McArdle on health reform and medical R+D by mattsteinglass
September 4, 2009, 5:48 am
Filed under: Health

John Holbo responds to Megan McArdle’s counter-challenge to address what would happen if the harms she claimed actually did occur. Megan’s harm — and to be clear, it’s now the only harm she’s claiming from the version of health insurance reform Obama wants to implement — is that it will inevitably result in cost controls on drugs and medical technology, and that would dramatically discourage medical innovation. Holbo says: if that happens, then the government should simply fund medical R+D. Megan then responds that we don’t know that the government can do a decent job of funding medical R+D:

There is no country in which government has outperformed the market at the production of basic needs (distribution is a different question that we can fight about later).  The only industry that’s even vaguely hopeful is defense, and I hope I don’t need to persuade progressives that if our pharmaceutical industry starts looking like our defense industry, we’re screwed. …You don’t like me too drugs?  Wait until the pet company of some powerful committee member wastes billions of dollars chasing a never-never cure for cancer rather than a promising antidepressant that could produce a 20% improvement over existing treatments in large classes of patients.

Just as private charity does save some people, the government does produce some drugs.  But this is not the rule.

Maybe you think this can change.  Great!  Build the institutions to do it–I’m totally serious about supporting Dean Baker’s plan to try to make a government agency to develop drugs.  If they can develop more drugs more cost effectively than private pharma, that’s a worthy use of tax dollars.  Here’s the thing:  you have to do it before you dismantle the old system.  Not after.

Okay. I think Megan has misconstrued Holbo’s response. He didn’t say the government should develop the drugs itself. What he said is the government should fund drug development. The best-known proposal for doing this is not Dean Baker’s proposal; it’s Joseph Stiglitz’s proposal for multibillion-dollar government prizes for new drugs that meet designated public health goals. It’s extremely misleading for Megan to talk about congressional committees directing funding to pet drug projects: clearly the priorities need to be identified independently and funded based on a peer review system, the way NIH works. And the money needs to be awarded once the drug passes Phase 3 trials, not before. Megan tends to disdain the possibility that any government agency can function better than the worst excesses of politicized government incompetence, but in fact NIH and the VA healthcare system really do work pretty darn well, whereas congressional committee direct control over defense funding really doesn’t.

The main reason this is different from the defense industry is that in defense, the client is government. In medicine, even under a single-payer system, the client remains private doctors and their private patients; it’s just that the payer is government. As Rep. Anthony Weiner keeps trying to explain to Joe Scarborough, Maria Bartiromo et. al., all we’re talking about is: who handles the checks? Who takes your insurance premium, and passes it on to a doctor or a drug company? Why do we need competing for-profit private companies to do that?

But the main point here is that the harms Megan is by now claiming from health reform are utterly speculative. First she claims that this health care reform, even though it’s based entirely on private health insurance (with government subsidies for the poor), will lead government’s share of the bill to rise to more than 50% of national health care spending, whereas the current system wouldn’t. If that’s true, she says, then the government will impose cost controls on drugs. If the government imposes cost controls on drugs, she says, then innovation will fall.

Okay. Maybe, maybe, and maybe. If all of that happens, then we will find ways to address that problem. Holbo’s suggestion is that government fund R+D. Another suggestion might be to extend patent terms on drugs so companies have longer to recoup their R+D costs. (Companies have not so far proven exactly powerless in efforts to lengthen the terms of intellectual property protections.)

But I feel that Megan is really losing track of the very distanced nature of her argument here. Look: the US already guarantees a “decent minimum” of medical insurance, via Medicaid and the hospital emergency care mandate. And it already guarantees full insurance to all seniors via Medicare. Essentially, the US already has a Bismarck system of universal health insurance. Except it doesn’t actually cover everybody. It spends the public money, but doesn’t give people the psychological and pragmatic guarantee that they’ll be covered which is supposed to be the purpose of insurance. The problem is that the system is crazily incoherent, so it misses people who aren’t quite poor enough for Medicaid, incentivizes healthy young people to skip insurance (making it more expensive for everyone else), incentivizes insurance companies to deny coverage to sick people or do the rescission thing where they retroactively kick you off even after you’ve been paying premiums, and so forth. All we’re trying to do with the current reform is get rid of the crazy inconsistencies and bad incentives, and fix that hole between Medicaid and the bottom level of private insurance. And Megan is saying that fixing this system and making it less incoherent is bad because it will…be the last step that leads inevitably to price controls on drugs.

I don’t know. It seems to me that if we’re going to get price controls on drugs, we’ll get them when our already existing “decent minimum” public health programs, Medicaid and Medicare, hit the funding wall in 10 years or so. I agree with Megan that there is ultimately a tradeoff society has to make between incentivizing medical innovation, and promising that everyone can have such innovations immediately once they’re invented, regardless of the ability to pay. But that tradeoff is always there. It’s there right now. Right now, drug companies are starting to push for longer patent terms, because the number of new drugs in the pipeline is falling. Right now, private insurers face a choice of refusing to cover expensive treatments, or hiking premiums. Right now, we’re looking at Medicare and Medicaid going bankrupt trying to keep up with medical costs. What’s happening with the current proposal for health insurance reforms is that we’re being forced to confront a lot of issues that we’d been able to avoid facing for a long time. One of those is price controls. And they may be coming. But we’re not going to prevent them by refusing to reorganize our incoherent failure of a health insurance system.


4 Comments so far
Leave a comment

[…] I’ve written about a wide range of subjects including: … Go here to read the rest: Matt Steinglass – Accumulating Peripherals – McArdle on health … Share […]

Pingback by Matt Steinglass - Accumulating Peripherals – McArdle on health … | Today Headlines

[…] Matt Steinglass – Accumulating Peripherals – McArdle on health … Share and […]

Pingback by Matt Steinglass - Accumulating Peripherals – McArdle on health … | Today Headlines

“And it already guarantees full insurance to all seniors via Medicare.”

And to veterans, who, along with the elderly, are more likely to actually use health care services.

Could the status quo be a more ideal situation for the for-profit private insurers? We have government programs to insure those who consume the most health care services (28% of the population — and they even get the government to hand over a cut of the administration of those programs, e.g., Medicare Advantage), leaving a healthier pool of people from which private insurers make their profits — a pool they make even smaller and more profitable via the practices of rescission, “pre-existing condition” denials, and, to borrow a phrase, death panels.

A triumph of the conservative libertarian agenda: Socialized costs, privatized profits. (Of course the basic premise of insurance is something of an “socialist” concept, but we know better than to expect coherence or consistency from folks like McArdle.)

Comment by jasong

It’s absolute garbage to say that the government doesn’t do a good job of funding R+D. In many cases with medicine, government is the only one funding R+D, which is carried out by universities. This is exactly what occurred with HIV drugs. Dr. David Ho used NIH grants to do the research that provided all the actual science. Drug companies then bought licenses for the patents owned by the universities. Many vaccines would be just plain money losers for drug companies. If they’re really successful and wipe out a virus altogether a la smallpox, why they never make money on that again.

Comment by gitaiba

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: