Health Care Reform: Killing the Golden Egg Laying Goose (and Patients Too)

The U.S. health care "system" is a mess. Yet, the elements of market competition that still manage to survive have had the salubrious effect of driving medical innovation and improving patient health outcomes. A new study by the free market Cato Institute, "Bending the Productivity Curve: Why America Leads the World in Medical Innovation" reports:

... none of the most influential international comparisons have examined the contributions of various countries to the many advances that have improved the productivity of medicine over time....

In three of the four general categories of innovation examined in this paper — basic science, diagnostics, and therapeutics — the United States has contributed more than any other country, and in some cases, more than all other countries combined. In the last category, business models, we lack the data to say whether the United States has been more or less innovative than other nations; innovation in this area appears weak across nations.

In general, Americans tend to receive more new treatments and pay more for them — a fact that is usually regarded as a fault of the American system. That interpretation, if not entirely wrong, is at least incomplete. Rapid adoption and extensive use of new treatments and technologies create an incentive to develop those techniques in the first place. When the United States subsidizes medical innovation, the whole world benefits. That is a virtue of the American system that is not reflected in comparative life expectancy and mortality statistics.

Policymakers should consider the impact of reform proposals on innovation. For example, proposals that increase spending on diagnostics and therapeutics could encourage such innovation. Expanding price controls, government health care programs, and health insurance regulation, on the other hand, could hinder America's ability to innovate.

As I have pointed out some prominent analysts actually favor putting a stop to medical innovation. For example, I noted in my article, "Dreams of Stagnation" that bioethicist Daniel Callahan argues that...

... even the Europeans, Callahan sadly notes, have been contaminated by "the quest for perfect health." His nostalgia is palpable. "If we had exactly and only the same range of technologies as were available twenty or thirty years ago, there would be no problem in equitably allocating resources," he writes. "We could readily afford that level of medicine and health care." (It would be even cheaper, of course, if we returned to using rattles and beads as remedies.) Callahan says political philosopher Daniel Sarewitz is "not far off the mark when he writes: `Political and cultural institutions might find their goals better served by responding to [their] problems as if scientific and technological progress had come to an end and the only recourse left to humanity was to depend upon itself.' "

Callahan reiterated his arguments for European-style cost controls on medical innovation in his new book, Taming the Beloved Beast: How Medical Technology Costs Are Destroying Our Health Care System:

"They use—among other tools—price controls, negotiated physician fees, hospital budgets with limits on expenditures, and stringent policies on the adoption and diffusion of new technologies." [In other words, stifle innovation.]

"Cutting the use of technology will seem wrong—even immoral—to many," Callahan admits.

Well yes.

Harvard University economist Kenneth Rogoff observed:

"[I]f all countries squeezed profits in the health sector the way Europe and Canada do, there would be much less global innovation in medical technology. Today, the whole world benefits freely from advances in health technology that are driven largely by the allure of the profitable U.S. market. If the United States joins other nations in having more socialized medicine, the current pace of technology improvements might well grind to a halt."

In my column, "2005 Medical Care Forever," I suggested this thought experiment:

...what if the United States had nationalized its health care system in 1960? That would be the moral equivalent of freezing (or at least drastically slowing) medical innovation at 1960 levels. The private sector and governments would not now be spending so much more money on health care. There might well have been no organ transplants, no MRIs, no laparoscopic surgery, no cholesterol lowering drugs, hepatitis C vaccine, no in vitro fertilization, no HIV treatments and so forth. Even Canadians and Britons would not be satisfied with receiving the same quality of medical care that they got 45 years ago....

As Rogoff suggests, the nationalized health care systems extolled by progressives have been living off the innovations developed by the "only country without a universal health care system." I wonder how Americans would vote if they were asked if they would be happy freezing medical care at 2005 levels forever?

Go here to download the new Cato Institute study.

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  • ||

    Drug reimportation!
    As soon as we stop subsidizing the rest of the world's health care, the fantasy of socialized medicine will come to a screeching halt.

  • ||

    No it won't. We will just stop developing new treatments. And no one will notice because you can't miss something you never had. We are just going to enter a socialist dark age where techonology and inovation grind to a halt.

  • Tim||

    Political and cultural institutions might find their goals better served by responding to [their] problems as if scientific and technological progress had come to an end and the only recourse left to humanity was to depend upon itself.

    Blood letting anyone!

  • ||

    Liberals are really sick fucks. They would rather have arcane technology that could be equally applied than better technology that might be unequally applied. They really do want to kill you.

  • ||

    Yup. It's okay if you are objectively worse off, as long as you don't feel bad as a result of inequality.

  • Draco||

    Egalitarianism (not "liberalism" per se) is one of the most dangerous psychoses to afflict humanity. You are right John. I've argued with people like this. For them, it's a primary value that everyone wind up with the same stuff. That this is impossible (think about mating, and realize that all humans are unique, to take but one example), and that it leads to disaster every time it's tried seems to be no deterrent to this insanity.

    I'm open to the argument that it's actually a moral affliction rather than a psychological one.

  • JB||

    US health care spending heavily subsidizing the rest of the world.

    Whether it's drugs, devices, or procedures, all those fuckers in Europe or elsewhere have US dollars to thank for their health care.

  • BakedPenguin||

    "If we had exactly and only the same range of technologies as were available twenty or thirty years ago, there would be no problem in equitably allocating resources,"

    And tens, if not hundreds, of thousands of people would be dead. When "ethicists" argue for mass murder, the title loses whatever meaning it had.

  • ||

    That is a pretty good example of newspeak isn't it?

  • Mad Max||

    I'm sure that the progressives are just as correct about rationing as they were about other medical issues in the past - like compulsory sterilization, or that other issue I can't mention because it would be a threadjack.

  • Mad Max||

    'Political and cultural institutions might find their goals better served by responding to [their] problems as if scientific and technological progress had come to an end and the only recourse left to humanity was to depend upon itself.'

    More wisdom from the Party of Science!

  • hurly buehrle||

    Liberals are really sick fucks. They would rather have arcane technology that could be equally applied than better technology that might be unequally applied. They really do want to kill you.

    Couldn't agree more. This is what you get when the terms of the debate are how to get government control of the healthcare system, and how to control its costs, rather than, you know, actually making healthcare better or more accessible.

  • Billy!||

    I find this line unconvincing.
    Frequently, I discount the "In 100 years global warming will cause X horrible thing to happen", because it's so hard to know how true predictions are, what economic growth will be, etc. But now I am supposed to believe the argument with regards to healthcare.
    The current plan is, of course, ridiculous. But if a plan was proposed that I really believed gave coverage to everybody at reasonable cost, even if it looked like it might slow medical innovation, I don't know that I would be against it. I don't know how to properly judge future people's comfort against current suffering, especially if current suffering is relatively large, as I believe it is.

    (Yes, of course the analogy has many holes.)

  • Marc||

    I don't know how to properly judge future people's comfort against current suffering

    No kidding. I absolve you of the obligation to make that judgment for me, at least. HTH!

  • ||

    Let's see if we can think of all the things liberals and ironically, progressives, want to end or not advance that would end up making things worse for us all but mostly poor people.

    Mass food production or farming in general ("ew, bloody and dirty")
    Pesticides
    Fossil fuels
    Medical innovations
    Controlled burns in old growth forests

    What else?

  • hurly buehrle||

    Monetary exchange
    Machine-based transportation

  • ||

    Most negative results are harder on the poor, for obvious reasons. Including the negatives arising from unforseen consquences.

    If some miserable disease ravages the population, the rich can hire personal doctors and live in gated fortresses.

    So the libs answer is create as many possible chances for unforseen consquences as possible?

  • Fluffy||

    "If we had exactly and only the same range of technologies as were available twenty or thirty years ago, there would be no problem in equitably allocating resources," he writes. "We could readily afford that level of medicine and health care."

    Look, I share your disdain for this statement, but you have to consider the following:

    If innovation in a market is driven by "natural" spending organic to that market, the pace of innovation in that market will match the level of investment that market forces "naturally" introduce. And that sort of innovation will be sustainable.

    But when innovation arises from overinvestment in a given industry, as a result of government slamming its foot down on the demand-side gas pedal, the innovation will not be natural or sustainable.

    US health care innovation has almost certainly run considerably ahead of where it would "naturally" be because our system combines the profit motive for providers with immense government subsidies for consumers of health care. That is a recipe for demographic and financial disaster. Reason's writers are well aware of this and write about it almost literally every day.

    Naturally, the appropriate solution to this problem is to stop the overinvestment in health care by eliminating demand-side subsidies. But at the same time, when someone like Callahan bemoans "innovation", he's really identifying the same problem we do - he just doesn't identify the proper solution.

  • ||

    "Naturally, the appropriate solution to this problem is to stop the overinvestment in health care by eliminating demand-side subsidies. But at the same time, when someone like Callahan bemoans "innovation", he's really identifying the same problem we do - he just doesn't identify the proper solution."

    That is only a sollution if you have no values beyond some wierd utilitarian collect as much stuff as possible. Just exactly what is wrong with over investing in healthcare? What else are we going to spend the money on? Big Screen TVs? If we were poor and trying to find enough to eat, I would agree that is a risk. But we are not. We are rich as hell. Moreover, we very well maybe close to coming up with really big improvements in care. I would say overinvesting in medical care is a pretty damn good thing.

  • Fluffy||

    No, it's not. Because it's not a static analysis. The situation is fluid over time.

    If you have a period of high economic growth and you have a demographic "sweet spot" where you have a large number of young and healthy people whose tax dollars are supporting a small number of old and sick people, you could very easily pump-prime investment in health care and have that sector of your economy race far ahead of where it would otherwise be. You could easily develop expensive advanced technologies for health care that normal demand would not have sustained in the presence of price discipline for consumers.

    That works fine as long as you are in the demographic "sweet spot". But when you move out of that sweet spot, the technologies don't disappear. No one forgets that they exist. So all of a sudden you have an "unnaturally" advanced and "unnaturally" expensive health care system, and no longer have the demographic and economic arrangement you needed to pay for it.

    And your health care consumers have been taught all their lives that their care should not be restricted by their ability to pay. Then what do you do?

    Say you had a "Manhattan Project" type government investment in finding a cure for cancer. And say it worked, and you found a cure for cancer decades ahead of where the unaided market would have found that cure for cancer. The only problem is that your cure is fantastically expensive, and although the "future" economy where the market would have found that cure could have afforded the cure with no problem, our "current" economy really can't afford to pay for it for everyone because our per capita productivity just isn't high enough. What then?

  • anonymous||

    Sell it to the wealthy and use the proceeds to research how to make it more cost-effectively? Hell, every new technology starts off ridiculously expensive and available only to those with massive resources (the wealthy), or those that focus their resources on that area (ie, enthusiasts, professionals). But it almost always gets cheaper and becomes available to the masses.

    Now, since we can't have "inequality", we'd need some other way to frame it: for instance, an additional phase of participant-funded clinical trials.

  • ||

    Totally with Fluffy on this.

    Medicare in particular has driven technological innovation in healthcare way beyond what the market can normally sustain. That is one of the factors behind cost esclation, or rather a manifestation of the cost-escalating results of our third-party payment system. Everyone expects (and the state mandates) the latest most expensive technology. The money goes somewhere, and that is mostly shoveled back into R&D at pharamaceutical companies and medical device companies. You can make big bucks selling mecial devices to hospitals, because you can pretty much charge whatever you want.

  • Liberal||

    Misery for all!

  • Theodoric of York||

    People used to believe that illness was caused by evil spirits. Today, we know that that illness is caused by an imbalance of humours, or by a small gnome living in the stomach.

  • ||

    I work in a hospital and I see leeches being used on patients somewhat regularly. They are very helpful in aiding venous system reconnection after a body part has been been reattached. Unfortunately the leeches are not effective on stomach gnomes.

  • ||

    Fluffy: With all due respect I am not sure that your analysis is correct. Had we had a more free market approach and far less regulation (FDA and Medicare price controls) we might easily have had even more effective and less expensive treatments. Unfortunately, we can never know whether you're right or I'm right.

  • Fluffy||

    That is true.

    But we can certainly agree that more dollars are spent on health care because of government intervention than otherwise be the case, right?

    And that increased spending has to warp the research investment in the industry as a whole. It has to.

  • ||

    I'd say that what has happened is that you get more innovation in the direction of "price no object" life-saving technology. But no innovation in efficiency of health care delivery. People always forget that innovation doesn't necessarily always mean "better" sometimes it means getting the same results for less cost, and that's the kind of innovation we're losing.

    It's just like with NASA. The government will build the most complex, most expensive space shuttle possible, rather than the refined, cost-effective one that could survive in a commercial market.

    Because when someone else is paying for it, your incentives are structured differently.

  • ||

    If learned ethicists and writers are positing that people could get by with quarter-century old medical care, there seems to be an equitable compromise here.

    Complete free market in health care.

    People who can't afford market prices for health care get government subsidized care, where the standard treatments are developed from the least expensive medical treatments of the last 30 years.

    Done and done.

  • Jordan||

    Awesome.

  • eb||

    thats pretty much how a lot of countries work actually

  • Marc||

    You stole the thought right out of my head. Get out of there!

  • ||

    Some of the most valuable medical techniques have been developed by the VA Medical System. The VA is the largest health care system in the USA and gets much credit for delivering high quality care at lower cost than HMOs. This is in spite of their costly research programs and adherance to patient care standards that in many cases, private health care systems would find too expensive to implement.

  • stuartl||

    The VA is the largest health care system in the USA and gets much credit for delivering high quality care at lower cost than HMOs.

    Is this is why Walter Reed hospital has such a sterling reputation?

  • ||

    Walter Reed is run by the Army, not the VA.

    That said some VA hospitals are better than others, and waiting lists for some cancer treatments can get pretty long.

  • Billy!||

  • ||

    Billy!, re your linked article:

    "...The reason I bring all this up is that none of these groups, according to the CBO, gets as much as 50% of its healthcare through the VA.

    This makes any sort of statements about its relative quality deeply problematic. If your patients are only coming to you for the things that you happen to be better at than their alternative sources of healthcare (private insurance, Medicare, Medicaid, etc), then your results will be deeply skewed. Comparisons were already made difficult enough by the fact that veterans are probably substantially different from the population at large--no matter how relaxed the recruiting standards were in the 1970s, the very fact of making it into the military rules out a number of serious underlying health problems. And their prospective patient population got a great deal more educated and healthy since then.

    So the problem you have to contend with is that if your patient population is different from the general population, and your patients almost all use a mix of your services and other providers, most measurements of your quality may well be picking up the quality of the other helath care they have access to. Or the quality of the patients themselves."


    Yeah, I'd say that substantially changes the metric of it's relative value.

  • ||

    Fluffy, I find that argument nonsensical. By your reasoning, it was worthless for Cray to develop supercomputers in the early 80s. After all, a million dollar Cray from 1982 is outperformed by a $500 desktop PC of today.

    What you're missing is that somebody had the money and the need to justify the purchase of Cray machines back then and those machines served as a measuring stick to judge the ascendancy of inexpensive consumer PCs. Because those Cray's were developed and produced in a free market, although the biggest customer was frequently the government or government funded, everybody benefitted by their existence.

    Likewise, as long as it doesn't require a 'Bug Jack Barron' scenario, where immortality is obtained by torturing children to death and harveting tissues from them, I would not mind at all if there were, say, a rejuvenation treatment that could give a 60-year-old the body and health of a strong 30-year-old, and that treatment cost a billion bucks. Because it would in all likelihood drop dramatically in cost as the technology is refined and the company seeks to reach wider, more profitable market through volume. My concern is whether there would be enough customer early on to sustain the R&D.

    I don't begrudge the wealthy having things I cannot. The wealthy supply the early investment that eventually gives new stuff to everyone.

  • Fluffy||

    I don't think you understand my argument.

    Bailey is claiming that anyone who would assert that one problem with our current health care system is excessive innovation is an enemy of mankind.

    My statement is that there can be no such thing as excessive innovation in a free economy, but in a system where the government is artificially inflating demand, it is in fact possible to "excessively innovate".

    That means that countering my statement by talking about innovations open only to billionaires is not responsive. That scenario would require a free market in health care, which is what we don't have.

    What we currently have is a system where if an innovation is developed, and is proven successful and passes the "experimental" stage, you have a number of things that immediately happen:

    1. That innovation immediately becomes available to all Medicaid recipients and the rest of us are obligated to pay for it, no matter how expensive it is.

    2. That innovation immediately becomes available to all Medicare recipients and the rest of us are obligated to pay for it, no matter how expensive it is.

    3. In most states, all insurance companies become obligated to cover the treatment and can't decline to cover it on the basis of its cost.

    That means that, under the system we have now, it is entirely possible for the following series of events to occur:

    1. Government pours lots of money into healthcare by paying for the healthcare of the poor and the old, by giving favorable tax treatment to health insurance plans, and by forcing insurers to cover certain treatments in their plans.

    2. Health care industry, in response to this demand support, develops lots of advanced and expensive treatments that would not have been developed if the funds available were provided only by paying customers bound by price discipline.

    3. Population ages and the % of children covered by government plans greatly expands.

    4. Government goes bankrupt paying for advanced treatments for graying population that its earlier spending caused to be developed "ahead of schedule".

    The only way to avoid this scenario once it's underway is to eliminate government subsidies for health care, and that's the one political choice that is not on the table.

  • Fluffy||

    Oh, and I wrote all of that to set up one summary statement, which I then forgot to include. Here it is:

    The problem with your scenario is that the rejuvenation treatment would not be limited to billionaires until and unless it became less costly. What would actually happen is that the government would literally destroy society in an attempt to make the treatment available to everyone. It would use every weapon at its disposal, up to and including mass expropriation and the enslavement of medical personnel. So I guess I would say that I would only want that discovery made once we have a free market in healthcare in place, or I'd want it to occur on the market's timetable, and not as the result of research primed up "ahead of schedule" by tax dollars [since in that scenario it's more likely that the resources will exist to support it].

  • eb||

    Fluffy,

    I get what your saying. The governement through its intervention pushes too many resources toward investment in healthcare relative to consumption or some other area of investment compared to what would have naturally happened in the marketplace under an efficient outcome. This argument is really no different that saying the government shouldnt give tax credits for the ethanol industry because it diverts limited resources to thhat industry over another where greater utility could have been had.

  • ||

    There a way to bring the goose back to life and it's already happening! http://cli.gs/23yYaM/

  • ||

    To Billy, et al:

    Thanks for your comments on VA and the links to fascinating CBO study. I must say that the CBO report does not seem as negative as Megan McArdle at the Atlantic finds it. Am doing some more detailed research on this topic.

    Thanks again for the tip!

  • ||

    Senate Majority Leader Harry Reid (D-NV) released a merged version of the Senate comprehensive reform on 11/19/09, which Mike Oliphant whom manages Utah health insurance plans for www.benefitsmanager.net/utah-g.....urance.htm employers could get behind and support some of it (Patient Protection and Affordable Care Act, or H.R. 3590). This should encourage the private sector health insurance carriers to form INSURANCE EXCHANGES which is what we have done here in Utah. They carry the risk and burden, not the tax payer. See more about this at http://www.ahealthinsurancequote.com/reform.html

  • EconomyPolitics||

    See what Simon Roberts has to say about this. He is never afaid to share his opinion. He basically says that if the world looks to the US for health care innovation, and we decide to stifle health care innovation with our decisions, who will take the lead? Do we really want a system where we wait for others to innovate?

    http://www.economypolitics.com.....me_02.html

  • Kęstas||

    Do not stop the American health care innovation machine.

    This system is a world-class treasure. Do not put on a new cost-cutting block any patented health care innovation until the patent expires.

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