pools, etc, that adding a public option is somehow going to cause innovation to slow to a trickle.
Auctions only work when the winner actually buys the good up for sale. Auctions to have a bunch of pharma companies pick a really big number, and then the patent owner gets that much money from the government...well, they won't work so well.
Okay, now post a 1000 word essay with PROOF health care reform will hinder innovation. You are just saying it will with out any proof. How can you PROVE that other countries are less innovative because of their systems? and conventional wisdom is not proof.
Let's see you produce PROOF that your desired reform will result in better outcomes and lower expense, as advertised.
When you realize you can't prove a prediction get off your high horse.
Megan's the one who claims to be basing her position on a "utilitarian calculus". Does anybody want to see the math behind that, or should we just giggle?
Meanwhile, back on earth, its USA #1 -
http://www.reuters.com/article/newsOne/idUSN0765165020080108
for highest rate of preventable deaths among countries surveyed. Basically, about 135,000 Americans a year are dying due to bad medicine than would if we did as well as France.
Effective medicine isn't House. It's about reliability, nutrition, vaccination, sanitation & accuracy. All the stuff that gets run over while everybody's busy fighting with their insurers and changing doctors because their primary went out of plan.
The government could set up an auction for a pharmaceutical patent for the purpose of price discovery. Then they buy the patent for winning bid and make it generic.
Who on Earth would bid in an auction where they knew they wouldn't be getting the offered product at the end? Especially considering the amount of effort that goes into valuing a patent (and considering that patents are typically issued years before any drug hits the market, and often on things that don't ever hit the market).
Easy, you flip a coin. Half the time you get the offered product, half the time the government gets it. http://www.slate.com/id/68674/
I question how applicable the example of pharmaceutical research is to medical innovation as a whole. Granting that all product development is to some degree similar and fits within the mold you describe, it seems like, say, development of robotic surgery or more cost-effective imaging equipment is much more straight-forward than drug research.
Hey Matt,
I'll give my thoughts on this, but I don't want to claim expertise of any sort.
Pharma research is, as you put it, vastly different. You identify potential compounds that are actually suitable for long-term clinical research through 4% inspiration, 5% perspiration, and 91% blind luck.
Rather than taking a concept (make a device that can be inserted into the heart through the vascular system and un-clog an artery or perform a task) and engineering it from scratch, Pharma research is starting with something already 80% made (the compound) and then trying to see if it fits the job need without too much inconvenience (side effects).
But honestly, to megan's point, I'm not really scared for the big pharma companies. They're job is to conduct worldwide solid research, navigate the FDA, conduct market analysis of whether the drug is worthwhile, achieve approval, market, manufacture, and distribute the drug. They live and die off their pipeline and their patents.
I'm more worried about the thousands of biotech companies that take a compound, or a revolutionary idea, and get people to commit large sums of money to the prospect of them striking gold through innovation and ground-breaking research. And then getting bought.
I can't see investors putting up NEARLY as much money to fund such biotechs if there is a questionable prospect of whether the new treatment will have a market, or be reimbursed, or whatnot.
A serious question I would pose is: do countries that control treatment options and reimbursement approve new medicines for their people BEFORE those new medicines have a successful track record in non-controlled countries?
I don't know. If the answer is no, they wait for the track record to emerge, than we'd be crushing innovation from one of the great engines (the U.S.)
If the answer is Yes, they approve new medications/treatment and monitor the outcomes and then make the decision whether to continue offering it to their population, then perhaps a single-payer system won't crush innovation.
Joe
A serious question I would pose is: do countries that control treatment options and reimbursement approve new medicines for their people BEFORE those new medicines have a successful track record in non-controlled countries?
I'm honestly not even sure how that works in the US. Is your private insurance plan guaranteed to cover every new drug or treatment?
Heh. Just the opposite: private insurance plans are pretty much guaranteed NOT to cover new, "experimental" treatments.
See http://virtualmentor.ama-assn.org/2007/01/hlaw1-0701.html
This is an issue in single-payer systems, too. A quick google turned up a number of policy statements from (UK) NHS Primary Care Trusts. For instance:
http://www.emscg.nhs.uk/EMSCGP017V1EMSCGPolicyforExperimentaltreatmentsandunproventreatments-pdf.cmsdoc
Is anyone able to find a similarly transparent policy statement from a US-based medical insurance company? Google as I might, I could not.
OK...so you are against the current plans to fix the problems with our medical system. You aren't proposing anything different though. While you are quite informed about the benefits of market style competition you don't point out that our healthcare system is not a free market.
David Goldhill's article is probably one of the best explanations of the problem we have created and are trying to fix. Innovation created the angioplasty but the incentive for performing them is the re-imbursement rate from Medicare not the medical benefit. I think the comparison of LASIK and MRIs is apt.
So your are a free-marketeer for healthcare...are you willing to tolerate continuing to pay more money than any other country in the world for some of the worst results?
Megan - I follow the mechanics of your argument - but I don't get it. I see "innovation" as one of many items on what should be a balanced scorecard for how a nation delivers health care, and I agree that under the proposed reforms there will be less innovation. But I think a lot of other items that should be measured (othercountriesspendless..., etc.) will improve dramatically.
Consider the term "financial innovation" and what are the connotations today? Some dubious inventions that masked some fundamental problems with the financial industry, with an eventual unhappy ending.
Seconded.
Megan is right to think that "innovation" is far more important than any other item on that scorecard of yours. Why? Because the least fortunate in the world today with respect to health care are not the poor, nor the uninsured, nor the uninsurable. The least fortunate are those who are untreatable not because they can't afford it but because their condition doesn't yet have a cure. Better insurance doesn't help with that. "Single Payer" doesn't help with that either.
If you want to help the least fortunate, reform the FDA and the DEA to let more drugs and devices be tested and used. Or figure out a way to make the legal risks associated with health care more predictable. But yes, any reform that threatens to reduce the profitability of drug development could well be a Bad Thing.
I'd like to propose the Ken Magalnik gov't health care system, if for other reason than to see the liberal reaction to it.
Health expenses, IMO, break into three categories.
1. Routine care. This tends to be inexpensive, but often used. It cannot be insured against, since its not a risk.
2. Insurable procedures. These are expensive, but relatively common procedures, with a reasonable chance of working, and relatively upfront costs. This can be insured against.
3. Chronic procedures with small chance of success. These are extremely expensive treatments that may or may not succeed. The sort of chronic illnesses and pre-existing conditions that require very expensive care. There is no way to insure against them in any sort of affordable way, without making the premiums unaffordable, or including a huge risk pool.
So, to deal with the first, we institute a mandatory medical savings program. Wages are garnished at some small percent with the funds going into private accounts (that cannot be used for anything other then medical care, cannot be borrowed against, etc). The accounts are set to hover at 2 years worth of routine care (adjusted to rising prices). Once the account reaches its target level, wages are no longer garnished, until the account drops below its level, or the level rises due to rising prices. All medical care is paid out of these accounts, by the users until they are exhausted. These accounts also work as a copay/deductible for insurance purposes. This accounts should be around $2k-$10k.
To deal with the second, people use private insurance should their treatments exceed the money in their private account. This takes care of bypass surgeries, successful chemo therapies, hip replacements etc. There is some reasonable ceiling on these policies, say 500k-2mil, again this ceiling is tied to medical prices and rises with them.
The final group, the ones that could not be insured, is subsidized by the tax payer. There is no other way to make their care affordable. This program only kicks in after private insurance has been exhausted. While the costs per person are likely to be very high, relatively few people would reach this stage. I assume this program would have a limit as well, and I'll let the moralists figure out what that should be.
Thoughts?
The issue is that chronic conditions are responsible for about 75% of all health care costs. So a huge portion of medical costs is still going to be subsidized by the taxpayer.
Assuming we are talking about very expensive chronic conditions, how else are you going to treat them? Either they get subsidized, or you have to let these people die.
With this plan everyone that can pay for their treatment does (personally or via risk pooling)
3. Chronic procedures with small chance of success. These are extremely expensive treatments that may or may not succeed. The sort of chronic illnesses and pre-existing conditions that require very expensive care.
I think you actually have a two things bundled together here.
1) Chronic conditions that are relatively inexpensive to treat (diabeties, for example). They fall under a combination of #1 and #2. The risk of having type-I diabeties is insurable. You can save for the possible onset of type-II diabeties (and complications) under your medical savings plan. If you live health and avoid type-II diabeties, you get the benefit of having additional cash in your med savings plan.
2) Chronic conditions that are expensive to treat - kidney dialysis. The could also be covered by #1 and #2, with appropriate subsidies who don't have enough income to afford care.
DerHahn:
You are absolutely correct. It is what I meant to say, but you've managed to put it into words much better. While saying "chronic" I really meant "Too expensive to insure afford-ably"
AC: I'm a libertarian, not an anarchist. To my understanding, that means the the gov't should take on those jobs that the private market cannot do (national defense, policing, etc). Making the treatment of those very expensive conditions affordable is something the market cannot do, so it seems proper for gov't to step in.
Eh.
Funding those accounts seems like it would be difficult. The median family income in this country is $50k-ish for about 2.5 people. On the upper end if your numbers, you're talking about needing accounts funded to the tune of $25k. And that's on top of the private insurance premiums. If I make $20k/year, how long do you think it'll take me to put away $10k?
"Uninsurable" seems like a rather vague term. Am I uninsurable because my insurance premiums are 10% of my net income? 20%? 50%? Doesn't that create some bad incentives for insurers?
Most people who make $20k/year are young and healthy. They can use their young and healthy years to fund their med accounts to the point that they only need to be topped off later. If you set the savings rate at 5% (before tax?) than having ones fund depleted only result in a 5% paycut, which is unlikely to bankrupt many. I did say that those accounts have to be mandatory to work. Not very libertarian of me.
Insurance premiums should be somewhat more affordable, since there is a ceiling on what the insurance company pays out so they are not on the hook for medical money pits, and there is a fairly high deductible covered by the savings accounts, so there is no need to cover expenses that are not a risk.
The un-insurable amount should be an absolute value related to treatment (adjusted for increasing prices, so there is no creep), that is the same for everyone, with no regards for income. Say 2mil. Insurance still has to pay out the value of the policy before gov't aid kicks in, so there is no incentive for insurance to run up the cost of procedures (if they could do that).
Is it true, does your typical family consume around $12k of routine care a year? That number seems very high.
Easy, you flip a coin. Half the time you get the offered product, half the time the government gets it.
It takes tens of thousands of dollars to even begin to put a proper price on a patent. You've just cut my expected return in half.
On top of that, you've also cut my expected return for getting a patent in the first place. It takes tens of thousands of dollars to get a patent, and now you tell me that my patent will be put on the auction block right away, to be sold at an unknown price set by people making substantial discounts because 1) they don't know the technology like the developer, and 2) they risk losing it to the government anyway?
"You've just cut my expected return in half", I'm not sure about this:
Auction bid + Cost to Research price = PV(Future Cash Flows Due to Patent)
Unless the cost to research the price is comparable to the auction bid, it doesn't have a particularly large effect on the rate of return. Given that an auction bid will probably be in the millions (possibly billion) dollar range, a cost of tens of thousands of dollars isn't large in comparison.
Megan,
You were probably not the best opponent to Lord Darzai on Channel 4 news since the set up was what almost all Brits see as loony-tune opposition to the NHS and you (almost :)) always rational.
Your research issue was the strongest, but I think Lord Darzai did win: we in the UK do our fair share of medical research, as does Europe in general.
I've just watched Megan McArdle on Channel 4 news here in the UK and I have rarely seen such an ill-informed, under-educated smug, but idiot on tv!
As a doctor working in the NHS in the UK I resent her nonsense assertions and know them to be false. She even asserted that 'social' healthcare in Europe is known for being poor quality! I know for a fact that treatment in general and survival rates for diseases such as cancer are significantly better in countries such as Denmark, Sweden and France (all 'social healthcare systems') than in the US. And that treatment is available to all - for free.
If you're opposed to 'social' healthcare in the US then fair enough. But don't talk shit and malign countries performing far in excess of the US's to further some republican agenda.
God forbid the moron republicans get voted in again.
How are those cancer outcomes in the UK? *snark*
Cancer outcomes in the UK are poorer than the rest of Europe. Partly through lack of money - but that's because the basic rate of income tax is 20%. In most countries in Europe it's 40%. Hence they afford better 'social' healthcare. Hence 'social' healthcare works.
In the UK poorer outcomes are down to a lot of other more complex reasons too. Happy to discuss further if you like.
I asserted no such thing. I said three things:
1) Socialised systems in Europe use price controls and rationing to reduce the profits in providing medical care, discouraging innovation, and then free ride on innovations that are primarily aimed at the US market.
2) The British socialised system, in particular, rations care by denying treatments that are deemed to produce an insufficient number of quality adjusted life years for the cost--i.e., expensive things aimed at the elderly
3) The British system has certain rationing pathologies, like riots at new dentists' offices, and people travelling long distances to get routine care because it's hard to find a GP taking new patients--that don't happen in the US system. But I also noted that we have issues that the British system doesn't.
I guess I'll have to reply to myself as you don't seem to be allowed to reply to Megan.
Your assertion 1) is complete nonsense. The majority of these innovations are developed outside of the US! Yes, there are some fantastic physicians and researchers in the US, but they are a minority. I'm sure the many thousands of researchers based around the world (and particularly at the headquarter labs of the major (and almost exclusively European companies) based in Switzerland and Germany primarily will be surprised to hear this. I guess they should all just go home.
The treatments are not aimed primarily at the US market, as it is only a small part of the entire world market.
I can't even be bothered to reply to your other 2 points, but point 3 is such laughable gibberish it sums up your whole ill-thought out and unfounded argument.
The treatments are not aimed primarily at the US market, as it is only a small part of the entire world market.
What is the distribution of revenue? Serious question, I don't know the answer, but I would expect that the US market provides a disproportionate share, meaning that the potential of profits in the US will frequently tip the balance when determining whether a drug is worthwhile.
(@drbel) you aren't actually addressing her statements by pointing out that there are researchers based around the world when her assertion is that the innovations are targeted at the US market -- i.e. they may be developed locally, but they will be sold everywhere but the company expects to recoup heavily from global sales (of which the US is generally the highest payer).
A nontrivial number of these "Swiss and German companies" medical you vaguely point to, have US subsidary operations. In fact, the US Food & Drug Administration requires many medical devices sold in the US market to be manufactured in the US or Canada, so European companies with operations here not only consider the US market valuable, they consider it valuable enough to justify the added capital equipment expenditures to establish manufacturing centers here.
Nor does it help your case to say "Well, we're underfunded because we don't tax enough." That just proves the point: You only get as much medical care as you can afford to tax out of the populace, with rationing (limiting the total quantity of service provided) and price controls (limiting the profit to be had) being required to cover the difference. Which invariably leads to reduced innovation. Not eliminated innovation; reduced.
I know several people from the UK whose experience confirms aspects of both (2) and (3), so your assertion that these claims are such "laughable gibberish" they cannot even be addressed, is a very large black mark on your credibility.
I have a couple rare genetic diseases. My counterparts in the UK and Europe do not have very good access to services - 11 month waiting period (avg) for a pain control appt and over 40% can't even get an appt.
35% have been refused treatment / rejected by Drs entirely.
Google "The Voice of 12,000 Patients: Experiences & Expectations of Rare Disease Patients on Diagnosis & Care in Europe" and you can read the data / book online.
In response to the "Republican" bit - you know Megan voted for Obama, right?
No, Ms. McArdle didn't vote for Obama. She failed to register in time to vote.
For the sake of argument, I'll go along with the idea that American patients have to pay for drug innovations or else they will stop.
The prices of prescription drugs have been rising for several years at a rate higher than the rate of inflation. New drugs are more expensive than older drugs, but older drugs also tend to increase in price each year. (Unlike other kinds of innovative products--DVD players, cell phones, etc, which often tend to get cheaper over time.) Increasing numbers of Americans can't afford to pay for drugs--should we try to do anything about this trend? And if we don't, how long can Americans continue to pay these ever-increasing prices? What happens when we can't afford it any longer?
Hi Jules -
All patients pay for drug innovations. Not just US patients. There are as many people in Europe as in the US.
Oh yes, and nearly all major drugs companies (Pfizer, Roche, AstraZeneca, GSK) are all European and headquartered in Europe. The US market only equals that of Europe and Asia and the majority of clinical trials participants are now either based in Asia or in Eastern Europe. The assertion that US patients subsidise drug treatment development is completely false.
drbel,
You seem not to agree with some of the underlying but unmentioned prior points such as:
1. The prices paid for drugs is vastly different between the US and the European contries due to government cost setting in Europe. So while the number of patients may be similar the return is vastly greater in the US. And by vastly greater I mean multiples, not percentages.
Treatments are developed by meeting a specific cost / benefit analysis. Without the US return, or if the US return were the same as Europe's, far fewer treatments would satisfy the benefit analysis and move into trials. Whatever treatments result from the additional efforts are essentially provided to all other makets courtesy of the US market. This is the subsidy referenced.
2. It doesn't matter where the companies are located. They all chase a global market where the largest returns are in the US. Again, the benefits are what matter in determining whay drugs / treatmetns are pursued.
People will understand your objections better if you explain why you disagree with these ideas.
Sorry MJ. There were so many comments in general I lost track. And the will to live.
You raise some valid points, and some contradictory ones, and some disingenuos ones.
It is true the US might be the biggest individual country market, but it is not the biggest market. But that is still a small proportion of the whole. Europe, Canda, Japan, Australia, China, India, South America and many others make up the vast majority of the drugs market. The US is 250million people from 6 billion. Admittedly not all have access to the newest drugs. But to make out that the US subsidise the drugs market is plain wrong. The US is part of a bigger, global picture.
You are right that US patients pay more for drugs. But that is because your current healthcarse system relies on individual insurers negotiating with companies. In the UK, as in most countries in the world, this is negotiated at a governent (or federal) level. They have the power to say, 'we will only pay this much'. Another argument FOR social healthcare!
And don't worry. The global healthcare burden is soaring. The US does not drive this market. It is being massively outstripped by countries like China.
Additionally.
drbel,
1. Markets are not people. Normally they are revenues, but for purposes of innovation the driver is profit. While we the US is a minority of people we are a majority of the global profit.
2. I realize why we pay more. This doesn't change the fact that this increases the return for treatment suppliers which spurs additional treatments.
3. China may someday drive the bus both as a developer and as a market. But they don't today. And further they won't spend as much on development without the US market to sell to. Consider how their meteoric rise as a maufacturer is largely driven by exports.
Hi drbel--I don't actually agree with Megan on this, it really was just for the sake of my argument.
Good for you! I'm off. Can't cope with any more:)
The point being that even if our current system has beneficial effects on innovation, it's not sustainable. (Sorry for the two-part post.)
First, Pfizer is an American company. But more importantly, it makes no difference where the clinical trials are located or even where the companies are located. Drugs are funded by expectations of their future profits. It doesn't matter if Europe has more people than America, the profits are found in America. 80% of the total drug revenue of American companies and 65% of European companies is from America. Since the price of drugs is higher in America, total profits from America are even higher. This is what incentivizes drug discovery, so the assertion that US patients subsidise drug treatment development is completely true.
Um . . . where did you get this idea? AFAIK, price inflation is basically par-to-slightly-under general inflation in pharma; spending is going up because of changes in the drug mix and more overall drugs consumed. But I could be wrong. Do you have a cite?
Unless the cost to research the price is comparable to the auction bid, it doesn't have a particularly large effect on the rate of return.
Assuming you always win the auction, and assuming you never buy a lemon, you're right.
The biggest factors that figure into life expectancy are:
* genetics
* healthy lifestyle
Health care should be a very lightly weighted variable. The reason other countries have longer lifespans is they eat less and move more. Oh and I don't think England has a longer life expectancy any more since they are also in the throes of an obesity epidemic.
As of last year, they still do, as per Wikipedia (http://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy), taking its data from the CIA World Factbook. The UK is #37 for life expectancy at birth, and we're #45 (or #26 and #30, if you're going by UN Member states and discarding things like Gibraltar and Puerto Rico).
Ranks for these types of analyses are very poor statistics. The difference in female life expectancy in the US and UK is 3.5 months. I use female because it lessens (although doesn't elminate) the non-medical factors. Small differences like this are much more likely to be a result of cultural differences or other inputs than they are of the medical systems.
The international rankings of healthcare systems are even worse. These explicitly include a "fairness" or cost bearing component which was specifically designed downgrade the US healthcare system based on an economic issue.
maybe not often in the US, but in other countries you can be sure that government scientists do produce new innovation / patented technologies... i do realize megan's theory is classic economics (ie "not for the benevolence of the baker that he bakes bread"), but there is also room for a fair argument that research and innovation exist for the purpose of purely intellectual advancement of a society. a true scientist will not stop learning and creating just because the money is gone. maybe i'm being grandiose in my idealism, but i don't think that government control will stifle innovation.
Absolutely. But there are lots of things to learn and create. If I don't have the money to learn about and create something expensive (a new drug, validated for safety and efficacy in clinical trials), I'll find something else interesting that I can study on the cheap. Which will likely be interesting to other scientists, but won't give you anything new that you can use in the clinic.
I think Megan's underlying concern is valid--if the profit goes out of drug development, then there will be less drug development.
On the other hand, it is not necessarily clear that the only way to support pharmaceutical innovation is on the backs of sick Americans. Is it really true that drug companies will simply throw up their hands and go out of the drug discovery business if US consumers no longer pay most of the cost of innovation? Or will drug companies strike sharper bargains with other countries so that we end up paying a more equitable share of the drug discovery bill? Or will we find other ways to make new drugs profitable? For example, we could extend patent rights for new drugs (or some new drugs, such as those in a new drug class.) Or we could offer huge prizes for major therapeutic advances.
"Or will drug companies strike sharper bargains with other countries so that we end up paying a more equitable share of the drug discovery bill?"
One thing I would support is a best price contract clause, perhaps limited to developed countries, and excepting pro-bonos.
Oh, nobody claims it's going to strop innovation, it's just going to slow it down a whole pile. The best drugs, the ones where you can make money even at NHS prices simply due to volume, will still be sent through all the regulatory approval processes. Even at pill-cost-plus, Viagra would still have made market. It's the smaller markets - rare diseases, say - where the cost-benefit will be destroyed by this.
Three cheers Megan.
BTW, the burden of proof is on the pro-single payer folks to prove that it's better then the current system, not on the rest of us to prove that single-payer is bad.
Please read the Wikipedia link above.Most countries with national health insurance better health outcomes than do the US . This has been proved beyond REASONABLE doubt. Only the " are we really sure that the US made it to the moon" crowd are still debating this.
And once again, NONE of the bills are advocating single payer.
Once again there is no evidence that health care inputs cause longer lifespan rather then genetics and lifestyle. Correlation > Causation!!!
I think that given the evidence that heath care systems in other countries (not necessarily single payer, but of course neither is the proposed reworking of our current system) provide better outcomes in terms of infant mortality and life expectancy, with lower cost, and as good or better consumer satisfaction than our current system, the burden of proof is pretty squarely on those who want to argue that our current system provides advantages that outweigh the potential cost savings and improvements in health care.
Megan offers one suggestion: If sick people in the US stop carrying a disproportionate share of the costs of drug development for the entire world, then perhaps we will lose out on future improvements in pharmaceuticals. This is debatable, but at least it does not fly in the face of the evidence that the US system produces inferior results at higher cost.
Jeebus,
where do I start?( and to think that her libertarian fanchildren praise this for being a GOOD post)
It will do this by deciding what constitutes an acceptable standard of care, and refusing to fund treatment above that.
Private insurance companies don't do that of course. They just fund everything. And they don’t deny claims either. Talk about Bizarro world.
It will also start controlling prices.
Please provide a link to the place in any of the bills where a price control scheme is proposed. Thanks in advance
Perhaps this is soothing to some other conservative--one who's worried more about waits at doctor's offices, or government operation of the healthcare system. But that's not me. I'm fundamentally worried about a utilitarian calculus. As long as I think that single-payer will fundamentally depress innovation, I'll remain opposed.
You can be opposed to a single payer system if you like, but that is not what is being proposed. No need for nightmares, your single payer bogeyman does not exist (By the way, the Dutch system that you decry is NOT a single payer system)
By pointing to the Netherlands as our possible future, Matt concedes that we'll end up removing those profits from the system
I'm sorry, NONE of the European pharmaceutical companies make profits? I'd like to see some evidence of that, please. Indeed, I'd like to see some evidence-ANY evidence- that innovation in the PHARMACEUTICAL industry will slow to a crawl as a result of reform in the HEALTH INSURANCE industry. I know that your libertarian readers like the cut of the your argument, but you've got to come up with some evidence now to back it up, or Steinglass, Klein, and the folks at Crooked Timber are going to tear you up.
Critics of our system say that it is horribly wasteful and inefficient. I quite agree. But innovation is horribly wasteful and inefficient.
I'm sorry, this is just a big fat non sequitur. Besides, libertarians are always condemning Government as horribly wasteful and inefficient. Is being wasteful and inefficient now a GOOD THING?
And when such systems do make start spending big, they don't tend to get made where the biggest market is--i.e. the most patients with the strongest demand. Instead the decisions are political: which disease has the best organized interest group to lobby the government?
As opposed to now, where pharmaceutical companies focus purely on the worst diseases like malaria, while ignoring the problems of male impotence in the West. Oh wait.............. In the real world, of course, there is a pressing need for anti-malarial drugs, but not much of a market demand for it, because the sufferers are mostly poor Third World folks. You might want to reconsider your argument in the light of the fact that "most patients" do not necessarily equal "strongest demand."
But at this point, the US is the only country left providing a hefty incentive for inventing new treatments.
Let's assume that you are right on this. Where is the evidence that innovation comes because pharma companies make big profits and not mostly through the fact that government in the US spend more money in total dollars on basic research than anywhere else? Because if innovation mainly comes through government funding of basic research, then your whole argument fails.
The whole argument that government intervention is bad for health care is specious nonsense anyway.
Let me republish my big list of government inventions that have been good for health care:
Listen, folks- the government is already heavily involved in health care-and that's a good thing.
• The law requiring that emergency rooms treat people first- Good. Prevents people dying in the streets.
• Medicare? Good. All seniors get health care. No seniors , anywhere, wants to give up Medicare-even if, a few believe, somehow, that it's not provided by the government.
• Medicaid-Good. See (1).
• NIH-Good. The greatest engine of innovation in health care, IMO, and THE reason why the US leads in medical innovation.
• CDC- Good, for reasons even the most benighted libertarian can agree with.
• FDA- Good. Let's see if Megan serves non-FDA approved food at her wedding reception , or if any libertarian goes with no FDA approved drugs when their life is on the line. No takers? Didn't think so.
• Government regulations requiring fluoridation of water-Good.
• I could go on -and I think I will.
• Truth-in-labeling laws? Good. I want the contents of my bottle of drugs to match the descriptions on my label.
• State funding for medical and nursing schools? Good. I want the supply of doctors and nurses to be as high as possible.Most teaching hospitals are also state supported
• VA and military hospitals-Good. The government should be responsible for the medical care of those who serve or have served in the military. That system which is entirely government run and financed, leads the world for its innovative treatment of injuries due to trauma, which should lay to rest those arguments about governments ALWAYS stifling innovation.
http://www.washingtonmonthly.com/features/2005/0501.longman.html
OK,
I'll stop there.
SO government involvement in health care is good, on the whole.
======================================
I'll even add a couple more :
the government campaign to eradicate smallpox. This is a campaign that was undertaken by governments worldwide that eradicated a scourge that had been with us since biblical times. it was a complete success and one of the greatest health projects in history-all done by government.
the campaign to eradicate polio. again by government-almost as successful.
This is by no means an exhaustive list, by the way. Anyone who knows of other successful government interventions in health care can add to the list.
"VA and military hospitals-Good. The government should be responsible for the medical care of those who serve or have served in the military. That system which is entirely government run and financed, leads the world for its innovative treatment of injuries due to trauma, which should lay to rest those arguments about governments ALWAYS stifling innovation."
I'm sorry, but you just said the VA system was good.
I absolutely agree that we should provide for medical care for those who serve/served. But the VA system has very specific areas it excels in...and fails miserably in amost all others.
Perhaps you can cite VA innovation in treatment of injuries due to trauma?
I think this time Crooked Timber will just point & laugh, at most.
This post is gibberish, livened only by her claim to have done calculus.
She asserts it, she offers no proof. Note also that what I am saying is her position, such as it is, can be expressed in one paragraph; it doesn't need thousands and thousands of words put together in a rather rambling disquisition. I find it hard to believe you didn't get this, but, if that's your story . . .
Okay, then, I guess that if we adopt a French-style health care system then we will, um, begin speaking French. Both more often and with more fluency. And if we adopt the German-style system, Americans will develop a greater fondness for bratwurst and sauerkraut(And that's assuming for the sake of argument that, say, pharmaceutical companies under the American plan really are more 'innovative'. The evidence for this is scarce on the ground as well.)
Further, pharmaceutical companies are decidedly less innovative now than they have been in the past - while at the same time enjoying record profits - and this is before any sort of major revamping of health care. Are we to assume that the mere possibility of reform years in the future can reach backwards into the past to wreak havok? That seems a little far-fetched.
What is the evidence for "record" profits? What I'm seeing in the pharmaceutical industry is contraction, with mergers and acquisitions leading to reduction in work force, particularly in the important area of drug discovery. That's not what you expect of an industry enjoying record economic success. Drug company stocks certainly don't seem to be going up remarkably fast, either.
And if we adopt the German-style system, Americans will develop a greater fondness for bratwurst and sauerkraut
If the goal is greater bratwurst consumption, then there's no need to do anything with the health insurance system. We could just get German-style bratwurst, which is much better than the crap you get here.
But more seriously, if other countries cut costs with price controls and rationing (note the "if" there), then it seems likely that when the (hypothetical) US government health care plan decides it needs to cut costs, that price controls and rationing are going to be the means.
Are we to assume that the mere possibility of reform years in the future can reach backwards into the past to wreak havok? That seems a little far-fetched.
Indeed. The problem is more likely that low-hanging fruit have now been plucked.
Pancreatic stem cell transplants for type I Diabetes were innovated in Canada. The CT scanner was invented in the UK. Laparoscopic gallbladder removal came out of Canada.
The Lancet is one of the premier medical journals in the world, full of well respected research; out of the UK.
A governement run program-the NIH-did the early, up front research to develop AZT for HIV, and later sold it to pharmeceutical companies.
There is no empiric evidence that innovation will suffer under another system, just fear that it will.
The United States currently provides something like 80-90% of the profits on new drugs and medical devices. Perhaps you think you can slash profits 80% with no effect on the behavior of the companies that make these products. I don't.
Point taken. However, the drug companies make huge profits; surely they can do with some amount less than they make and still innovate? Maybe the can spend less on advertising and use that savings as "profit"? They won't need reps to visit doctors (I see 5-6 a day at my office), so there is some more savings to be converted to profits/R&D. Just in the last month, it has been reported that they are spending upwards of a million dollars a day in advertising just for this debate; surely you can't say that is defensible; of course they have a right to spend their money however they please, but if they spent less money on advertising, they could put that into R&D, right?
if they spent less money on advertising, they could put that into R&D, right?
Only if their current marketing efforts are useless. Presumably they think they're getting a positive return on their advertising, or they wouldn't be doing it. If that's the case, then cutting marketing would result in lower profits and less available for R&D.
The industry spending a million dollars a day is 365 million a year, assuming this debate drags on for a year(ugh). Pfizer alone spends north of $7 billion a year on research. The cost of this campaign is actually fairly low, considering. And given that we're talking about a potential downside to these companies of tens of billions a year, I'm actually fairly impressed that they're not spending more to try to prevent this.
Who said anything about slashing profits 80 percent? Even if the US did begin to negotiate tougher price controls on pharmas, that wouldn't be taking away all of the profits from such drugs.
Sigh. What sort of proof do you have that Americans have 'inferior' genetics, as opposed to Canadians, or Germans, or Brits? Or a less healthy lifestyle? Oh, wait, didn't I just say something about these sorts of people and the childish games they play:
Er, at the risk(no, the certainty) of having this not being heeded, no. The burden of proof is on those who have for years, decades, saying that Americans enjoy the best health care system of any country on Earth.
Those who question this point to countries with better life expectancies and smaller health care expenditures. They're asking you to explain your assertion in light of these facts, iow, and the burden of proof is on - drumroll - you.
So. What sort of evidence do these America Number One! types have that would explain away what appears to be a rather glaring discrepancy? And no, assertions about 'lifestyle' or 'genetics' are just that - assertions. They need to present some actual evidence, do some actual work for a change, not just speculate and challenge others to disprove their speculations.
America is one of the most obese nations in the world, which contributes negatively to life expectancy. Americans drive more than just about any other developed nation, so the car accidents take a hell of a toll too - rough calculations say that the 58,000 automobile fatalities in the US per year knock the average age of death down almost a year. Toss on some 20,000 violent deaths per year, for probably another six months(since the average age of the victims is lower). Now, of course, Europe gets both of those, but not to the same extent - call it six months to a year of net difference from violence and car crashes. A year would bump the US from 45th to 30th, leapfrogging Germany, the UK, and the EU as a whole.
I suspect the health benefits of universal coverage would exceed any losses from dampening innovation. Getting millions of previously-uninsured people regular doctor visits and preventive care probably justifies foregoing the creation of the yet-to-be-invented, multi-billions in R&D, whiz-bang drug to treat pancreatic cancer. Not to mention that the insurance company will screw me out of getting the expensive whiz-bang drug if given half a chance.
Does that make me opposed to innovation? I guess it does. But the logical outcome of Megan's position is that supporting pharma innovation is an acceptable trade-off for 40 million uninsured.
You may be right on the 2 year horizon. On a 50 year horizon you're wrong. I'm not comfortable screwing future generations.
Don't forget the science side. The structure of DNA? Government. The alpha helix and the beta sheet as being the building blocks of protein structure? Government. Peptide bonds, the bonding of antibodies to complementary structures on antigens, molecular clocks, etc? Government, government, and government.
Note that this stuff, a decidedly non-random sample, is of great utility as far as innovation of medical treatments are concerned. If private enterprise is so all-fired up about the pragmatic pursuit of the buck, why didn't it discover any of this? This isn't exactly esoteric, abstruse stuff, destined for practical application many decades if not centuries later.
Scent -
All great points and a valid and worthy reason to maintain and even grow the NIH.
But remember that the things you mentioned are "manhattan" projects, in the sense that I can't go out and market the structure of DNA, but I can use that research to develop LOADS of new things.
Similarly, the Apollo program threw massive amounts of research and development into a project and wound up developing tons of technologies that spread into benefitting the rest of society.
Government funding can, and will, absolutely drive research and development of new technologies.
My fear is that when politicians become overwhelmed with the cost of that development, they shut it down and avoid innovation (witness NASA today, comparably).
Joe
So, the innovation argument would be better argument except for the fact that there are plenty of drug companies in the rest of the world, happily churning out drugs for more regulated markets and making plenty of money. GSK, Sanofi Pasteur, Merck, Bayer, Aventis, Novartis, Roche, Otsuka are some of the majors.
It's certainly true that a lot of biotech comes from the US but are now there are plenty of non-US biotech companies and none of them make money here. And, actually, there's a sense that a lot of these firms are moving as the insurance
But the US does seem to lead with innovation in horrible, sub-standard insurance products where people get somewhat less than what they thought they were paying for.
A) more research is done in the US than in any other similarly sized region by a large margin
B) Even for foreign companies, we provide most of the profits.
"I'm sorry, NONE of the European pharmaceutical companies make profits? I'd like to see some evidence of that, please. Indeed, I'd like to see some evidence-ANY evidence- that innovation in the PHARMACEUTICAL industry will slow to a crawl as a result of reform in the HEALTH INSURANCE industry."
Or from drbel
"All patients pay for drug innovations. Not just US patients. There are as many people in Europe as in the US.
Oh yes, and nearly all major drugs companies (Pfizer, Roche, AstraZeneca, GSK) are all European and headquartered in Europe. The US market only equals that of Europe and Asia and the majority of clinical trials participants are now either based in Asia or in Eastern Europe. The assertion that US patients subsidise drug treatment development is completely false."
You are both misunderstanding. Where a company is headquartered and where it earns the bulk of its profits are two incredibly different issues. The assertion is not that companies headquartered in the US make a majority of the pharma discoveries. The assertion is that the major pharma companies *in all of the major developed countries* earn their research costs back in the US market. If a German citizen earns $50 in Germany and $5000 in the US, it makes very little sense to talk about his citizenship as determining where he earns the most money.
Yes. But as mentioned earlier. The bulk of the profits are not from the US. A good portion of them, but not all of them.
Actually, the bulk of the profits are from the US. Look at the financial statements of any company that breaks out its international operations. The bulk of the sales often comes abroad. But all the margin is here.
No, you are still misunderstanding. The sales in number of units may be about equal between the US and Europe. But they are no where near each other in terms of the profit. To conceptualize:
Posit a unit production cost (excluding research costs) of $1.
US sales are 400 units at $3.
EU sales are 600 units at $1.25
Total profit is $950. Profit from the US is $800 or about 84% of the total profit while profit from the EU is $150 or about 16% of the total.
In that case, even though EU sales of units are more than US sales of units, the US sales represent a huge majority of the profit.
The claim is NOT that there are more sales of pills in the US. The claim is that the vast majority of the profit needed to fund the research comes from sales in the US. And if you look at the financial statements of drug companies--even those based in Europe--you find that is true.
If private enterprise is so all-fired up about the pragmatic pursuit of the buck, why didn't it discover any of this?
Same reason private industry didn't come up with most other basic stuff: most of it can't be patented.
GSK, Sanofi Pasteur, Merck, Bayer, Aventis, Novartis, Roche, Otsuka are some of the majors.
Yes, none of them ever sell their drugs in the US.
"And when such systems do make start spending big, they don't tend to get made where the biggest market is--i.e. the most patients with the strongest demand. Instead the decisions are political: which disease has the best organized interest group to lobby the government?"
Why would lobbying influence government insurance more than it would influence private insurance?
Because governments are run by politicians.
Ok Megan, so you're basing your opposition to reform on the threat you think it poses to innovation. Fine. Let's explore that.
Currently the costs associated with not moving to a universal coverage plan are:
1. Approximately three quarters of a TRILLION dollars a year in health care spending in excess of what would be spent on a system with the cost of the average OECD nation.
2. Tens of millions of uninsured Americans.
3. Tens of millions more under-insured Americans.
4. Lack of mobility in the workforce due to health insurance being employer dependent and a minefield for anyone with any existing medical condition who loses current coverage.
etc...
Now, is it your contention that we are receiving at least equivalent value for those costs in the form of the amount of innovation the current system produces that would be lost if the system was reformed to a universal coverage plan, such that refusing to support the implementation of methods known to eliminate those costs is justified by what we receive for them?
Three quarters of a trillion dollars A YEAR worth of new innovation that would just go "poof" if we reformed the system?
Sufficient innovation ABOVE AND BEYOND what would exist in a reformed universal coverage system that is of such value that it justifies pricing tens of millions of Americans out of the insurance market and sticking tens of millions more with insurance "coverage" that will still put them on a collision course with bankruptcy in the even of a serious medical illness of trauma?
Enough medical innovation to offset the sacrificed mobility in the labor force?
Are you seriously making that argument? That the difference between the amount of innovation we see now and the amount of innovation we would see if we fixed the U.S. health insurance system is of a value that equals or exceeds those costs and is thus worth not pursuing that reform?
If so, I'd like to see that explained just a bit more substantively if you don't mind.
Remember the other thing that 750 bil buys you - the US is pretty much the only developed nation in the world without a chronic doctor shortage, and the ensuing explosion of wait times. That's a pretty sizable benefit, worth a good portion of that cost difference.
The wait time is reduced because there are ~47 million Americans who aren't in line.
BTW, you must not spend much time in rural areas, because there are plenty of doctor shortages outside the major metros.
"My objection is primarily, as I've said numerous times, that the government will destroy innovation. It will do this by deciding what constitutes an acceptable standard of care, and refusing to fund treatment above that. It will also start controlling prices."
I can't figure out a plausible scenario for this to take place. First, the pharmaceutical industry has immense influence on Capital Hill because of its army of lobbyists and its campaign contributions, and Congress seldom crosses it; second, as Megan knows, the industry has thrown its support to the administration in return for a promise NOT to attempt to control prices; and third, the notion that Congress would approve restrictions on medical research is simply ludicrous. It's as if Megan says her objection to the administration's proposals is that if they pass the government will kill all first born children.
When you do scientific research and you say that x causes y, you have to provide a mechanism before people believe you. Ex cathedra statements, like the one I've quoted above, don't hack it. I realize Megan isn't writing a scientific article, but can't she make at least SOME attempt to explain her reasoning?
Hard to understand why anyone might suspect a promise from a politician generally, or specifically an administration which has continually changed stances from its campaign assertions.
In fact, the most likely scenario from the circumstances you outline is that we will retain the premium on existing drugs (because it would be unfair to change the rules after congressional contributors have incurred expenses), but reduce it for future drugs. Thus we can keep high costs and reduce innovation.
"When you do scientific research and you say that x causes y, you have to provide a mechanism before people believe you."
If you disagree with economics why do you bother commenting? Every objection is going to end up in the same place. Do you expect every post to start with an economics textbook?
Critics of our system say that it is horribly wasteful and inefficient. I quite agree. But innovation is horribly wasteful and inefficient.
.
And therefore a wasteful and inefficient system will lead to innovation? What an amazing strategy you've come up with, Megan. Inefficiency to save innovation? Failure is best! I can see why you didn't get very far with that MBA. And just in case anyone wondered about the tired canard which Megan offers, namely, government healthcare means no new drugs for granny (the McArdle Pharmaceutical Death Panel fallacy), the UK develops a very high percentage of new drugs - higher in fact than the US,relative to the size of its economy and or population and does so despite substantially lower drug prices. But hy deal in facts, when you can put together a combination of fear-mongering, dogma, and US supremacism?
.
http://www.berr.gov.uk/aboutus/ministerialteam/Speeches/page39412.html
Relative to the size of it's economy and population? That's a pretty weird comparison.
What's the size of each country's biotech/pharmaceutical investment in domestic R&D?
Wouldn't that be an more apt comparison?
Of course, that might ruin what you are trying to say.
Joe
P.s. The U.K. is in the top 5 as far as innovators go, but we're still numero uno.
What's your comment on the thinking that pharmaceutical spending is more in the marketing than the development? Also that pharma profits are higher than many industries (suggesting that the profit margin could go down without shutting the industry down)? And that the bulk profit comes from tweaking old drugs, not creating new ones?
http://www.ecmaj.com/cgi/content/full/171/12/1451
JennG - At what point does government control profit margins, and how widespread should it become? Is not profit an incentive to run an efficient marketplace of services/offerings, and to be the best?
Also, regarding marketing, a huge amount of that spending goes into free samples that allow people to try drugs out for free before taking a long-term script. It also goes into educating (from a biased source, absolutely) doctors about new drug offerings...an educational service that is not forced onto doctor's anywhere else. Rare is the doctor that self-educates throughout their career (and lucky are his/her patients).
And yes, lots of tweaking of old drugs is going on. The pharma industry really exploded in the last 50 years and tackled tons of "low-hanging" fruit. Now they have to be alot more fortunate to find a totally new therapy, and therefore alot less come out.
But they take old therapies and make them better through new dosing regimens, finding ways to remove side effects, pairing them with other drugs for a synergistic effect, etc.
Is that not a worthy pursuit in itself?
Jus tmy thoughts on your questions...
No, there isn't price discovery in our current system, not for innovations anyway. The combination of risk pooling with monopoly providers (via patents) is not price discovery, nor is it sustainable. The monopoly holders will obviously suck all the blood out of the risk pool (so to speak).
Well, you just have to agree to disagree with people that can't be convinced that financial reward is the most fundamental and necessary incentive to innovation.
One last time. Sure, there are a lot of foreign-based pharmaceutical companies and medical device/procedure innovators, but practically every patented drug/device is sold in the US at a significantly higher return, and most of them are sold here first for that exact reason- it is the way to maximize your overall return, and often, in the cases they aren't, it is only because the FDA was more reluctant to approve, for whatever reason.
Innovation in private drugs is what you're holding up as an example? You mean where the government confers a carefully controlled monopoly, with a government run approval process?
I'm normally a McArdle fan but the reasoning and level of sophistication (it's as if she's willfully ignorant of the reality of the current system, or the legislative options actually being discussed, and wants to argue based on some cannonballs-flying-through-a-vacuum model in her head, Cato-style) - but the series of posts about obesity and public healthcare are poorly reasoned and shot through with basic factual errors and false premises.
Maybe this is evidence that libertarians can't quite grapple with what to do about public healthcare. There's all sorts of evidence that we have a problem, but they don't want "government" to do anything about it. This in spite of what we see working in other countries. They also can't quite figure out what the free-market solution ought to be...because this isn't about selling widgets or wheat. Moral hazard, deep moral questions for society (to what degree should one's access to healthcare depend on one's "merit"/income - is it appropriate to be playing meritocracy games with something this basic to human welfare? What if in reality this isn't a meritocracy?), the dynamics of insurance, the inevitable distortion of the market by politicians in a democracy simply responding to demand of their constituents...
The innovation counterfactuals on offer could easily be tested using history. What can Megan say about how medical innovation changed as countries adopted publicly funded health programs? No need to actually look into this I guess, for people like McArdle and Wilkinson, righetous arguments that tickle the libertarian feel-good module in their heads are all that's required.
Dude, the fact that I can concede that there are problems with my solutions, but I think they're the best we've got, while health care reform advocates have magical fairy solutions which involve no tradeoffs, is not an indicator that *I* have a problem when reality confronts my priors.
"while health care reform advocates have magical fairy solutions which involve no tradeoffs"
There we go. I've been wondering what's been happening in the libertarian bubble lately.
The opposite is true, lefty healthcare wonks have been at this since at least the start of the 2008 Dem primary, and that was a LONG time ago. There's very little indication that libertarians or conservatives are moved by our healthcare problems (the sentiment is mainly, "what's the problem?" Oh and, "government bad!").
You come to the table and say "well I worry about innovation. Who else is? I need to be the adult here." But you've only put forward a general, unsupported worry. I'd like some more wonk - can you cite SOMETHING about the effects of public health systems on innovation? Or are you just making this up as you go along?
Steinglass had a great critique on your original post - it's as if you're intentionally ignorant of the actual health reform proposals on the table. Are you coming at this issue in bad faith - i.e., I'm a libertarian, let's just ignorantly bash all the legislative proposals in sight because that's how we roll?
"The innovation counterfactuals on offer could easily be tested using history. What can Megan say about how medical innovation changed as countries adopted publicly funded health programs?"
So long as they have access to profit in US sales, that wouldn't show anything because they can still make back their research costs in the US.
Nice just-so story. Anyone got anything that I can't come up with based on pop biz thinking or econ 101?
mj, Megan is not arguing on the basis of economics. She's saying that if government gets more power over medical insurance, it will inevitably do the evil things she says it will do. What she's talking about is governmental actions. To me that's politics, not economics.
I made three objections to her argument. The most telling, in my opinion, is that the administration has explicitly promised NOT to do the things Megan says they will, and Obama is taking heat from Robert Reich and others for caving in to the pharmaceutical industry. I can't imagine that Megan is unaware of this development, and I'd have more faith in her sincerity if she had mentioned it.
By one definition, a thesis is a proposition defended by logical arguments. I don't see any logical arguments in Megan's post.
It's possible that they won't end up doing these things. But the evidence from every other country is that when there's cost pressure, the first thing they look to is slashing vendor profits to the bone. This isn't really a discussion about government. Secure monopolies don't innovate--which is why the phone and cable monopolies only started improving once they started competing with each other.
Many private insurance markets are already highly monopolistic. That's the point of having a public insurance option. And even if the public option became a near monopoly, it would still be subject to voters' concerns, unlike a private monopoly.
So we should be breaking up existing monopolies, not creating a large, more powerful monopoly to swallow them.
@Ken. Fine, that's a valid proposal, as long as I'm not forced to buy insurance from a monopolist who can ignore any complaint I have with impunity. I've had this idea myself, and I would love it if the debate turned to monopoly busting versus having a government option. This is the right debate to have.
Unfortunately, we are not there yet, and people still haven't even accepted mandatory minimum coverage as a necessary element of reform. I suspect some of this is just people being disingenuous so that they can 'settle' for the plan that the health insurance industry wants (a simple mandate with no competition).
...I should add though that simple monopoly busting forgoes economies of scale. And one benefit of going all of the way to a single payer government monopoly would be that it frees individuals from the burden of complying with a necessary mandate. I reiterate that a large government monopoly is very different from a large private monopoly, because the electorate can fire the people who run it if they are doing a bad job. This is an important difference.
"because the electorate can fire the people who run it if they are doing a bad job."
This is not true. You can only fire the people at the very top who have tangential relationships to the policies you want to change. The entrenched interests can almost always outlast the temporary change in authority. These interests can usually count on the support of the party out of power and other allied political institutions. This is why government is so hard to change and impossible to reduce.
@mj. If benefits are set by a presidentially appointed committee, then voters can fire the president and get a new president that will appoint a committee that will have a set of benefits/premiums more to their liking. In fact, we know that any reform will ultimately have to have a mandate for government defined minimum benefits and maximum out of pocket costs to prevent the adverse selection problem. Once this is done, there really isn't even that much left for the insurer to do besides negotiate prices with providers. So either way there's still going to be a government 'monopoly' on defining minimum benefits. This is just a necessary evil that comes with providing insurance for often-predictable conditions.
This is almost the right analogy, but go further back to when there was only AT&T, one phone company nationwide. A regulated monopoly guaranteeing stability and where innovation constituted moving from black phones to designer colors. Sure, service was reliable, rates were high and long distance was charged by the land-mile long after signals were being bounced off of satellites so that a call from NY to Boston traveled the same distance as one to LA.
Of course, under Obamacare it would be illegal to make movies such as The President's Analyst or Soylent Green.
Stan,
It's not politics, it's economics. Economics is not just money, financing, or GDP. It's a fundamental description of how human systems function. This is why Adam Smith referred to himself as a philosopher.
I can't believe you're saying a politician's promise is worth anything. But even given that, do you think Obama's promise will bind whoever's president after him? We're not taking about the effect on next year's budget. We're talking about the effect of systemic changes compunded over decades.
The most telling, in my opinion, is that the administration has explicitly promised NOT to do the things Megan says they will
1) That's a rather touching and child-like display of faith there.
2) What about the administration that comes after this one? Have they made any promises?
"2) What about the administration that comes after this one? Have they made any promises?"
I love this argument. Greg Mankiw made a similar one recently. Basically, you're suggesting that opponents are worried that when they are in charge later, they'll screw it up for everyone.
Do you remember this one? "Do you want the same people in charge of health care that were in charge of the Hurricane Katrina response?" Classic.
"they are in charge later, they'll screw it up for everyone."
1. This assumes the Dems don't win after Obama.
2. This assumes that just because someone is an R they have similar ideas.
Both these are wrong. If Obama loses to a Rep in 2012 I will not consider myself in charge. But this says quite a bit about your understanding of politics.
FDR's original SS tax rate was 1%, I believe, and it was sold at the time as never going up.
There are a lot of administrations who need to keep this particular promise.
@mj,Rob. Has anyone even explicitly said which of the promises they are referring to? I did a quick search on this page for 'promise' and couldn't find any specifics other than drug price control. I was half joking with my comment, but if you're going to take it seriously, of course I'm not so naive as to think that politicians are likely to keep their promise except when keeping the promise yields more political capital than not keeping it. I may even be overly cynical in this regard...
"Has anyone even explicitly said which of the promises they are referring to?"
Obama's promise that he will not implement price controls on the Pharma industry.
"The most telling, in my opinion, is that the administration has explicitly promised NOT to do the things Megan says they will" 4:52 PM
We underestimate the degree to which European governments do pay for very expensive treatments for rare conditions. Take a look at Genzyme's sales -- they make biologics for rare diseases. (The drugs are referred to as "orphans.") They sell plenty of their products -- at something like $250K per year per patient -- overseas, in countries with government-funded insurance and/or care. (Interestingly, Genzyme also chooses to put its profits into R&D and does not pay a dividend. Yet it's a profitable, publicly-traded company. Another model is a non-profit that uses the earnings to fund further research. The Population Council was an example of how this can work. They used the earnings from Norplant to fund additional research into other contraceptives.)
Also, we have a friend whose son had a rare form of brain cancer. She became very well-versed in the clinical trials that were going on all over the world, corresponded with doctors abroad about the new treatments, etc. Perhaps this was an anomaly, but based on her experience, it seems that the U.S. is definitely not the only country where innovation is happening and that some people in this country have a distorted perspective on the extent of innovation happening elsewhere.
As pointed out above, the issue is not that no company outside the US innovates. It's that they make the bulk of the money off of their innovations in US markets.
I haven't read every post and reply but I think you have not addressed the bigger picture concern that some have raised, which is why should the status quo be preserved at the expense of all the people who have no coverage, inadequate coverage, or coverage that could disappear next week, next month, or next year (when their employer can no longer afford it)?
And if the U.S. is providing the bulk of pharma profits, why should that be so? And why is the current level of profits necessarily the level that's needed to ensure innovation? I don't buy that a 0.5% decrease in profits suddenly shuts down all innovation, but that amount of money could buy a lot of people basic coverage.
As Steve C pointed out, there are moral and ethical issues here about the trade-offs that must be made, and the insistence that our current system can't be changed does not grapple with that challenge. I think our level of innovation is terrific but think a marginal decrease in innovation is worth a much larger increase in the baseline level of care that everyone can access. The problem is that there's no way to know in advance how much innovation will decrease, or to measure how much we lose in innovation for every additional person who will now have coverage.
Huzzah!
Why should the status quo be changed at the expense of all the people who are going to die of something we can't currently cure--100% of them--plus all the unborn people who have conditions that will be treatable in the future?
re: "all the people who are going to die ", it's a lot like the invitro fertilization controversy situation in the 70's. The technology was becoming available and was getting cheap, so why WOULDN'T people go around paying others to carry their children for them? Everyone thought that was going to be terrible, and sure enough, the world is a terrible place now. The end.
Shelly, if it was 0.5%, I don't think any of us would much care. When it's 60%, things change a little.
Overall, I think this is a decent post, Megan. I don't agree with it, but I commend you for at least keeping a cool head in a volatile environment.
I'm no economist, and I don't know much about the history of the health care system, but my one problem with your post is this: Unless I'm horribly mistaken, (and I might be as I've purposely avoided TV/radio about healthcare for a week now) nobody is going to be forced to give up their private insurance if they don't want to.
If this is the case, then how will millions of people who are suddenly able to receive medications and treatments going to somehow hurt the profits of those who design and administer them? It doesn't make sense that a bigger market can suddenly hurt businesses, even if prices are depressed a little by the competition. I'm confused as to how innovation would be hurt by this too.
An honest question from a health care "newb". Anybody have any answers? Links and stats preferred.
Google "crowding out"
Interesting. I guess my question has now morphed into two new ones:
1 - Are the projected savings that people will have in their pockets going to cover whatever negative growth occurs in private consumption? Even if it's not returned to medical industries, people will (ideally) have more to spend.
2 - If the overall goal of health care reform is to improve the quality of our health care systems, then how worried should we really be about a crowding out effect?
Really, that's your response to "links and stats preferred"? Is there anything more to this argument you're making than something you just thought up based on some economics training you had?
With regard to Rob Lyman's post, I'm not the one showing a touching faith in the administration's promises. It's Billy Tauzin who had the conversation with the guys in the White House, not moi. So what you're saying, Rob, is that Tauzin is so dumb that he doesn't realize that the promises he got are worthless, and he's so dumb that he doesn't know the best interests of the industry he's defending, and the industry's so dumb that they're paying Harry and Louise to tout health insurance reform.
Maybe I'm wrong, but I can't see why the pharmaceutical industry would sign on to a plan that would be a disaster in the long run. Maybe you could explain.
It's just slightly possible that someone like Tauzin is comparing the hype and the reality of Obama's record on, oh, gay marriage, deficit spending, indefinite detention without trial, endless war, "postracial" politics, and other Issues We Must Turn Around Now that got the man a landslide victory less than a year ago, and has decided that if he's not going to get an even break from the administration, he might as well take the uneven break he can get before the goalposts take wing and fly around the field again.
The computer always wins at Tron, it's just a matter of how big a score you can accrue before finally being cut off.
If Billy Tauzin doesn't realize whatever "promises" he got are 1) probably worthless ab initio, and 2) definitely worthless after 2016 at the very latest, then yes, he's an idiot. He probably knows all this full well but also knows that he and most of the senior management will have their golden parachutes before things blow up.
As for signing on to a long-run disaster, there are plenty of companies who are eager to do so in exchange for short-term gain. How many Faustian bargains did GM strike with the UAW over the last 4 decades? How good were the Lehman Brothers' management at thinking through the long-term consequences of some of their bets? That was a company that survived the 1929 and the Great Depression, but couldn't manage to survive a housing bubble that David frickin' Bernstein was blogging about years ago.
Is pharma smarter? I don't know.
One of my complaints about drug costs in the US is that the US subsidizes the rest of the world's drug costs.
I never knew that people actually favored this. I just thought they didn't pay attention to the fact.
Basically, I find a cure for pinky itch and figure that I need to make $200 Million to cover development costs. So I look around the world and think I can sell 20 Million during the life of the patent. So, I decide to sell them for $10 a piece. Simple economics.
Well, Canada and France and a bunch of other countries say they will only pay $6 a pill. Since the production costs of each pill is basically $0 then I figure that selling them at $6 a pill is better than not selling it. Unfortunately, those countries are half the world demand.
So, instead of getting $100 Million from international sales, I will only get $60 million. That means I need $140 million from the US. Unfortunately, I won't get 10 million sales at $14 a piece. I might only get 9 million. Anyway, I finally decide that I will make the most money charging $20 a pill and get only 7 million sales.
This means that the US is giving a $40 million subsidy to the rest of the first world and that 3 million US customers are not getting their pills.
I love Japan, Canada and Europe but I don't feel the need to subsidize them. Why should we?
Neil,
We don't favor the US subsidizing Europe. But since we can't force the Euros to share the expense (without invading anyway) our choices are (1) slow medical advancement for ourselves to punish the Euros, or (2) carry the load, all the while realizing what a pack of slackers they are.
I'm going with (2).
I do think we should try a best price contract clause. Do you have any suggestions? Do you have a suggestion?
mj:
Do you favor this policy in any other area?
Is there any other area where the US allows rich foreigner to take advantage of us? Don't tell me military defense. We defended Europe and Japan because it was in our best interest.
There are not too many areas where the development cost is so high and the production cost is so low. Software is the best example I can think of.
I don't mind foreign aid to people who need it. I don't like giving foreign aid to people who are richer than we are.
However, I guess I am glad to see that free market conservatives actually are modified Marxists.
As long as one country is stupid then the rest of us don't have to pay market prices.
"We defended Europe and Japan because it was in our best interest."
And we pay for medical advancement because it is in our interest. So how do you think this differs from military spending?
Again, you seem to have criticisms without solutions. Obviously it would be better to have Europe and other areas pull their own weight. We can't pick options which aren't available. When you think of a mechanism to get them to do it let us know. Until then your accusations that acting in our own interst shows we're "modified marxists" is absurd.
Rob, you're saying that Tauzin and the management of our leading pharmaceutical companies are perfectly willing to sell out the industry in return for a little short run advantage, and that the boards of directors of the companies are willing to go along. You're accusing the heads of some of our biggest companies of stupidity at best, but more likely basic dishonesty. This is really bizarre, and I have to admit it's a novel argument.
They're selling out the industry 20 years down the line, and getting the benefits now. That's certainly arguable as being justified.
you're saying that Tauzin and the management of our leading pharmaceutical companies are perfectly willing to sell out the industry in return for a little short run advantage
I don't see how that's all that shocking of a notion. For all I know, this is in fact the best deal they were able to make, and short-run advantage is the only advantage Obama was willing to give them. Or maybe they're really naive, or planning on selling their shares and retiring quickly, or maybe they're counting on their public agreement to buy them good PR while backroom deals take care of the rest. Heck, maybe they realize that they can easily sustain R&D by cuts to marketing, as their critics are fond of asserting. I don't really know what they're thinking.
All I know is that you can tell a politician is lying by watching his lips, so whatever "promises" Obama has made, whether to pharma CEOs or to little old ladies at town halls, shouldn't be introduced into the debate as though they were facts (which is more or less what you did).
Megan,
In a previous post you made what seems to me to be an apt analogy between single payer and defense department spending, and you wrote:
Really? I grant that there's a fair amount of bloat and inefficiency in defense spending, but are you really deeply unsatisfied with the level of innovation? I think even the harshest critics of defense spending usually don't try to argue that all this money has hardly bought us any new technology over the decades. Almost everybody concedes that defense contractors have developed all sorts of new gadgetry, much of which really does work. The leftist or libertarian critiques of defense spending are more likely to center on arguments that a lot of this gadgetry is unnecessary. Who goes around lamenting that the weaponry of the U.S. armed forces is hardly any better than it was in WWII?
I suggest that you try to promote this line of argument (i.e., "our defense spending has yielded a very poor return-on-investment innovation-wise because the government is the only buyer") amongst your allies in the health care fight and see how many people agree with you.
Who goes around lamenting that the weaponry of the U.S. armed forces is hardly any better than it was in WWII?
Go trolling on any gun forum. The M1 Garand and the M1911A1 have some definite advantages over the M4 ("poodle shooter") and M9.
But that's probably not what you meant.
You're right Insurance is a terrible mechanism for providing a necessity like healthcare.
Hardy har.
Insurance is a tool for risk aversion. No risk = no insurance. Going to the doctor is not a risk, it's a regular service. Getting long-term treatment for a condition you already have is not a risk, it's a cost of living. Insurance is for "Oh shit, I have cancer!" or "Oh shit, I broke my leg in four places and have to lie in a hospital for month!". Those are insurable risks. The regular, non-risk costs should be dealt with the same way we deal with low-variance costs for other necessities of life. We have food stamps, what's wrong with insulin stamps?
To run a health care system at half the cost and much better outcome, like the Europeans, indicates innovation to me.
Just to use Sweden as an example:
The dalysis machine
The pacemaker
The gamma knife for brain surgery
"Sweden is particularly strong in biotechnology. Pharmaceuticals are one of its main exports and Swedish medical innovations include the asthma medicines Bricanyl and Pulmicort; the growth hormone Genotropin; and the stomach ulcer drug Losec, one of the world’s best-selling drugs."
http://www.sweden.se/eng/Home/Education/Research/Facts/Innovation-ScienceResearch-/
Research is not confined to giants such as AstraZeneca and Pharmacia/Pfizer; many small biotechnology companies conduct their own research. One of the main areas of interest is health. Probiotic dairy products and wholemeal cereals are a rapidly growing market, as are medical devices such as imaging equipment, orthopedic implants, laboratory medicine, dialysis equipment, heart-lung machines and ECG apparatus.
Nobody is saying Europeans don't innovate. We're saying that European markets don't fund innovation.
Megan, granting your more-money-means-more innovation argument, what you are implying is that if the rest of the developed world woke up tomorrow to a planet without the US' innovation-fueling-fatter industry profit margins its inhabitants would accept worse health outcomes.
Since the rest of the developed world gets generally better health outcomes ( infant mortality and lifespan are handy bookends) today spending far less a % of GDP on healthcare, this is unlikely to be true - if it were, their % of GDP should be dropping further until their health outcomes were at parity with those of the US.
Every implication is the market would adjust. Remove an ostensible US subsidy and others would pay a higher % of GDP on healthcare (which they obviously have headroom to do) to sustain innovation that meets current levels of health outcomes.
Sorry, that would be an assumption made in favor of reform. Such assumptions are NOT allowed in this forum. Please revise.
huh? Why not stand pat with what they have, if it costs huge amounts of money in pharma profits to get further improvements?
This goes past innumeracy on to anumeracy. As several people have already pointed out, people are already dying due to lack of adequate health care now as well as many tens of billions of dollars being lost annually because of health care costs.
So not only as Megan failed to show that American pharmaceutical companies are any more 'innovative' than their foreign brethren, not only has she failed to make any sort of argument that 'innovation' will be stifled that isn't of the libertarian econ101 type, i.e., no evidence offered, but now she is failing to do any sort of cost-benefit analysis.
And that is basic, basic economics; foregone costs and all that.
What's next? Is Megan going to throw her kitchen sink up against the wall and see if it sticks?
Megan has done a cost-benefit analysis:
The life of one industrialist with an incurable disease who might be cured were we to pour our entire GDP into finding a drug to help him
>>
The lives of everyone who dies because they're uninsured or underinsured.
Much as she might claim otherwise, Megan is worried about whether health care reform might hurt some rich guy somewhere - because it would be grossly unfair with someone who has enough money to pay for any treatment to be denied it because it does not exist, while it is exceedingly fair for the other 99.999% of the country to be denied basic health care that actually exists for lack of funds.
SoV, everyone dies of something that isn't fixed. "Can't" is too strong a term - ability to get something to the dying person often prevents possible treatments from being used - but her basic point is a valid one.
Mark, your level of willful blindness is almost hilarious. You're talking about a columnist for a mid-sized magazine here, not John Rockefeller. The concern here is that new treatments not existing would harm quite a lot of people in the long run, rich and poor both. And the population of the country being denied healthcare for financial reasons is more like 3% than 99.999% - there's about 10 million Americans who lack for insurance and who aren't rich enough to pay for just about anything out-of-pocket if need be.
Comparing a plan designed to help that 3% with the future of new treatment options that will, in the long term, likely help more than 3% of people is not at all unreasonable. It's not obviously correct that Megan is on the right side(though I think she is), but it's arguable for reasons better than not caring about poor people.
Are you saying that Megan wouldn't support a system that denied benefits to 99.999% of the population in order to benefit the few who were rich enough to pay for the most expensive treatment in the world? I think she would. As ScentofViolets pointed out above, Megan is concerned about some hypothetical person who might not die if we devoted our resources to saving him and is unconcerned about people who are actually dying at the moment.
From what Megan has written recently, it's obvious that she would rather have a system where huge numbers of people can't afford basic health care (she said being uninsured made her oppose the government providing any basic level of health insurance) but we hugely subsidize drug companies just in case they create some drug that's so expensive that only the richest person with the rarest disease can afford it.
Like I said, willful blindness. If anyone proposed a system that let 99.999% of people go untreated so that 0.001% could get better care, pretty much anyone who is even slightly utilitarian(as Megan is - she's no dogmatist) would oppose it.
Medical innovation does not benefit "some hypothetical person", it benefits a vast number of people, hundreds of millions of whom are alive today and decidedly non-hypothetical. I can't point to you and say "Becky Smith, she's going to die of the vaporizing flu at age 57 because Pfizer stopped funding the drug that would have saved her life halfway through R+D, because they didn't think it'd make enough money after the US healthcare changes". That level of individuality in the victims is impossible(as evidenced by the fact that I'm using a fake disease from a webcomic for my example), but that doesn't make the deaths any less real. It is perfectly reasonable to discuss the moral tradeoffs between those future victims of a medical policy change and the present victims of the status quo, and doing so does not imply any sort of resort to the fantastically wealthy.
For that matter, with a bit longer view, it doesn't even need to mention the rich - patents expire, and after they do, expensive treatments get a lot cheaper, especially drugs. A treatment for the rich today is a treatment for the poor 20 years down the line. Should we ignore about them too?
Sorry, but you have no numbers. You have no idea how many people benefit from over-subsidizing the drug companies. But we know how many people are uninsured and don't receive basic health care. You simply have no standing in a cost-benefit analysis when you merely make a qualitative argument.
I would not like to "stick with it."
Elder: Time to round up your daughters. Time for the yearly sacrifice of virgins to the Volcano God.
Villager: Why not stop this barbaric practice. The other villages haven't sacrificed virgins for years and they are doing fine.
Elder: They are free riding off our virgins.
Is it worrying that this analogy made me dumber by about 20 IQ points, yet I'm still laughing over it?
Laughter is the best medicine.
No, actually they were not. First, the costs associated with them were relatively modest(it didn't cost even as much as $50 million to discover the structure of DNA, nor mechanism of antibody/antigen action.) Moreover, those projects seem to have an immediate practical utility in developing a marketable product.
That's one of the problems with the 'innovation' argument: you can call what the pharmaceutical companies do 'innovation' only if you are using a rather constrained definition of the word.
How could you possibly attach such a firm figure to a finding that that arose from multiple areas of research involving dozens of different researchers (including, necessarily, the ones who didn't find it but had just as good of odds as anyone else), and having pinned that number down so precisely, what does it become when adjusted for inflation?
While I disagree with Meagan in many ways on this topic, I think her biggest mistake is in assuming that if we keep the current system it will continue to generate lots of "waste and inefficiency" to fuel innovation. The current system is fast becoming unsustainable and one reason that the reform movement has gotten as far as it has is because the Deep Pockets folks (employers and even insurers) are losing patience with humungous bills. If reform fails I confidently predict the the system will end up throttling down innovation anyway-- because R&D is always the easiest thing to cut in a crunch. And for that matter rightwing/libertarian proposals would, if enacted, be even worse for innovation that anything the Democrats are attempting. If we really did subject healthcare to real market forces how long would those outsized profits survive? One way or another the golden era of shoveling piles of money at R&D in hopes that some fraction of it generates results is coming to an end.
Moreover, those projects seem to have an immediate practical utility in developing a marketable product.
Yes, but they aren't patentable, so the discoverers wouldn't be able to capture the value they created. They would make the world (vastly) richer without any guarantee that they would even recoup their own costs.
That is to say, the Econ 101 argument you deride is a perfectly good explanation for why government needs to fund basic research: there's no profit in it, even when it has fairly immediate benefits.
Absent the snark, this seems to be a fair critique. What does Megan say how medical innovation changed as countries adopted publicly funded health programs? What sort of evidence does she present:
Whoops!!! That'd be exactly nothing.
Further, the supposition seems to be that high profits are needed to spur innovation and that low profits stifles it. What does the historical record have to say in the U.S.? Well, as of 2008, pharmaceutical companies were reporting record profits. So this means that 'innovation' must be up up up, right?
Wrong. Innovation is down down down. That doesn't seem to fit the pattern at all, does it?
Chuckle. Exactly. How does one falsify the hypothesis?
Well, I hear these volcano gods have SEC filings, you could probably start there...
How does one falsify the hypothesis?
We radically reform the system and hope like hell it is falsified.
Well, you have some data to play with. Military. A single buyer with multiple innovators. No idea if this would push a person for or against a world where the vast majority of the buying is done by states. I think it cuts against the innovation argument a bit but it doesn't say much for cost control. The safety valve is democracy. A progressive would have a lot more confidence that the democratic process would lead to a reasonable allocation of resources and a libertarian would be extremely skeptical.
I don't know where you think I've derided particular bit of sound economics; I'm merely pointing out that discovering that sort of thing leads to patentable - and profitable - merchandise. And at a relatively modest cost. Further, one need not patent a bit of knowledge to obtain a differential benefit. One need merely keep it an in-house secret. ObSF - the shipstones in Heinlein's "Friday" were never patented.
But I'm glad you raised this point; you seem to be implying rather strongly that the 'innovation' of pharmaceutical companies is a rather fragile flower indeed. Why, if Pfizer had discovered the structural workings of antibodies instead of Pauling, they would have gone out of business!!! Despite the fact it is precisely such knowledge that makes a lot of Pfizer's products so profitable.
No, what would happen would be that Pfizer would go out of business, unable to act on this discovery, and someone else would greedily profit from the knowledge. Er, I think this theory might have a few holes in it.
To follow up on what I said before about defense contractors, let me point out that Lockheed Martin somehow manages to clear about $3 billion a year on $40 billion in revenue despite doing 95% of its business with governments (primarily the U.S. government). I do believe they've been known to produce innovative products like new fighter planes which are decades in development.
I guess maybe that's not enough of a profit margin to motivate real innovation, according to Megan. If we don't let pharma companies continue to have 20% + profit margins, they're just not going to bother to come up with much new stuff that's any good, apparently. We'll end up making little progress on healthcare technology, just as we've (evidently) made very little progress in defense technology over the years.
So your argument is that if a company can pull down 7.5% working on projects for which the government and its friends are the only plausible purchasers (and a noriously wasteful one in some ways), then surely companies that currently pull 10-20% selling to the broader public will continue to pull their load in exchange for a severe paycut and even more red tape.
Sure.
By the way, pharma profit ratios in a good year are on par with tech industry profits in a good year, it's not like it's unheard of for a smart private firm outside of pharma to make good money providing products people want to have.
Exactly. Megan completely ignores the likelihood that there are huge inefficiencies in the way that our system allows Pharma to profit from its "innovations," and simply takes it on faith that such profit margins are de facto necessary to preserve current levels of innovation.
Its the same mentality that assumes that absurd Wall St. salaries are evidence of what is necessary to retain top talent. Lloyd Blankfein might not come to work for less than $66m/yr, but I guarantee that someone just as smart & capable would, and for a lot less.
Also, what possible incentive is there for Pharma to improve on the way it inefficiently does R&D when they can pull in 20% profits in the current market?
Well, if their R+D is inefficient, one would assume they could make it efficient and make 25% instead of 20%.
Certainly that's one way. Is there any other? Otherwise what you've got going here is a variant of Pascal's wager. And since we're going this route, why not apply this to all sorts of other projects: someone could say that it is only greenhouse gases being pumped into the air that is holding off the next ice age. How do we falsify this one? Well, we could just cut greenhouse emissions to zero and hope that the hypothesis is falsified, but other than that, I don't see how else you could come up with a test that would satisfy the sorts of people who would this claim.
one need not patent a bit of knowledge to obtain a differential benefit. One need merely keep it an in-house secret.
Sure, assuming that nobody else figures it out on their own, which seems pretty unlikely for the things you're talking about. It's not like the structure of DNA was something only a couple of guys were working on, or that other research groups wouldn't have it figured it out a year or two later if Rosalind Franklin had been hit by a bus.
Why, if Pfizer had discovered the structural workings of antibodies instead of Pauling, they would have gone out of business...No, what would happen would be that Pfizer would go out of business, unable to act on this discovery, and someone else would greedily profit from the knowledge. Er, I think this theory might have a few holes in it.
I'm not sure why you think this idea is so grossly wrong. Having spent the money, Pfizer is in a disadvantageous position relative to a competitor who has more cash on hand (because they didn't spend the money) and can profit just as well from the knowledge. It's essentially a prisoner's dilemma game, and those do tend to end up in a less-than-optimal equilibrium.
Dear Megan,
I am highly confident that I am far more well-informed regarding the pharmaceutical industry's business strategies, financial results, etc. than you are. I have been reading your arguments with great interest, and would be pleased to have an off-line discussion on these matters. And unlike Ezra Klein (at least by your assumption), I do speak with big pharma CEOs.
A few factual points:
1. Pharmaceutical price inflation far exceeds general inflation, and has done so for the last decade.
2. Despite massive R&D spending, the global pharma industry's productivity has been rather low as of late. One look at sales growth projections, stock price trajectory, and valuation multiples highlights this fact. The pharma industry will not be salvaged or damaged based on the hypothetical slippery slope potential for U.S. price controls. Even under the status quo system, the cost-benefit for traditional pharma R&D isn't there at present. Note how aggressively the major companies have been cutting costs dating back 5 years, when Obama was just a good DNC keynote speaker.
3. Despite these troubles, the pharma industry continues to have average operating profit margins of 30%+, far in excess of other profitable, innovative industries. Just because the industry has become accustomed to such good times doesn't mean these conditions have to be preserved in perpetuity.
4. The status quo relative pricing power between pharma and their purchasers has been very favorable to pharma. The structure of the U.S. payor relationship inhibits true price competition - because the consumer is not the payor. Co-payments have some impact, but not a strong enough price signal.
5. The stated growth strategy of several of the world's largest pharma companies reveals a focus on markets OTHER than the U.S. Rx market - Emerging Markets and Generics are two examples. (see Pfizer, GSK, Sanofi, Novartis) So despite your fears, the pharma companies are dynamic enough to continue to find new markets and new strategies to grow their businesses.
1) I believe that to get a pharma inflation rate in gross excess of the average inflation rate, you have to exclude generics, no?
2) I'm well aware of the pipeline problem. I don't think it's going to get better if we kill off the profits.
3) I don't care if their margins are preserved. I just don't want to see them reduced by, basically, fiat.
4) I quite agree that consumers should have more of a price signal in buying medical services. But this will not be achieved via anything the single payer advocates want.
5) These are not strategies for innovation. They are, definitionally, strategies for milking more money out of drugs you've already invented. Slashing the ROI on new drugs drastically will not be made up by picking up a 3% margin on generic manufacture. Innovation in almost all markets is led by luxury products.
1. Will respond with appropriate data after doing some research on the matter.
5. The signal that Big Pharma is sending by embracing these strategies is that the traditional drug business is not that appealing right now. It's in a weak part of the innovation cycle. The industry had tremendous success inventing, developing, and marketing the last generation of drug innovations (statins, anti-depressants and anti-psychotics, etc). It's simply much harder right now - because the emerging technologies are not ready for commercial prime-time. They likely will be 5-10 yrs down the road. In the meantime, the core development competencies of Big Pharma aren't as valuable - and true innovation is happening at less well-capitalized small firms and at NIH-funded universities etc. (because the types of innovation that enable the next generation of blockbusters are not capital intensive right now)
The other really important point - all these foreign markets with drug price controls generally exert price pressure on mature drug categories with multiple competitors. True innovation - e.g., targeted oncology drugs - sell for pretty high prices in EU countries and Japan ($ tens of 000s / patient / yr - Erbitux, Tarceva, Nexavar, etc.) So these markets are not discouraging competition nearly as much as you assume.
But those biotechs get funding largely because there's an exit strategy through an acquisition or IPO. If you slash the future profits on drugs 80%, the capital will dry up.
I'm not defending Big Pharma--I could care less if Pfizer stays in business. I'm defending market pricing for drugs.
Certainly that's one way. Is there any other?
Well, you can get an idea of where pharma is making its profits by looking at their financial statements, so we can see that the US drives profits much more than the rest of the world. The missing link then is between profits and "innovation," whatever that means (we aren't working with a satisfactory definition that I can tell). It seems reasonable that slashing the returns to a particular kind of investment can reasonably be expected to curtail that investment. What is not clear is whether what pharma is currently doing is the kind of investment we want (I take no position), or whether the returns will really be slashed (because perhaps other countries will change their rules to permit higher prices).
It's also not clear to me that we couldn't partially compensate for price controls at the end of the pipeline by making the pipeline cheaper, i.e. easing clinical trial requirements. That is its own can of worms.
But to answer your question: I don't know.
BINGO!!! Or almost:
This is where knowing a bit of the history of technology comes in handy: it seems that without any notable exceptions, technical progress in a given subject or niche follows a sigmoidal curve. This is characterized by a relatively gentle slope, followed by an abrupt and seemingly exponential takeoff, followed by a leveling off where more and more effort must be put into making ever more marginal gains. The history of aircraft is almost the canonical example. You go from relatively modest beginnings from the middle of the 19th century into the beginning of the 20th, where actual powered flight is achieved. The gains come at an increasingly faster pace, going in somewhat less than thirty years to chartered passenger service to the jet engine, and then on to routinely breaking the sound barrier. But then, starting sometime in the late 60's, the pace of innovation drops off. Commercial airliners today fly no faster than they did about half a century ago. Shrug. That's the way these things work.
Same thing with the pharmaceutical industry, or the auto industry. They have five or six decades of boom times, followed by a leveling off of innovation that is said to be the driver of the industry. It's not even that these companies necessarily fall into some sort of political stasis where development is stifled from the inside, though that is common enough. It's just that they are now sitting firmly atop a mature technology with not a lot more in the way of improvements to be squeezed out at the costs they can afford to bear.
I suspect that's where we sit today wrt the drug industry. What's needed here is another round of fundamental breakthroughs in the science, not ever more research dollars pursuing ever more marginal improvements.
I don't find anything to disagree with here.
What does it mean to have a private health care system? One of the things it means is scenes like this,
at the Inglewood Forum in Los Angelos:
http://www.nytimes.com/2009/08/13/health/13clinic.html?scp=1&sq=inglewood%20forum&st=cse
This is the kind of thing you expect to see in a third world country. It's Katrina-like scenes without the excuse of a hurricane. When Megan goes on about the horrible stuff that will happen if our health insurance system is reformed, does she ever think about the horrible things that are happening now?
While I can't speak for her, I'm fairly certain that she's not stupid. That said, proving that there's a large market for valuable goods being given away freely is hardly an indictment of the American medical system. Canadians don't have free dental coverage, and that if you set up a stadium in Toronto as a free dentistry clinic for a weekend, you'd have people lined up out the door too - does that mean that our healthcare is horribly broken? It is, mind you, but that's not why.
Actually, there really weren't all that many people working on the problem. All that has to happen for this to be a net win is that the knowledge is kept secret long enough to recoup the costs of the initial research. This happens with some frequency in other venues, say, the manufacture of computer chips. So, yes, this is not a theoretical situation, but a practical reality.
Again, this happens all the time in real life. Read up on Shockley and the transistor, developed at Bell Labs for one famous example. They didn't exactly go out of business now, did they? Note also that the amounts spent on a lot of this 'basic' research is relatively trivial compared to the actual sums being dropped. Given that a common argument is that large sums of $100 million or more are wagered on the success or failure of a particular drug, and lost, this argument seems to lack force on all fronts.
Read up on Shockley and the transistor, developed at Bell Labs for one famous example. They didn't exactly go out of business now, did they?
Are you by any chance referring to the subject matter of U.S. Pat. No. 2,569,347
If that's the patent number for Shockley's transistor, sure. Like I said, read up on the history. You'll find, for example, that there are several types of transistors, and that Ur-transistor was not even especially useful at the time(in fact, tubes were far superior for just about every application.)
But the idea of the transistor? That kick-started a whole 'nother revolution.
For a fairly comprehensive analysis of pharma's determinants of R&D costs, the drivers of innovation, the role of federal research, the distinction between research and development costs, the relationship between R&D and innovation, the distorting effects of third party payors on drug pricing, and the lack of comparative efficacy and tolerability information amongst drugs within each therapeutic class, have a look here:
http://www.cbo.gov/ftpdocs/76xx/doc7615/10-02-DrugR-D.pdf
There are a few areas which vaguely support some of Megan's "proofs by assertion", but clearly this is a much more complex topic than can be explained solely in the blogosphere.
One of the hundreds of data-supported points in this paper is that innovation costs (research) are the significantly smaller portion of the R&D total, with clinical trials (development) being dominant (by 2.3 to 1) in direct costs, and to a lesser extent in opportunity costs.
There also is a well documented trend over the past 20 years of diminishing returns, on average, of efficacy improvements per dollar spent on R&D, i.e. newer proprietary drugs are showing less and less benefit over older generics, while R&D costs for bringing each proprietary drug to the point of approval have skyrocketed. Consumers' preferences for more expensive drugs, despite of this trend, are attributed to the lack of comparative studies and the disconnect consumers have with their costs because a third party is paying.
Anyway... have a look; follow the cited references; decide for yourself whether Megan's assertions oversimplify this debate.
Yes. This is pretty much what I have heard from multiple sources in multiple contexts.
Note btw the way the concurrence that "the types of innovation that enable the next generation of blockbusters are not capital intensive right now". Yet, strangely enough, the various pharmaceutical companies don't show much of an interest in pursuing these avenues of potentially promising research on their own.
A question for those who are opposed to healthcare reform (or Obama-style healthcare reform, anyway):
One of the main themes of Megan's post seems to be that Europe is essentially free-riding off of the U.S. because we are the ones who are generating most of the pharma company profits and hence we are the ones paying for drug innovation.
What can be done about this which is consistent with the principles of those who are opposed to Obama's proposal? How do we get Europe to pay their fair share? Or do we just have to live with it?
I don't see any way for a European politician to survive making the proposal, and I don't see any way for an American politician survive putting enough pressure on the European that he would consider it. If Obama can't get the Europeans to stop free-riding on defense spending long enough to help out more in Afghanistan, there is no imaginable way that this problem has a solution. It's the US or nobody.
Yet another source that is in agreement with me(or vice versa.) And yet, strangely enough, pharma's profits have been at record highs recently . . .
Note that Megan still hasn't bothered to offer any proof of her assertions(which are piled on top of still other assertions unbacked by any evidence.), preferring instead the sort of analysis that reminds me of nothing so much as the dialectic analysis favored by Communist Party members fifty years ago. There's a reason why moderates, and the majority, simply don't buy Megan's arguments. And it's not due to some sort of weird ideological purity. Quite the contrary, as these recent exchanges amply demonstrate.
I've always been a McArdle defender, whether or not I agree with her, but in this case she's making a bad-faith case. She advocates leaving the entirety of the existing system in place as a prop for the one part of the system, Big Pharma, that produces innovation. There is no capital-intensive innovation in health care outcomes outside of new drug development. That *could* be an argument for not reigning-in drug prices, but how is it an argument for leaving the rest of the current health care regime intact?
Even if we stipulate the Big Pharma-as-innovator stuff, on what planet is it morally acceptable for people in the here-and-now to die from lack of access to drugs, so that future people might have access to hypothetical better drugs?
It's such a transparently false argument that it's painful to read it coming from someone who usually has a decent moral and commonsensical compass.
I've always been a McArdle detractor (well, not always, but pretty much since I came to realize the extent of her ideological rigidity), whether or not I agree with her, but in this case I'm going to leap to the defense of her good-faith espousing of free-market gospel. I think she's truly concerned about us not having the newest drug for arm hair loss (or far more serious afflictions), and in fairness, if the process she describes ends up happening, then it is something that we should keep in mind. I'm with you -- I think a decision to no longer serve as the medical innovator to the world could be net gain for us in terms of access to health care for all, but if she's right that that could be the trade off, we should grant her sincerity in being concerned about it.
But placing the concern about innovation above all others says a lot about one's value-system, no?
Not someone I'd like to share a foxhole with.
Isn't DC Noodles a life-saver??? Mmmm Noodle Soup =)
There is no capital-intensive innovation in health care outcomes outside of new drug development.
Implantable medical devices and robotic surgery. Also areas where we haven't hit the flat part of the sigmoid yet.
Yet, strangely enough, the various pharmaceutical companies don't show much of an interest in pursuing these avenues of potentially promising research on their own.
True. They'll just buy out the little biotechs that do the actual groundbreaking research. It's a lower-risk lower-reward strategy, but it still requires substantial profits at the end of the tunnel to make it worthwhile for everyone.
"at this point, the US is the only country left providing a hefty incentive for inventing new treatments. If we stop, the whole world suffers, and we along with it."
I've seen this said a lot. What I am yet to see is any figures backing it up. What I do know is that pharma turnover and R&D spending in the EU and the US are roughly equivalent - take a company like GlaxoSmithKline, which had a first quarter turnover of £2,200 million in the US as compared to £1,900 million in the EU, or Pfizer, who spent a quarter of their world-wide R&D allocation in the UK last year.
Look at the financial statements of any company that breaks out its numbers by region.
Some stats? Like I just said, Pfizer and GlaxoSmithKline's don't seem to reflect a massive difference in pharma turnover/R&D spending between what are roughly equivalently sized economies. Maybe if you dig down into where the money was made/spent you can find something to back up your position on it, especially if the turnover doesn't reflect the same level of profit etc. etc., but you need to actually show some figures rather than just repeating this statement as if it were indisputable fact.
OK, I tried this for Pfizer and it doesn't check out. I am not pretending to have caught Megan in some sort of big error. I've heard claims that most pharma profits come from the U.S. often enough that I still suspect it's generally accurate. However, Pfizer does not seem fit this theory. Here is Pfizer's 2008 financial statement. On page 59 we have the following:
The 9.694 billion total income figure matches the operating income figure from Pfizer's Google Finance page. This is a pre-tax figure, but the financial statement goes on to say that Pfizer paid about $800 million in taxes in the U.S. and another $800 million internationally for a total of $1.6 billion in taxes and a net income of about $8 billion.
In '07 and '06 Pfizer made a little money in the U.S. but the majority of the profit was still international.
I admit I am not a CPA, so maybe there's some subtlety I'm missing. However, it's certainly not that easy to see that what Megan is saying is true by looking at the financial statement of Pfizer, one of the world's biggest pharma companies.
Frankly, I just took Megan's ipse dixit when she said that most of Big Pharma's profits came from the USA. In view of the thinness of her case, which is based on three levels of assumptions based on data that she hasn't shown us, I'm calling on her to show her work here.
Of course, even if all her data proves out, it does not prove that Big Pharma profits ion the USA is the main driver in innovation in the pharmaceutical industry. It most certainly does not prove that innovation will stop if the US HEALTH INSURANCE industry is reformed. that is a complete leap of faith on her part.
GSC sales in the US: £7.33/capita
GSC sales in the EU: £3.8/capita
That's a pretty hefty difference, I'd say. Remember also that EU compliance costs are far higher(20+ drug approval processes, not one), and similarly with legal risks, tax compliance costs, marketing costs(because of the abundance of languages, primarily), and plenty of others. The US might not be hugely higher in terms of revenue, but remembering that those are cheaper and fewer sales generating more revenue, I'd wager that the profit differences are much wider.
Per capita is not a great measure as the EU includes poor countries like Poland, Latvia, Romania etc. US nominal GDP is $47K as compared to EU nominal GDP per capita of $36K. The average European pays something like 20% less of his per capita income to GSK than the average American does - not a devastating difference when looking at one company in one quarter in one year.
There are three reasons why I am inclined to be suspicious of the argument that other countries are free-riding on US pharma R&D:
1) Of the top 25 R&D spending companies, eight are pharmaceuticals companies, of which three are EU-based (Sanofi-Aventis, GlaxoSmithKline, AstraZeneca), two are Swiss (Roche, Novartis), and three are US based (Pfizer, Johnson & Johnson, Merck).
2) All of the above companies retain large R&D establishments in the US, the EU, and elsewhere. None of these companies develops its drugs solely in the US.
3) There are actually quite a lot of private pharmaceutical sales in Europe, even in countries with national health systems like the UK (often to BUPA).
So neither GSK nor Pfizer show massive differences in pharma turnover in proportion to GDP between the US and the EU, let's have a look at two other firms among the big eight listed above which give regional breakdowns of their performance stats:
- Roche reports that in 2008 29% of its pharmaceuticals sales are in Western Europe, as opposed to 41% in North America (inc. Canada and Mexico). 9% of sales went to CEMAI (Central and Eastern Europe, Middle East, Africa, India).
- Reading from the bar-chart in their report, Johnson & Johnson reports total sales of roughly 63 billion USD in 2008, of which about 31 billion were made in the US, 10 billion in Asia and Africa, 3 billion in the rest of the western hemisphere, leaving roughly 20 billion in sales in Europe.
Judging from these fairly opaque statistics, it would seem that pharma companies make roughly 10-20% more out of the US market than they do out of the EU market at the current time. This does not seem to me to be a devastating difference in income, certainly not enough to support the argument that Europe is free-riding on US R&D investment. However, what is really needed is a study of the profits made specifically from prescription pharmaceuticals by region.
Now, does anyone actually have statistics which back up the 'free-rider' argument?
For the last time, it does not matter where the companies are based. We're not discussing where the labs sit, we're discussing where the drugs are sold. And looking at the J+J numbers(since they seem the less entangled), they sold 50% more drugs to a population 60% the size of Europe's, or 2.5x as much per capita. Given that I'd wager the per capita costs are lower in the US than in Europe(due to aforementioned issues with jurisdictional and language barriers), that implies that the US is supporting their bottom line far and away more than Europe.
There's nothing in your statistics which allows you to project the 10-20% number. You have to have margin differential included before you can estimate the relative values.
I'm going to risk ridicule here and suggest that if the pharma/medical innovation industry is as wasteful as Megan is so happy to concede it is, and we identify health costs as problematic going forward, then maybe a reassignment of resources is in order, and we should just accept that we've taken medical science about as far as it will go for a while (granting arguendo a maximal version of Megan's hypothesis). Ratcheting down spending on medical technologies doesn't mean we give back all the good therapies we have devised so far. Maybe we just need to spend a generation reprioritizing our use of modern medicine and putting some effort into finding a sustainable, worakble system of distribution of care. Just a thought from Central Planning.
I wonder if there isn't some sensible way of spreading the costs of
U.S. innovation more fairly. I think -- maybe wrongly --that drug
pricing here is based on a curve in which initial investment costs are
priced into patented drugs for the U.S. market and overseas sales are
priced on a declining unit production cost basis. That way the drugs
can be sold to Canada and other countries that buy in bulk at prices
well below their U.S. market prices, making it possible for these
countries to both control costs and have access to advanced drug
technology. If I'm right, other national health services are to that
degree free-riding on U.S. payers (corps, indivs & govt), and that's
what makes drug re-importation such a popular subject here. There ought
to be room for international agreements on drug markets that would
reduce or eliminate the free ride.
I'm for allowing re-importation as well.
So while people are defending the proposed plan on the grounds that it won't affect drug prices, you're setting that aside and aiming right for the heart, eh? The one policy that is guaranteed to destroy pharma profits is the one you're pushing.
Not true. Pharma will have to even out the market prices in different localities to ensure the differences are less than the costs of reimportation. They'll raise prices outside the US, and lower them in the US.
I'd be more sure of her sincerity if she had bothered to do even an elementary cost/benefit type of analysis. You know, where she weighs saving hundreds of thousands of lives and saving tens to hundreds of billions of dollars annually against a conjectured stifling of 'innovation'.
She couldn't even be bothered to do that, and that's rather bizarre for someone who is so zealous in applying econ101(subtype libertarian) to all sorts of other situations. That's after granting her unchecked assumptions on top of unchecked assumptions on top of unchecked assumptions - there's at least three levels of those now.
Fair points.
I suspect that it's more the university/government funded research at this point, or perhaps a university/private partnership. I don't know much about this sort of stuff, save for Sunday-supplement style exposés about specific new developments, for example the next generation of gene sequencing techniques I referenced earlier:
My old office mate Maxim Zinchenko is making a little money doing some collaborative work with a medical imaging firm(partnered with CalTech), btw; it seems that a big chunk of the costs for NMR machines are for the computing power and processing algorithms(extremely proprietary) that calculate an image from the raw data generated by the scan(that's via the Spectral Inverse theory paper he did for his thesis.) As I understand it, one of the big pushes is for better, faster, and cheaper diagnostics. You'll get the idea how necessary this is - severely over-dramatized to good effect - if you've ever watched an episode of "House". Note that this sort of innovation would be filed under "cost containment" and would presumably be relentlessly pursued by all sorts of concerns, not just the pharmaceutical industry looking to make big profits.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQCyVkyA3AIA
From today re: a new cancer stem cell research breakthrough, and it sure looks like the University/National Cancer Institute are blowing Bristol-Meyers out of the water.
Forget it, this is what Megan is doing all the way through this thread. She's unwilling to do more than tell you to go google stuff in support of her argument. Which makes it unserious - move along, nothing to see here.
@ RES: AT&T monopoly
"Line Quality" editorial in EE Times,
_way_ back in the day; All goods and
services must be provides by AT&T,
because all non-AT&T ditto might
have a negative effect on their
client's line quality.
Laugh-In, Lilly Tomlin as The Phone Lady:
"We don't care, we don't have to; We're
the Phone company."
I suspect that it's more the university/government funded research at this point, or perhaps a university/private partnership.
I don't know for sure. I do know there are a ton of rinky-dink biotechs, many of them run by serial entrepreneur management teams, and all of them dreaming of selling themselves to Big Pharma. I don't know if they're doing what you would consider pathbreaking work, but they're doing the equivalent of what Shockley did in converting basic stuff into useful drugs (Shockley didn't, as far as I know, develop the band-gap theory of conduction, but he used it to great effect).
Note that this sort of innovation would be filed under "cost containment" and would presumably be relentlessly pursued by all sorts of concerns, not just the pharmaceutical industry looking to make big profits.
Yes, one thing we forget in these discussions is the degree to which innovation can make things much cheaper than before, as when a pill replaces surgery, or suture anchors replace transosseus tunnels.
My objection is primarily, as I've said numerous times, that the government will destroy innovation. It will do this by deciding what constitutes an acceptable standard of care, and refusing to fund treatment above that
oh fer cryin out loud, insurance companies do that already. or have you never been to a doctor (or dentist) and had the insurance company then send you a bill to make up the difference between what the doctor charged and what the insurance company deems the acceptable cost of treatment ?
if you don't have any experience with the current health care system, why the hell would you spend so much effort defending it ?
Matt Steinglass joins in the feeding frenzy:
http://trueslant.com/matthewsteinglass/2009/08/14/why-big-pharma-wants-health-care-reform/
He poses this question:
The first is this: if Megan thinks the Dutch system is fine apart from the price controls on drugs, why don’t we adopt the Dutch system but not the price controls on drugs? If Megan’s problem with the House insurance reform bill is not the actual House insurance reform bill, but the prospect that it will ultimately lead to price controls on drugs, why doesn’t she back the House insurance reform bill and insist that it not adopt price controls on drugs?
Good luck getting her to answer that question, Matt. I'm still waiting for her to answer where do any of the bills set up price controls.
The next question is why does Big Pharma actually support health insurance reform? Short answer: because they can make more money selling to those who aren't buying drugs now because they are uninsured.
Money quote:
But the main point here is simple: Megan is arguing that the House health care reform plan will in the long run devastate private pharmaceutical innovation in the US, but the US pharmaceuticals industry disagrees with her. They are backing this bill. They are advertising for it. They are calling for the government to get more people insured. Maybe Megan knows their business better than they do. But that just doesn’t seem likely to me.
Me neither.OK, this has been a very educational experience , but its clearly game over at this point. If the pharmaceutical industry rejects Megan's argument that health insurance reform is bad for it, then there is nothing more to say.
@cleek: Insurance companies do that already
Future tense, cleek:
If the State will not pay for it
Then Pharma will not develop it;
No innovation.
2 stonetools: Matt Steinglass: Pharma favors
Future tense, both:
If no innovation
Then maximize profits
on existing products
Another proof-by-assertion. Yawn...
Megan, thank you for this, it makes your argument clearer than your previous posts have done. However, I just don't think the argument is very strong.
You're basically saying there's a component of the costs of medical innovation that can't be recovered elsewhere because of cost controls and is therefore recovered from US consumers, and that this accounts for the much, much higher cost of healthcare in the US. I see several serious problems here.
If this is true its ethically unsupportable even on libertarian grounds. Its obvious that the very large number of people who are un- or under-insured is primarily caused by the very high cost of full insurance. That situation comes about because its extremely difficult legally for insurers to offer plans that cover only cost-effective treatment. If its actually true that this serves to subsidize innovation, that's no more ethically sound that saying foreign wars help to create American jobs and are therefore okay - you're saying that innocent people are being killed and driven into bankruptcy to pay for drug development that does not directly benefit them. Its not something a libertarian should seriously be endorsing.
On purely economic grounds, furthermore, all the evidence says that the difference in cost between the most expensive and least expensive areas of the US, where the least expensive are comparable to European countries, is due to overtreatment. Integrated medical practices, like the Mayo clinic, avoid overtreatment because its actually bad for their patients, but it also has the pleasant side effect of saving a great deal of money - enough to make their costs as low as half those of more "traditional" medical centres. There is no evidence that says the difference in cost is due subsidizing innovation. You could argue, I guess, that in part the overtreatment issue is due to trying out new technlology, and I'm sure that's partially true, but that's definitely not wholly true - conditions that in the UK would get a simple referral to a physical therapist, here get 2 X-rays and an MRI scan first (that's several thousand dollars just for the MRI).
Meghan
Oh, please! You are not arguing for innovation, witness all the people who go out of the US for treatments not allowed under our present system and all the billions we spend on 'alternative' forms of care not presently 'sanctioned'. It is clear that medical interests stifle innovation to reward themselves.
You are arguing for the level of innovation as it exists under the present system, which is geared to enriching Pharma while the health of the 'consumer' is secondary.
You also present nothing that backs up your assertion that innovation will dry up if we change to universal coverage. Most of Pharma's researchers are on salary and they don't really care who pays them: 'private' industry, schools, grants or government. I assert, You need to have more faith in the power of money to continue bring innovation. The independents will innovate no matter what the system, always have always will, it's human nature...
In short, Americans have to pay more for medical care in order to preserve innovation. Just like we have to spend more on the military than the rest of the world combined because no one else is willing to do this. In other words, we have to do things that are sapping this country's strength at a rather rapid clip simply because the rest of the world won't do it. In the long run, is our carrying the medical innovation on our backs sustainable. Will there really be the money for innovation in the long if we essentially go bankrupt paying for it? Doesn't sound like a good plan to me. So even if Megan is right about the US having to pay more to further innovation, it is not a workable long term solution. In the long run, the money will dry up anyhow.
Of course, that all assumes Megan really has a clue about which she speaks, and therein lies the rub. First, she ignores the vast amounts of research dollars that non-pharma entities spend (the NIH comes to mind). Second, she ignores the greater amount of drugs they will be able to peddle if everyone is covered by insurance. Perhaps they will have lower margins, but will make it up in volume. Finally, she assumes everything else will stay the same with the rest of the world if policy changes in the US. At least Megan isn't spouting "death panel" nonsense.
There is something profoundly disturbing in your reasoning that without profit, there is no motivation to innovate. I'm not sure what planet you're from. Profit always comes AFTER innovation. Innovation comes from brilliant minds. We have an innate curiosity about life, and yes, necessity is the mother of invention. Why in the world do you think people would not be motivated to find a cure for cancer? It's like your stuck in some strange mindset, and it's the same mindset that Murdoch is in. He didn't invent the internet, or new media, or the newspaper or television or anything. He just found a way to profit from existing inventions. And he flunked on that in my book. So now he's scrambling to try and make it work to his advantage. But that boat has long since left the shore. Now that I think about all this, your reasoning is so much like others (republicans) that think people don't want to do anything, that if the government helps in any way people will sit around and collect checks. I guess as a liberal I just can't relate to this. I think writers really want to write, and painters really want to paint, and scientists really want to discover, all for the sake of knowledge and experience and growth. And it's about having an educated society which Obama will help lead so that people are capable, motivated and excited!
Yes, many people have an innate desire to innovate. Nobody has an innate desire to run Phase III trials so that they can fill out thousands of pages of FDA paperwork.
I suspect we both have a feel for the big picture. But you cannot deny the spirit of innovation. Paper work exist every where in every corner of the world. That's bullpucky, get real. I don't have an innate desire to pay my bills but I do regardless.
You pay your bills because you want to keep your lights on. Drug companies fund R+D, clinical trials, and all the rest because they want to make a profit. If the power company cuts you off, you don't keep paying the bill.
Basically the argument goes like this:
The only motivation pharmaceutical companies have to continue researching new drugs is an obscene profit margin. It is a high risk for high reward industry. Any kind of national system will eat into Big Pharm profits and reduce their incentive to innovate. Pretty soon no new discoveries will be being made. Socialized medicine is a short term gain for a long term loss...
This argument fails on at least 2 counts:
#1 Government involvement does not invariably mean less innovation.
Virtually all military technological development through history has been government funded. Who would dispute that the United States has the most technologically advanced army ever assembled and it has all been driven by government spending. The US spends over half of its R&D budget every year on defense. Imagine if an equivalent amount of energy and money were put behind medical research. Doug once pointed out to me that our technology is not evenly spread. We are launching precision missiles from the other side of the planet in terms of weapons tech, but our energy technology hasn't advanced much past the stone age - burn fuel/make heat!
The government is already the biggest source of grant money for all universities and most research laboratories in this country. A good friend of mine was working on synthesizing specialized lipids for the delivery of potent drugs exclusively to cancer cells, protecting the healthy cells nearby. He was doing that research at Purdue University on a government grant. All of his colleagues there were on government grants as well. Once in a while they would hear of someone who got a patent and made some money from a private corporation, but everyone knew that your day-in-day-out funding was government or nothing.
#2 Pharmaceuticals is not a high-risk industry, and it is way too high-reward.
The average R&D spending by pharmaceutical corporations has increased in recent years to about 11% of total revenue. That might sound high, but it is less than 1/3 of what the same companies spend on average on marketing and administration. It is also less than what Computer Technology and Internet companies spend each year (about 15% of total revenue). Meanwhile, Big Pharm sees 17% profits as a percent of total revenue compared to the median of 3.1% for all other fortune 500 companies. In other words, Pharmaceutical companies spend less and earn WAY MORE money than most other big corporations.
The irony is that they often do so with government subsidies supporting their research, government patents protecting their profits, and government health insurance (medicare/medicaid) paying for their drugs on behalf of the consumer.
I'm willing to wager that even if socialized medicine were to cut into pharmaceutical profits there would be more than enough "incentive" to continue or even increase research. Microsoft frequently manages to spend up to 24% of total revenue on R&D without the moral imperative medical research would usually involve. I know lots of kids who want to grow up and find a cure for cancer. I don't know any who want to grow up and make the next version of Excel.
It's pretty disgusting how insurers and Big Pharm are holding us hostage right now claiming that if we see fit to decrease their profit margin by the tiniest bit they will stop all research and medical technology will go into a deep freeze. It reveals an ugly truth about their character that saving lives is only worth it if they can make huge profits while they're at it. If that's who these guys are - we don't need them.
1) Profits as a percentage of revenue isn't what counts. ROI is what counts. That may well be really high for pharma, too, but let's at least talk about the relevant number.
2) The "ugly truth" and "scientists want to innovate" and "kids want to cure cancer" arguments are really weird. Somebody needs to buy those scientists their pipettes and pay their salaries. It doesn't matter how badly you want to cure cancer if you can't afford a lab. Unless you see charities or the government stepping up, then it will be money-grubbing profit-seeking capitalists paying for that lab.
So everyone is profit seeking? Explain Linux. or Apple.
Some of us actually enjoy what we do. While people still need to make a living, and a lot of people think in terms of "how will I pay rent or buy a house" in regards to what they do, this wasn't always the case and doesn't have to be. Take a retro-ride back 20-30 years. For example, do you think Steve Jobs started out thinking I'll be rich! He started out with, this is cool, I want to create, I want to share, I want people to participate and have home computers, the rich stuff happened later.
Ye of little faith in creativity, tisk tisk, in the U.S. of all places. Yes, kids will want to cure cancer once they are educated.
Pharma-Karma
I am both shocked and amazed that your main opposition to Obama's health plan proposals is based on unswerving support for and faith in the brilliance of US drug company innovation. Of course they’ve provided crucial innovations - my husband who's been recently diagnosed with Parkinson's is a beneficiary of this. But these are often over-shadowed by their worst practices, which flourish particularly in the US, where big Pharmas, operating hand-in-glove with the medical profession and insurance companies, are also responsible for pushing unnecessary, often dubious or dangerous drugs - spurred on by their fierce drive for greater and greater profits and growth (a flaw they share with unregulated banks).
A fascinating programme about the inherent potential for corruption in the system today was broadcast here in England on BBC Radio 4 last week. In 'Rewriting the Psychiatrist's Bible', reporter Matthew Hill investigated the tight links between America’s psychiatrists and pharmaceutical industry.
Specifically, he looked at the wide and profound influence of the 'Diagnostic and Statistical Manual of Mental Health Disorders' (DSM), updated and published regularly by the American Psychiatric Association (APA) - which has been heavily criticised for the lack of transparency between its panel members and pharmaceutical companies. It detailed the inherent conflict of interest posed for the majority of panel members who own substantial sums of pharmaceutical stock and many of whom also sit on pharmaceutical research panels for lucrative, undisclosed fees.
The programme also looked critically at the growing 'Chinese menu' aspect of the DSM's diagnostic criteria: the increasing number of niche ‘conditions’ it keeps identifying (‘internet addiction’ is under consideration at present!) all, unsurprisingly, providing drug companies with fodder for specific patentable drug ‘treatments’. Sadly it also made clear that this dodgy collusion seems to be leading to the medicalisation of even the most common of human conditions/life stages (like the often conflicted, troubling times of adolescence), as well as what used to fall within the 'normal-neurotic' range of widely varying traits of human personality in the past.
All of which begs the question: how can these negative aspects of US free-market drug ‘innovation’ possibly be defended? Is this the price you think we have to pay for a completely deregulated system?
Finally, on a personal tact: as an American living in the UK for years now, I can testify that the national health system here, despite its flaws, wins hands-down over how things operate at home. There, I have a good friend who's self-employed, living on a modest income but has no medical cover whatsoever. She's no ‘welfare’ scrounger, works hard and pays her taxes - still she can't afford a private healthcare plan. This is not an unusual story.
Lucky for her that unlike me, she hasn't had the recent misfortune to find herself in the “Express Care” wing of the Emergency Department of a California county hospital, seeking urgent treatment for a painfully swollen lip and jaw. What ensued were three, brief consultations with nurses/nurse practitioners consisting initially of a quick diagnosis of staph infection, to be treated with antibiotics (bought separately and which didn’t do the trick; followed two days later by the administration of an effective penicillin injection; and ending several days later with a cursory 5-minute check-out. All of which will end up costing (my travel insurer) a whopping $1891.46 in total.
This is a crazy sum by any standards. And it’s not the majority of hospital staff who will be reaping the benefits of these big bucks – as my brother, who works as a number cruncher for one of them will attest.
All of which is to say: you can argue ‘Free Pharmas!' until you’re blue in the face. Obama knows what he’s talking about when he says America can’t continue to afford the (bloated, iniquitous) US health system as it stands, and in which the Pharmas have their part to play. As neither can its many disenfranchised citizens. Because of this I'm certain I'm not alone in hoping that on this key issue, and after much too long a wait: the times, they are, indeed, a changin!
So everyone is profit seeking? Explain Linux. or Apple.
MaryM, read more carefully. I did not say that "everyone" was profit seeking. I said that money is necessary because research is expensive.
Scientists can "want" all they want, but unlike the raw materials for a primitive computer, the necessary hardware for curing cancer is far beyond the means of any but the very richest (as is, by the way, the necessary education), and the necessary time commitment is also beyond what even a dedicated hobbyist can manage. And that's long before we even get to clinical trials. Linux and Apple are practically free and trivial by comparison.
Of course people will want to create, no doubt about that; I'm a patent attorney, so I meet them all the time. Money is an unavoidably necessary means to transform "want" into reality, especially when you need to get past the FDA.
That didn't come out quite right. The education necessary for curing cancer is beyond the means of anyone who isn't going to be well-compensated for their work (i.e. make money, or make "profit" from their labor, or whatever), unless that person is already very wealthy. Nobody can become a molecular biologist or MD and then hope to work part-time at a coffeehouse while doing cancer research in copious free time. This contrasts with aspiring novelists, rock musicians, and goofball self-taught open-source fanatics.
Of course money is necessary, but that was my point - most of the money already DOES come from govt. not "capitalists". Go to any university laboratory and ask where they get their funding. Who is supplying the grants? Not pharmaceutical companies, I promise.
most of the money already DOES come from govt. not "capitalists".
This is a rather sweeping and controversial statement. "Most"? Got actual numbers?
Go to any university laboratory and ask where they get their funding.
Go to any university laboratory and ask them how many drugs they have shepherded through FDA trials.
Government funded research is very important, nobody denies it. It's just not the whole story.
Rob, I see your point about money being needed for research, but the bottom line of Megan's argument was that without profits there would be no motivation to innovate. And I whole heartedly disagree with this. But I do agree with you that big money is an absolute part of research, and that's why Obama wants to invest more in science, research & education, unlike Bush who continually cut money out of education and basically cherry picked there own scientific beliefs.
Mary, I certainly agree that the motivation to invent new drugs is rarely if ever profit; nobody would become a medicinal chemist for the money.
Nothing will destroy innovation. It's a human nature. Those who have the abilities will support research and innovation at any means necessary, not in attempt to save others' lives, but their own.