12 November 2007

The Death of Innovation?

Kevin links approvingly to a piece by the Happy Hospitalist which, by means of an unusual extended analogy involving pens, decries universal health as stifling to innovation. I think the Happy fellow may have a valid point in his follow-on post about the perverse facility reimbursement schemes used by medicare and the ways in which the rigging of the healthcare market drives competition in unsound ways; but I also think he draws an specious conclusion, though a common one among opponents, in asserting that universal healthcare will somehow stifle inflation.

Coincidentally, The Shrill One pointed me to a stellar piece over at The New Republic by Jonathan Cohn which makes precisely the opposite point:

Much of the innovation in healthcare is driven not by the private market, but by public financing, whether by the $28 Billion spent on the NIH each year, by researchers in other countries which do have universal health care, and by US taxpayers who fund Medicare and its coverage of innovative services (often at a premium cost). And the private market? While Cohn does not dispute the important role it plays, he also points out its intrinsic perversity:

[...] a lot of the alleged innovation we get from private industry just isn't all that innovative. Rather than concentrating on developing true blockbusters, for the last decade or so the pharmaceutical industry has poured the lion's share of its efforts into a parade of "me-too" drugs--close replicas of existing treatments that offer little in the way of new therapeutic advantages but generate enormous profits because they are patented and because companies have become exceedingly good at promoting their sales directly to consumers.

The most well-known example of this is Nexium, which AstraZeneca introduced several years ago as the successor to Prilosec, its wildly successful drug for treating acid reflux. AstraZeneca promoted Nexium heavily through advertising--you may remember the ads for the new "purple pill"--and, as a result, millions of patients went to their doctors asking for it. Trouble was, the evidence suggested that Nexium's results were not much better than Prilosec's--if, indeed, they were better at all. And, since Prilosec was going off patent, competition from generic-brand copies was about to make it a much cheaper alternative. (The fact that Prilosec's price was about to plummet, needless to say, is precisely why AstraZeneca was so eager to roll out a new, patented drug for which it could charge a great deal more money.)

The Nexium story highlights yet another problem with the private sector's approach to innovation. Because the financial incentives reward new treatments--the kind that can win patents--drug- and device-makers generally show little interest in treatments that involve existing products.
And one more recent media report highlights a reason to be leery of private, for-profit funding of healthcare: Health Net, a major insurer in California, avoided paying $35 million in benefits by canceling the policies of 1600 patients who became ill with cancer or other expensive illnesses. The policies were typically canceled based on a minor inaccuracy or omission on application paperwork, and "Cancellation Specialists" were paid bonuses of up to $20,000 for hitting targets for number of policies canceled.

I just don't understand the opponents of a national health system. I just don't understand.


  1. You might have caught the post that my blog-boss Ezra wrote a little while back--he pointed out that Rudy Giuliani was completely critical of Universal Healthcare for reasons having to do with this very concept, the death of innovation. Yet Rudy himself was the beneficiary of a prostate cancer treatment innovation--radioactive seed therapy--that was developed in (you guessed it) Scandinavia, where healthcare is, rumor has it, truly Universal.

    Oh well, Republicans have never been consistent in anything other than hypocrisy.

  2. Innovation is not impossible within government. And I have never said it was. It is just harder. You can have several great apples in governement who do great things. But the necessity of of innovation is not backed up by the need to survive.

    In market force economics, you either innovate or become irrelevant. You go bankrupt. The power of profit drives change and the consumer drives winners with their pocket book. It is a win-win situation. Better for cheaper.

    In government you can innovate if you chose, but the government won't bankrupt. It controls the money. It can and will print more. The survival instinct is missing. There is no competition to government, except other governments.

    Universal governement funding of health care is great. If they want to give me the money I'm fine with that.

    Governement run health care is a bad idea. Medicare IS government health care and it's driving primary care into the ground, the very think they should be supporting.

    Our 1 trillion dollars of government money is being spread out in all the wrong places. They are playing doctor and need to get out of the health care delivery business.

    Do you believe Apple, or Intel, or Cisco, all of who's technology in some way or another came out of governement research could have developed into the incredible companies they are today using government run forces.

    Of course not, they got where they are today, not because they could, but because they had to. or else somebody else would.

    Great people in great places being driven by the mighty ol' dollar.

    I believe it can do more for health care than any government agency ever can or will. Not because they can, but because they have to.


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