Earlier today, I attended a panel discussion at the Cato
Institute about one of the most important aspects of health care
that has gotten very little coverage during the current debate --
medical innovation.
Raymond Raad, a resident in psychiatry at New York Presbyterian
Hospital/Weill Cornell Medical Center and co-author of a new Cato
study,
presented evidence showing that the United States leads the world
in the development of drugs, medical devices, and other advanced
treatments. For instance, between 1969 and 2008, 57 of the 97
Nobel Prizes in medicine and physiology -- or nearly 60 percent
-- were awarded to people who did their research in the U.S., and
nine of the top 10 medical innovations between 1975 and 2000 were
developed here. But these achievements aren't reflected in
rankings of different health care systems that typically show the
U.S. faring poorly and provide fodder to those pushing for
government-run health care. This even though once these products
are developed in the U.S., they become widely available and
improve health care outcomes around the world.
Raad argued that one of the big dangers of health care
legislation is that expanding the role of government and trying
to impose price controls could change incentives to innovate.
When the government is such a large consumer of health care, it
has tremendous influence over whether some innovations succeed.
As an example, Raad noted how government stunted the growth of
specialty hospitals by not allowing Medicare money to spent at
them. Specialty hospitals are smaller institutions formed by
doctors to focus on one type of illness, such as heart disease.
They can deliver better health outcomes and a more personalized
experience for patients than giant factory hospitals that benefit
from their tax-exempt non-profit status even as they rake in
billions of dollars. Raad explained that some of the most common
and important medical innovations --such as CT scans -- were
quite controversial when first introduced, and thus putting more
constraints on the market could prevent wider use of new products
that may ultimately prove beneficial.
Gerard Anderson, director of the Center for Hospital Finance and
Management at Johns Hopkins University Bloomberg School of Public
Health, described himself as the liberal on the panel. He
emphasized the importance of universal access to new medical
innovations, and argued that it was "naive" to talk about where
innovations originated, since they all tend to be developed on a
multi-national basis in many stages. He also showed that the pace
of medical innovation has slowed in recent years, in both the
U.S. and Europe, and said that it's important to do something to
change incentives that are currently in place. Currently, large
drug companies spend just 12 percent to 15 percent of their
outlays on researching and developing new drugs, and 30 percent
on marketing them.
John Calfee of the American Enterprise Institute suggested
several reasons to worry about in the current health care bills.
He said they would increase the costs to both the public and
private sector well beyond what Congressional Budget Office is
projecting. And he warned that it would be difficult for
government to resist the temptation to impose price controls on
products that were very expensive relative to their marginal
costs. For instance, once drugs are developed, the cost to
manufacture each additional pill is small relative to the price
charged for the drug. But imposing such controls would reduce
profits and thus the incentives of drug companies.
