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Tilting at Windmills

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November 14, 2007
By: Kevin Drum

INNOVATION AND UNIVERSAL HEALTHCARE....Jonathan Cohn's cover story in the current issue of the New Republic takes on the conservative claim that a federally-funded universal healthcare plan would stifle medical innovation. It's a good piece that runs down the the usual arguments against this claim (most basic research is government funded, other countries with UHC systems do fine, the free market wastes an awful lot of its research dollars on me-too drugs, etc.), but of course it doesn't provide a smoking gun. How could it? When all the arguments are finished, we're still trying to predict the future and we just can't do it.

But let's add two things anyway. The basic conservative argument is that the vast amount of money spent in America drives the lion's share of medical innovation in the world. Without the prospect of huge returns from the American market, the medical industry wouldn't have the motivation to spend huge amounts of money on applied research and market development, so innovation would be reduced. But Matt Yglesias points out that this is hardly the whole story. After all, it's not as if a UHC bans private citizens (or insurance companies) from paying for therapies that the feds won't:

Insofar as there might be some projects that aren't worth doing at the price the UHC system is prepared to pay, you could just try to get people to pay out of pocket for it. If the innovation's so great, why won't those with money be willing to pay for it? Obviously, the poor won't be able to afford it, but they're no worse off than they are today as un- or under-insured patients.

That seems true, but again we're faced with the empirical question of whether it really is true. Would there be enough rich people willing to go outside the system to provide the same returns for innovation that our current system provides? There's no way to know except by adopting UHC in America, waiting a few decades, and finding out.

Or maybe not. It seems to me that there's some scope here for a natural experiment. There's one specific demographic that has been covered by UHC both in Europe and the United States for the past four decades: elderly people. So here's the experiment: identify various areas of medicine, identify the extent to which they serve patients over the age of 65, and then create some metric to identify the rate of innovation in these areas. If UHC stifles innovation, then you'd expect that the more a particular medical specialty targets the elderly (and is therefore funded solely by UHC), the less innovative it's been over the past 40 years. And if a particular specialty exclusively targets those over 65, you'd expect progress to be almost nil.

This wouldn't be an easy study. Figuring out which specialties target older patients probably isn't too hard, but creating an innovation metric would be tricky. Alternatively, perhaps you could simply look at medical industry R&D spending, since that's what drives the innovation in the first place. Even if you can do all that, though, there's still a big cross-pollination problem, since advances in one area might be driven largely by related advances in another area.

Still, there's considerable scope for some very useful research here, no? I'd venture to guess that most Alzheimer's therapies worldwide, for example, are paid for by UHC. Ditto for hip replacements and cataract surgeries. So how much innovation has there been in those areas, and how does it compare to innovation in, say, antibiotics or statins that are used by patients of all ages?

Seems like something that would be worth a few million dollars in federal grants. A little data never hurt anyone, did it?

Kevin Drum 11:59 AM Permalink | Trackbacks | Comments (37)

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UHC... took me a few seconds to realize you weren't talking about United Health Care

Posted by: cleek on November 14, 2007 at 12:01 PM | PERMALINK

Here's what Aesop has to say:

The Lion went once a-hunting along with the Fox, the Jackal, and the Wolf. They hunted and they hunted 'til at last they surprised a Stag, and soon took its life. Then came the question how the spoil should be divided. "Quarter me this Stag," roared the Lion; so the other animals skinned it and cut it into four parts. Then the Lion took his stand in front of the carcass and pronounced judgment: The first quarter is for me in my capacity as King of Beasts; the second is mine as arbiter; another share comes to me for my part in the chase; and as for the fourth quarter, well, as for that, I should like to see which of you will dare to lay a paw upon it."

Posted by: Blister on November 14, 2007 at 12:06 PM | PERMALINK

Not so sure about joint replacement -- I know two guys my age (40s) with titanium hips, and a woman a little older than me with a titanium knee.

Cataracts, yes. Prostate cancer, maybe. A lot of heart trouble doesn't hit till you are in your 60s, so all that bypass/pacemaker stuff. Blood-clot strokes, too. Type 2 diabetes.

Posted by: dr2chase on November 14, 2007 at 12:10 PM | PERMALINK

But, of course, the HEALTH CARE system and the HEALTH RESEARCH system are TOTALLY UNRELATED. There is some overlap, as physicians are involved with each. But the vast majority of research studies of all sorts are paid for by the NIH/NIMH, and this would not change under UHC.

So, as a person involved 100% in the HEALTH RESEARCH system, I think that this is ridiculous.

Posted by: POed Lib on November 14, 2007 at 12:12 PM | PERMALINK

Seems to me the larger portion of research/innovation is being done by private pharma or medical firms. Being they are private corporations, whatever information they uncover is essentially proprietary...not open to the public or for public discussion. So how much of this "innovation" will we really miss out on, provided the conservative arguement holds water?

Sure, most "basic" research is funded by the government but, I mean, how much information does Mirapex actually own on RLS vs how much they've released to the public and how much govt funded research has discovered?

Posted by: Eason on November 14, 2007 at 12:14 PM | PERMALINK

You'd have to normalize for growth in the size of the market as well -- over 65 has been growing faster than the overall population. So even if expenditures per capita were lower than they otherwise would have been, the total pot of money might nevertheless be growing faster than that associated with other age groups.

Posted by: larry birnbaum on November 14, 2007 at 12:16 PM | PERMALINK

"Not so sure about joint replacement -- I know two guys my age (40s) with titanium hips, and a woman a little older than me with a titanium knee."

dr2chase is right about the first joint surgery. They typically occur when one is 40-50 years old. However, those implants will be replaced in 10-15 years (and possibly replaced again in 20-30 years). So, roughly half of the joint replacement surgeries will be done on Medicare patients. And guess what? Medical device companies charge the same amount for an implant regardless of whether a patient is on Medicare or private insurance. From the development perspective, I don't think Medicare makes a difference.

Posted by: fostert on November 14, 2007 at 12:20 PM | PERMALINK

> That seems true, but again we're faced with
> the empirical question of whether it really
> is true.

We are also faced with the empirical question of whether or not the majority of current pharma new products is actually improving health in any significant way - but we aren't allowed to ask that question.


Posted by: Cranky Observer on November 14, 2007 at 12:23 PM | PERMALINK

Hasn't it been largely taxpayer funds, expended through the various federal government research institutes and grants to university researchers, that has funded most innovation in health care methods, practices, and technology?

Posted by: Chris Brown on November 14, 2007 at 12:32 PM | PERMALINK

dr2chase/larry/fostert: I was just guessing about this stuff in my post, of course. Figuring out which therapies are targeted more at the elderly and which aren't is an empirical question that would be a part of the actual study I'm suggesting.

Posted by: Kevin Drum on November 14, 2007 at 12:36 PM | PERMALINK

Is Viagra et al covered by any insurance program, UHC or otherwise? Or, is it that those drugs in no way represent innovation rather than lucky happenstance combined with marketing? An old-folk maladay with an apparent solution on the market and the only way you can argue the current American system funded it, is to accept either Cohn's argument or Yglesias' or both.

Therefore I'm not sure we need the experiment. Isn't it up to the other side to explain why the market for new exotic treatments too expensive for working folk couldn't be maintained without the misdirected waste that is in the system now? If the market fails in the conservative thought experiment why should we believe it works now?

Posted by: dennisS on November 14, 2007 at 12:39 PM | PERMALINK

You know, one thing that would be awfully interesting to know is how much of current health care expenditures are for patients of 65 and older. Certainly one would expect that a hugely disproportionate amount of health care services must target the elderly.

Are we already at a point in which Medicare covers more of the health care bills than all private health care insurance? Are we already more a "socialized medicine" country than a "private sector medicine" country?

Posted by: frankly0 on November 14, 2007 at 12:49 PM | PERMALINK

Research is primarily NOT done by private firms. Most is done by NIH. Trials of medications are done by Big Pharma, but that is a minor component of medical research.

I am currently involved in a large clinical trial. We did get the medications donated by a pharma, but the Feds have furnished 100 % of the actual money. The pharma did not furnish any money, just drug and placebo that look alike.

Posted by: POed Lib on November 14, 2007 at 12:56 PM | PERMALINK

"The basic conservative argument is that the vast amount of money spent in America drives the lion's share of medical innovation in the world. Without the prospect of huge returns from the American market, the medical industry wouldn't have the motivation to spend huge amounts of money on applied research and market development, so innovation would be reduced."

If I'm reading this right, I have to live with a medical coverage uncertainty, only getting medical treatment if I can afford it and the possibility of financial ruin if I need health care, so the rest of the world can enjoy the fruits of medical innovation while never having to worry about how they are going to pay for it? Thanks, but no thanks.

I just saw "Sicko". I live in Houston (4th largest city in the country) where the movie only played at two theaters. I had to wait till the DVD came out. As I watched, I wondered what it would really be like to never have to worry about health care costs. I have insurance, but the employee contributions, co-pays and deductables can be brutal, especially if you have kids that have a rash of minor, but require emergency room treatment, accidents. I want what the rest of the industrialized world has...freedom.

Posted by: jeaps on November 14, 2007 at 1:01 PM | PERMALINK

As with the ridiculous "merit pay" debate, where proponents have never lodged a plausible argument that troubled schools could be fixed by adding an element of competition to the teaching staffs, here we go again, scrambling around to disprove an absurd proposition put forth by mindless right-wingers. How about putting them on the hotseat for a change: to come up with some remotely plausible theory how the government providing guaranteed health insurance to everyone could depress medical research? The burden should be on the proponents of facially farcical theories, not the other way around. We give them undeserved credibility when we immediately assume there is a researchable question presented.

Posted by: urbanlegend on November 14, 2007 at 1:05 PM | PERMALINK

Research is primarily NOT done by private firms.

But how about creating new medical devices? How about creating new drugs? Aren't these primarily done by private firms?

Posted by: frankly0 on November 14, 2007 at 1:06 PM | PERMALINK

The question should also be: at what price are we paying for innovation in other fields.

Innovation is predicated on small businesses that change the game by going up against the big boys by embracing independence and flexibility.

Right now, we have a system that keeps potential game changers stuck with their jobs in order to hold onto their insurance for their families and often themselves. Not to mention those long standing industries that are on hard times (like automotive) that would be more able to change course if they had more flexibility and lower costs in providing benefits. Flexibility that would come with universal healthcare.

Right now, we have a worldwide movement to embrace design, designers and artists. Those working in this area are invariably independent contractors and as such seem to be multiplying in those countries that have universal healthcare at a rate that is not equaled in the U.S., especially at the crucial beginning stages of their careers. We are losing this innovation race.

And so again and again and again, American companies are having to look overseas to pull in top creative professionals that have truly changed the game and set the bar higher. We can't produce these kinds of people -- because what would be our innovation leaders do not have the flexibility to strike out on their own.

Posted by: Inaudible Nonsense on November 14, 2007 at 1:07 PM | PERMALINK

My own guess about medical innovation for the elderly is that it is major focus of many companies, even in the face of Medicare, because that's where the money is (the elderly, again, take up a very disproportionate amount of health care expenditures).

The one thing I'd expect Medicare to do in introduce a price sensitivity in the innovations. They'd have to be justifiable under the kinds of cost metrics Medicare would impose. It's hard to see how that is necessarily a bad thing.

Posted by: frankly0 on November 14, 2007 at 1:13 PM | PERMALINK

It's certainly been notable that, with a 100%government funded defense department, we haven't seen any major innovations in defense technology since the breech loading rifle.

Posted by: Doug T on November 14, 2007 at 1:20 PM | PERMALINK

My uninformed view is this: the research funded by for-profit healthcare appears to be aimed at profitable treatments. We get viagra, hormone replacement therapy, restless-leg calmers, statins (the new HRT), and killer diabetes, diet, and pain drugs.

What do we NOT get? Regulated herbal remedies. Sensible medical advice. Affordable solutions. Bring on the single-payer health care. We don't need more old goats with erections; we need universal coverage.

Posted by: cmac on November 14, 2007 at 1:57 PM | PERMALINK

one word: Viagra

Innovation, aimed at the elderly (older). they made it, then made insurance cover it.

Posted by: Uncle J on November 14, 2007 at 2:04 PM | PERMALINK

The question should also be: at what price are we paying for innovation in other fields.
Posted by: Inaudible Nonsense on November 14, 2007 at 1:07 PM

Exactly! What needs to be examined are the out of control externalized and opportunity costs of the CURRENT system. If the wave of the future is independent contracting, SOMETHING is going to HAVE to be done about the insurance situation that we have now. The only way you can really get decent insurance is to be directly hired by a large employer and then stick with them. If you gray-in to a job you are going to be excessively risk-averse to switching jobs and especially to do contracting.

The crunch is going to come when the generally younger crowd that is enjoying contract work needs to start buying insurance (if they don't already have it), and THEN they see the disadvantage of the current system. Otherwise, they will have to start looking for a large employer that is risk-averse to hiring an older worker because they soak up too much in health care costs. I bet there are a lot of older workers whose talents are going to waste because they are either locked into a job with benefits, or they have accepted employment not based on wages/salary/experience/talent, but benefits alone.

Posted by: Doc at the Radar Station on November 14, 2007 at 2:13 PM | PERMALINK

Commented over on Matt's thread, repeating here.

This argument assumes that non-covered expenditures wouldn't be forbidden; under Canada's plan, and Clinton's 1994 plan, they were banned. (No provider could provide both private-pay and public-pay services, IIRC.)

Also, Medicare is a bit weird; its cost controls are really poor compared to most UHC plans.

Posted by: SamChevre on November 14, 2007 at 3:18 PM | PERMALINK

I really doubt the conservatives are interested in rational debate. A few scaremongering sound bytes that can fool joe-sixpack is what they think decides elections.

It is true the the US is disproportionately funding medical research. When we completely dominated the world economy this made some sense. If we try to fund health-research in proportion much higher than our shaer of world GDP, we risk going broke. Especially if we buy into the link between excessively high cost of healthcare, and research. I don't know what percent of healthcare expenses goes back into research, but I bet it is only one or two percent. Much more efficient to use public money to directly fund research, than hope that excessive pricing will stimulate research.

Posted by: bigTom on November 14, 2007 at 3:33 PM | PERMALINK

There are 47 million of us in this country w/o health coverage of any kind. That is 1 from every 6 citizens of the richest country in the world. Tens of millions more have less coverage & care than they really need - for example, roughly half the people on Medicare. Those numbers are growing. You read Jon Cohn's article. It makes an airtight case that the data needed is already there & has been studied ad nauseum, while the cherry pickers keep arguing over it. But you suggest conducting still more multi million dollar multi year studies for them to cherry pick further? Well, here's a news flash; there is no such thing as a best or perfect health care system.

I'm not convinced a single payer system is the best option. I don't advocate everyone having the same coverage as Congress. (Talk about breaking the bank!) I don't even have a real problem with different tiers of care, for those who can afford it. But I do believe UHC is necessary simply because it is the right thing to do.

Bottom line. It makes no sense to us who are shut out of the system to listen to those who are not argue about future advances not happening while we cannot use the ones available today. We do not have the time for the rest of you who have sufficient care to dither forever while trying to find the very best option, which does not exist anyway. Those of us still alive got this far with less than the very best possible which could be available down the road.

There is a word for delaying tactics like what you propose: Social Darwinism. Let's quit the arguing & get it done.

Posted by: bob in fla on November 14, 2007 at 3:44 PM | PERMALINK

Medicare is a bit weird; its cost controls are really poor compared to most UHC plans.
Posted by: SamChevre on November 14, 2007 at 3:18 PM
The way we have always done health insurance here is for the employers to foot the vast majority of the cost of premiums. When the costs ran out of control, they just started increasing deductibles, maximum OOP, employee assistance plans to quit smoking, etc. That hasn't done the trick. The private sector can't hold down the costs through the employers. It has failed.

What is going to have to happen is to first get everyone insured. When this is finally accomplished, the individual exposure to taxes/premiums/whatever to fund the program is going to INCREASE on average, while their OOP expenses will decline, and younger workers who typically aren't insured will have to start paying in. That will be when the shit hits the fan with regard to cost controls. Only then will you see substantive cost control changes.

There isn't going to be any need to "convince" conservatives that single-payer isn't going to stifle innovation. Why? Because the system is going to crash before you've got time to play with it. Conservatives only know when something doesn't work until it's broken. There isn't going to be any money to fund "innovation" because the employers are going to bail out on covering employees after this next recession gets going-just wait and see. That's the crash I'm talking about.

Posted by: Doc at the Radar Station on November 14, 2007 at 4:01 PM | PERMALINK

Private Companies do massive amounts of research. Research we are not allowed, by law, to view or talk about. THESE are the studies that produce the innovations we see today, Viagra, Restless leg syndrome, Lunesta, et al.

These innovations CANNOT be stifled. These companies have subsidized the Healthcare profession. They ain't going anyhwere!

Posted by: Eason on November 14, 2007 at 4:35 PM | PERMALINK

A little data never hurt anyone, did it?

Spoken like a true liberal.

Posted by: craigie on November 14, 2007 at 4:41 PM | PERMALINK

Let's assume the conservative complaint is correct.

What does that mean?

It means that right now, TODAY, the US is paying too much for health care because the rest of the world is getting a free ride. We are doing all the innovations and we are paying for all the inovations yet the rest of the world gets all the benefits from our inovation.

Why should the US subsidize the rest of the world?

Posted by: neil wilson on November 14, 2007 at 4:47 PM | PERMALINK

Innovation is best advanced through patent incentives. If we want innovation, we should get rid of the "hired to invent" policies that have stifled innovation.

CEOs are said to be worth millions because they "lead," but realistically inventors like the trio who invented the transistor (one of them, John Bardeen, a two-time Nobel prize winner in physics) ought to be worth more than a buck apiece for their efforts, which may be all they got from Bell Labs. Inventors lead industry. Without innovation industry and manufacturing been forced to compete on the basis of labor costs, which benefits China. Japan and Germany have mandatory compensation for employed inventors, so they are keeping up in innovation.

Posted by: Luther on November 14, 2007 at 4:59 PM | PERMALINK

"We are doing all the innovations and we are paying for all the inovations yet the rest of the world gets all the benefits from our inovation."

Umm, we aren't doing all the innovations. I'm working on three medical devices right now. One of them was invented in Europe and my job is to modify it to meet the more stringent FDA standards. That's about normal for me; about 1/3 of the products I've worked on have been foreign inventions. I would also add that many of the products that were American inventions have been designed specifically for the European market. As the dollar slides and Europeans become richer, I would expect that I will be designing even more products for the European market. Let's face it, the way our economy is going right now, Americans will be too poor to afford the truly innovative products. Furthermore, there is a real question of who is really subsidizing whom. It is very common for American companies to design a product for Europe and get it on the market to generate revenue required to fund the more expensive American clinical studies. Many American products would never reach the American market if we didn't have European patients to subsidize our studies. We also use foreign markets to do our initial testing, which helps us convince investors that there is little risk to the proposed American clinical studies. Granted, I don't work for any of the big companies; I only work for medical startups that have a much harder time rounding up the funding for clinical studies. So I may have a distorted view. But the companies I work for definitely need the European market to survive.

Posted by: fostert on November 14, 2007 at 7:01 PM | PERMALINK

I just feel like saying that we have UPMC here in Pa--a monolith, a viper, a monopoly--The University of Pittsburgh Medical Center.
This medical group has outrageous charges and penalizes the poor by having multiple accounts, it inconsistently sends various differing bills, perhaps combining or even ending-- or adding new accounts, never contacting the patients, then turning people into collection agencies. So many stories, so little time...
Outrageously mediocre as well.
They had a bathroom with a sink faucet leak for 7 months that no one fixed..a pretty large stream of water daily, for 7 months, that they ignored.

Posted by: anon on November 14, 2007 at 9:35 PM | PERMALINK

So many stories, so little time...
I think most folks here would be willing to hear a few of those. A *lot* of anecdotal true stories is the best thing that everybody needs to hear IMO.

Posted by: Doc at the Radar Station on November 14, 2007 at 10:42 PM | PERMALINK

Wow... finally a comment trail to which I can contribute something potentially informative.

The one area of medicine I know fairly well (I am not a doctor, but I work in the sector -- in China, FWIW) is ophthalmology. Three salient facts about this particular subspecialty:

- most patients are elderly and their treatments are Medicare-reimbursable;
- innovation is more device-driven than drug-driven;
- industry plays a VERY large role in new product development.

So how does this specialty perform on innovation? Pretty well, I'd say -- but with a caveat. One reason it does so well is that (as mentioned above) Medicare has weaker cost controls than UHC systems elsewhere.

Case in point: refractive intraocular lenses (IOLs) for use in cataract surgery, which not only restore vision (as the previous generation of IOLs do) but also eliminate the need for reading glasses.

Market penetration for the new lenses is much higher in the US than in Europe or Japan, mainly because they're much more expensive than standard IOLs. Medicare, unlike most overseas UHC programs, authorizes a higher reimbursement rate for refractive IOLs than for standard ones. The reimbursement bonus doesn't cover the full cost differential, but US patients are entitled to "balance billing" -- i.e., they can claim the standard Medicare reimbursement and then pay a top-up for a high-end lens implant. I suspect this isn't true in many parts of Europe.

I think the takeaway here is that government funding of health care is quite capable of encouraging innovation rather than stifling it -- but only if the incentives in the system are properly designed.

On the other hand...

The one field of ophthalmology where insurance policies make no difference at all is refractive surgery, which is almost always paid out of pocket. I think a handful of private insurers in the US have started covering it -- as does the military, because it sucks to lose a contact lens when you're flying a jet fighter -- but on the whole, this is a pure free-market specialty. And the speed of technological progress in this area has been quite impressive as well.

Make of it what you will.

Posted by: Jeff on November 14, 2007 at 11:06 PM | PERMALINK

"Make of it what you will."

That was pretty interesting, Jeff. I think there are two points I take from that. First, I think it's good that Medicare is more willing to adopt new technologies. If we create a new system, we really should be willing to spend a lot of money on new technologies. If we do, they will eventually become cheaper. Second, free market specialties should be allowed to flourish. The good news on that account is that such technologies will flourish regardless of what we do. As medical tourism becomes more popular, there will be no way to prevent anyone from getting any procedure. It's already much cheaper to get equivalent treatment in a place like India or Thailand. If they start offering treatments that aren't available here, then people will go there more than they already do. We need to recognize that the medical market is a world market.

Posted by: fostert on November 15, 2007 at 12:13 AM | PERMALINK

Thanks fostert!

You raise a good point on trade in medical services. After a cheap and very professional surgical procedure in Bangkok, I'm all for it.

China's high-end hospitals are even cheaper than Thailand's and they could tap this market as well. That's assuming they can solve the "China branding" issue, created by all those little quality-control problems you've been reading about back home...

Posted by: Jeff on November 15, 2007 at 1:44 AM | PERMALINK

"After a cheap and very professional surgical procedure in Bangkok, I'm all for it."

After a brief stay in one of Bangkok's hospitals, I came away very impressed with the quality of service. And the nurses were hot, too. I'm considering having some dental work done in Bangkok. Why not? I travel there a lot already.

Posted by: fostert on November 15, 2007 at 11:06 AM | PERMALINK



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