Free Markets, Health Care, and Innovation

I waded into Jonathan Cohn’s “Creative Destruction: The Best Case Against Universal Health Care” with misgivings. But to my delight Cohn presents the “best case” and then demolishes it.

The “best case” is the argument that a free market health care system encourages innovation that leads to new treatments and cures. Yes, we devote 16 percent of our gross domestic product to health care, but our health care spending is driving innovation for the entire world. If the profit motive were removed from health care, say the “free market” advocates, innovative medical research would be squelched. And that’s a compelling argument.

However, there’s theory, and then there’s the real world. As Cohn says,

But it’s one thing to say that universal coverage could lead to less innovation or reduce the availability of high-tech care. It is quite another to say that it will do those things, which is the claim that opponents frequently make. That argument requires several leaps of logic, many of them highly suspect. The forces that produce innovation in medicine turn out to be a great deal more complicated than critics of universal coverage seem to grasp.

It turns out that in the real world the real innovations, the breakthroughs that take medical research into whole new directions, are generally not made by the private sector health care industry.

The great breakthroughs in the history of medicine, from the development of the polio vaccine to the identification of cancer-killing agents, did not take place because a for-profit company saw an opportunity and invested heavily in research. They happened because of scientists toiling in academic settings. “The nice thing about people like me in universities is that the great majority are not motivated by profit,” says Cynthia Kenyon, a renowned cancer researcher at the University of California at San Francisco. “If we were, we wouldn’t be here.” And, while the United States may be the world leader in this sort of research, that’s probably not–as critics of universal coverage frequently claim–because of our private insurance system. If anything, it’s because of the federal government.

The single biggest source of medical research funding, not just in the United States but in the entire world, is the National Institutes of Health (NIH): Last year, it spent more than $28 billion on research, accounting for about one-third of the total dollars spent on medical research and development in this country (and half the money spent at universities). The majority of that money pays for the kind of basic research that might someday unlock cures for killer diseases like Alzheimer’s, aids, and cancer. No other country has an institution that matches the NIH in scale. And that is probably the primary explanation for why so many of the intellectual breakthroughs in medical science happen here.

There is absolutely no reason why moving to a universal health care system would require cutting back on NIH research. In fact, since 2003 President Bush and his congressional allies have allowed NIH funding to stagnate. They needed room in the budget for other priorities, like tax cuts. “In this sense, the greatest threat to future medical breakthroughs may not be universal health care but the people who are trying so hard to fight it,” Cohn writes.

In fact, in the real world there are indications that the profit motive might be stifling innovation. Most of the private health care industry is focused on developing and marketing as many new, patented products as they can. As a result, much product and development research is focused on incremental improvements on those products that have made money in the past. Research that does not hold a promise of new product development, even if it might lead to cures, is shoved aside. For example, in this article in Genetic Engineering and Biotechnology News, the authors argue that cancer research needs to get away from tweaking products and move into areas that have clinical impact. Cohn writes,

As books like Marcia Angell’s The Truth About the Drug Companies and Merrill Goozner’s The $800 Million Pill point out, 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.

In some cases private industry has gone from creating products to cure diseases to tweaking diseases to sell more products. For example, the criteria for clinical depression have been so watered down that just about anyone having a bad hair day might fit the diagnosis. It seems obvious that Big Pharma is behind this — the better to sell large quantities of Zoloft and Paxil, my dears. This phenomenon, in turn, leads to misuse of drugs, more unfortunate side effects, clinical trials that show drugs have little effect on “depression” (because the trial subjects were not actually depressed), and the persistent notion that clinical depression isn’t a real disease and people who think they have it are just whiners. Those of us who really are clinically depressed may appreciate our Big Pharma meds, but we have major issues with the Big Pharma marketing departments.

Cohn writes of CT scanners, which are wonderful devices. However,

It’s the potential to sell many more such devices, at a very high cost, that has enticed companies like GE to invest so much money in them. In fact, compared to the rest of the developed world, the United States has a relatively high number of CT machines (although Japan has more). But experts have been warning for years of CT overuse, with physicians ordering up scans when old-fashioned examinations would do just fine. (Some experts even worry that over-reliance on scans may be leading to atrophied general exam skills among physicians.) Studies have shown that the mere presence of more CT scanners in a community tends to encourage more use of them–in part because the machine owners need to justify the cost of having invested in them. The more CT devices we buy, the less money we have for other kinds of medical care–including ones that would offer a lot more bang for the buck

And on and on. It’s an excellent article that I urge you to read and bookmark.

So far I’ve seen one reaction from a “free market” blogger, who simply ignores all of Cohn’s well-documented arguments and repeats the mantra:

The advantage of markets is that they foster innovation. They reward successful innovation. Moreover, they eliminate obsolete institutions and organizations.

Government is much more likely to protect incumbents. Regardless of whether it stifles innovative treatments, government will certainly stifle innovative ways to organize and deliver health care. Indeed, it already does so, with its restrictions on medical licensing and practice. A complete government takeover could only make things worse.

Wingnuts simply cannot process empirical evidence that their glorious theories don’t apply to the real world.

In other health care news, today Eugene Robinson discusses “socialized medicine” snake oil and a major study conducted this year by the Commonwealth Fund:

Respondents in the United States were less likely than those in the other countries to say their health-care system “works well” — and much more likely to see a need for “fundamental” change or a total overhaul. With 47 million Americans lacking health insurance, I suppose that shouldn’t be much of a surprise.

What did surprise me was the wealth of data refuting the general criticism that single-payer health-care systems are cold, impersonal and, well, uncaring. According to the survey, 80 percent of Americans have a regular doctor whom they usually see. That sounds pretty good, until you learn that 84 percent of Canadians, 88 percent of Australians, 89 percent of New Zealanders and Britons, 92 percent of Germans, and 100 percent of Dutch respondents surveyed said they had regular doctors. Marcus Welby, M.D., seems to have emigrated.

Okay, but what about the long waits for treatment under single-payer systems? The survey found that 49 percent of Americans said they could get a same-day or next-day doctor’s appointment when they were sick — as opposed to 75 percent of respondents in New Zealand, 65 percent in Germany, 58 percent in Britain and so on. Only in Canada was it more difficult to see a doctor within 48 hours.

It’s true that in the United States, the wait for elective surgery is likely to be shorter than in the other countries (except Germany, which has the shortest wait of all). But onerous delays of six months or more were significantly more common only in Australia, Canada and Britain.

And then there’s this:

The United States spends $6,697 per capita annually on health care, according to the survey — more than twice as much as any of the other countries surveyed. Americans were much more likely than any other national group to have spent at least $1,000 out of pocket on medical expenses over the past year. And, of course, 16 percent of Americans reported being uninsured, as opposed to essentially none in the other countries.

It makes sense, then, that far more Americans than respondents in the other countries reported that in the past year, they had failed to fill a prescription or skipped doses, experienced a medical problem but decided not to go to the doctor, or skipped a prescribed test, treatment or follow-up.

We may have a mess of a health care system, but I bet we beat the world at cooking up half-baked theories and clinging to them through thick and thin. Alas, disease and death are not theories.

Update: Andy Sullivan misses the point.

27 thoughts on “Free Markets, Health Care, and Innovation

  1. 16% of our GNP goes to privatized health care, the highest by 100% of any country, even those with services rated twice as good as provided in the US.

    Lower the cost via universal health care to say, 12%, and send the 4% remaining to NIH, etc.

    While over-simplified, that direction has enable me to get through to even the most rabid privatizer.

  2. “Andy Sullivan misses the point” may well be the understatement of the year. I read his post and had to double-check to make sure he was actually responding to the same piece I had read, because he didn’t actually engage any of the substantive points.

    On the other hand, you have to love Arnold Kling’s disdain for “restrictions on medical licensing and practice”. I have a feeling we’ve already tried his system, and it didn’t work.

  3. The meme about the wonders of the profit motive as it applies to health care really doesn’t hold up on close examination, as you point out. Not only is truly innovative and risky research avoided, cheap and simple remedies that can’t be patented are shunned or outlawed. I get a newsletter focusing on natural remedies where this dynamic is reported with distressing regularity. Doctors are showered with all kinds of “love” from the pharmaceutical industry in an effort to make them pill-pushers, when they could be emphasizing prevention, lifestyle changes, or even cheap, non-prescription remedies.

    The rightard you quoted above, who said:

    ..Government is much more likely to protect incumbents. Regardless of whether it stifles innovative treatments..

    Should ask: who exactly is pushing government to stifle innovative treatments, or protect incumbents? The “incumbents” in this case is big Pharma with buckets of cash it wields to keep that great big gravy train flowing. Michael Moore did a great job in Sicko in showing how this works.

  4. It’s always a bit surreal trying to argue with right-wing opponents of UHC, cause they almost always take this attitude that UHC is some far-out, untested, wild theory that has never been tried ever … and proceed to make a bunch of points along the lines of, “well, because of x, y, and z, undesirable thing (UT) would definitely happen!” But then you point out that every developed country in the world besides us has UHC, and x, y, and z all apply in all those countries, but UT has never occurred in any of those countries.

    That should be the end of the argument, one would think … but no, LOGICALLY speaking, UT MUST happen, therefore it definitely WOULD happen!

    It seems like a lot of arguments against UHC are basically repackaged american exceptionalism … for sure, UT has never happened anywhere else, but the US is different than all those other barbarians…


  5. Moonbat is precisely right, the practice of medicine has been converted into the merchandising of patent pharmaceuticals in this country, rather than a focus on the wellness of patients and disease prevention with early treatment by natural remedies whenever possible.

  6. I have long believed the real reason medicinal marijuana is mostly illegal is that Big Pharma can’t figure out how to control it to make a profit.

  7. I’m a fan of your posts, Maha, and this is my first comment. I continue to wonder if I am the only person in the US who thinks it is dead-on OBVIOUS that the principles of the “free market” do not operate in the realm of health care. Would you care to blog on this aspect of the question?

  8. Herm. Minor nitpick on antidepressants… the key change in antidepressants was that all previous ADs (up until the SSRIs came into play) had some really serious side effects. The tricyclics can cause arrhythmia; the MAOIs can cause blood pressure spikes that can kill you. Prozac has mild side effects, so you could prescribe it more readily, because you didn’t have to balance the risks as much as you did with the older ones.

    The diagnosis in the DSM-IV-TR hasn’t been watered down (as far as I know); I read it recently and it struck me as more or less the same as it had been previously (though I thought the standard of “symptoms lasting two weeks” might have been shorter than it used to be). But it might be that folks didn’t worry so much about precision because they felt Prozac was safe enough not to bother.

  9. I had to laugh at that ‘free-market’ guy complaining about government stifling ‘innovative ways to organize and deliver health care’ with their ‘restrictions on medical licensing and practice.’

    Perhaps he would be happy getting treated by the Simpsons Dr Nick Riviera, but not me. And, fwiw, in my city it’s quite easy to find a wide variety of innovative ways of delivering health care, ranging from the practical to some including crystals whose efficacy I have my doubts about.

    Besides, historians have shown that in this country professional groups like the AMA drove licensing requirements, as a way to ‘professionalize’, and (not inconsequentially) restrict competition. Typically, in “free” markets, the early-established do what they can to make the market unfree as soon as possible, and will often enlist the aid of the government to do so. Particularly when, as in the case of protecting people from quacks and unsafe procedures, there is a convincing public interest to point to.

  10. Twenty to thirty percent of our health-care dollars goes to the insurance industry. One has to wonder why the medical profession, especially those who understand capitalism, is not lobbying big time to cut out that middle-man.

    One of the best articles I’ve read, Maha, on the health-care issue. Thanks.

  11. Good work, Maha. However, any of us oldsters who watched more than a season of “Quincy” knew all that. 🙂

  12. We can’t have “SOCIALIZED MEDICINE!”
    Uhm, what exactly do you think Medicare, Medicaid, the US Military, and Congress’s coverage is, rightie’s?
    The overhead for those programs is drastically lower than HMO’s -one of the great right-wing consipiricies of all time.
    Wake up! Give everyone medical coverage – including all inclusive dental care.
    It might just make you live longer. So, rightie’s, that can extend the time you can suck off money from the public teat. Just think of the possibilities!
    They hate welfare for poor people, yet support it for coropration’s. No univerwsal health care for you and me, but Congress can have all that it wants.
    How come NASCAR driver’s steer to the left at all time, but their follower’s veer to the right?
    This enquiening mind wants to know….

  13. No one seems to mention how much money the insurance companies spend on innovation. I suspect they try to stifle innovation. It generally costs more. They almost always seem to be saying some innovation is not proven.

    c u n d gulag not all nascar fans veer to the right. I personally root for Matt Kenseth In the number 17 DeWalt Power Tools Ford.

  14. i always chuckle when people say pharmaceutical and medical researchers need competition to be on the cutting edge…
    the military medical research folks are often on the cutting edge, sans competition.

    if competition is always a virtuesso good, would these people privatize fire departments?

  15. Pingback: My Personal Blog » Free Markets, Health Care, and Innovation

  16. gulag,

    Notice that no one wants to privatize Medicare. With total admin. costs of 3%( per GAO), no one can figure out how to make a profit with it…..

  17. Pingback: The trouble(s) with American health care at Thudfactor

  18. Pingback: Health - Journal of Epidemiology and Community Health - New Issue |

  19. Joe in Oklahoma,

    I once saw a hilarious British video on how a privatized fire department would work. It showed people sticking their heads out the windows of a burning building and shouting down to the firemen who were holding a blanket that people could jump into. The firemen kept running back and forth as the people shouted out larger sums of money that they were willing to pay to be saved.

  20. Pingback: Health - Wal-Mart takes health care criticism to heart |

  21. Pingback: » Blog Archive » Late breaking news

  22. [email protected] wrote: I once saw a hilarious British video on how a privatized fire department would work. It showed people sticking their heads out the windows of a burning building and shouting down to the firemen who were holding a blanket that people could jump into. The firemen kept running back and forth as the people shouted out larger sums of money that they were willing to pay to be saved.

    If memory serves, that’s exactly how the Roman Senator Crassus’ private fire department did work. When a fire broke out, his slaves took the fire-fighting equipment to the site, and asked for a fee. If the property owner couldn’t or wouldn’t pay, the fire department stood and watched the place burn to the ground. So now the Crass Brigade are perfectly content to stand by and watch people die of disease if the profit isn’t high enough. In fact, there’s evidence that they’re stifling research and development that might reduce their profit by saving people. And the wing-nuts are perfectly happy with that state of affairs, as long as people they don’t like are the ones suffering and dying. Yech; that’s sick.

  23. Pingback: Science Health News info » Blog Archive » Late breaking news

  24. Pingback: health-advocate news » Blog Archive » Late breaking news

  25. Pingback: » Blog Archive » Late breaking news

  26. Pingback: Health News Blog » Blog Archive » Late breaking news

  27. Pingback: Health News Home Blog » Blog Archive » Late breaking news

Comments are closed.