Ross Douthat on health care cost containment and innovation

“Trickle-down” is not the only way to finance health-care innovation.

Ross Douthat’s essay against “Medicaid for all” – which boils down to opposition to any form of health-care cost control other than loading the cost on the patients – drew praise from, inter alia, Rich Yeselson:

Millian. You fairly explicated your interlocutors’ best arguments before astutely rebutting them. A model essay.

Agreed as to the format: when Douthat is finished, you know what he wants, why he wants it, and what the stakes are.  In particular, he is frank in saying that his preferred alternative would continue to create great financial stress for the non-rich when they get sick.

Douthat makes two strong points:

1. It’s easy to waste money on health care that could be better spent on something else.

2. The much-maligned U.S. healthcare system does, or at least pays for, a massive amount of health-care innovation; the competing systems spend less money in part by free-riding. Cost controls here could slow innovation worldwide, at a high price in avoidable suffering. (This is the drum Megan McArdle keeps pounding.)

To #1, I would reply that lots of consumer spending is “wasted;” see Robert Frank’s Luxury Fever.  Both the intra-personal hedonic treadmill and the interpersonal process of Veblenian competitive expenditure greatly reduce the marginal welfare gain of a dollar moved from health-care spending to something else consumers (have been persuaded by marketers that they) want. I don’t think we have any reason to think that the marginal healthcare dollar buys less happiness than the marginal dollar spent on anything else; the opposite might easily be the case.

#2 – innovation – is a much more troubling point for fans of cost containment. But it’s a convincing point only if there’s no alternative to unchecked spending on healthcare for the rich as a means of financing innovation. Right now the National Institutes of Health spend approximately 1% of total (public-plus-private) healthcare costs. It’s hard for me to believe that we couldn’t save 10% in healthcare costs, put half of that into more research – thus sextupling the research budget – and get back much more innovation than we’d lose. (And that’s ignoring the possibility that we might ask other rich countries to contribute something to the process.)

Is there any reason to think that patents are really the right way to finance the development of new pharmaceuticals, imaging devices, and medical equipment? Seems radically implausible to me, given prizes and publicly financed development of innovations which are then put into the public domain as alternatives.

Even if the rest of Douthat’s argument were more convincing than I find it, his casual acceptance of widespread financial stress as an acceptable side-effect of an approach whose benefits  – as he admits – are mostly speculative, strikes me as somewhat hard-hearted.  Increasing inequality has made financial stress much more common than it used to be, even in the face of rising GDP per capita. Financial stress is bad for health, and even for effective IQ. It seems to me that the presumption against financial-stress-increasing policy choices ought to be fairly overwhelming.

All of that said, Yeselson (and Chris Hayes) are right. It’s good to have a conservative writer whom it’s possible to engage in serious policy debate.



Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact:

60 thoughts on “Ross Douthat on health care cost containment and innovation”

  1. Well, I’ll concede that it might be good to have a “conservative” writer with whom one can engage in a serious debate about important question of policy. I suppose we won’t really know until such a conservative writer appears. Ross Douthat doesn’t remotely fit the bill. Be sure to let me know if you find one.

    1. Mitch, is this based on your prejudice about Douthat, or on an actual, careful reading of the essay referred to? If the latter, you seem to be in a distinct minority among progressives, and it might help the rest of us if you would explain your reasoning.

      1. Mark,
        Well, to be perfectly honest, my response was a combination of my normal visceral dislike of Douthat and a reading of the article that I think was much closer than was done by many progressives. I mainly had in mind the points made very eloquently by Wimberly and others but I would add that Douthat must surely be aware that there is a very hotly contested debate about how much of all that wonderful innovative research is being paid for by the shareholders of Big Pharma and how much by the taxpayers.

        If you take into account the many studies showing that (1) Big Pharma receives huge direct and indirect subsidies for the research it does and (2) that Big Pharma isn’t spending as much of its own money on research as it claims since it seems to be using accounting tricks to allow money spent on advertising and marketing (“physician education”) to count as money spent on research. There was an NYU study showing that Big Pharma actually spends more on advertising than on R&D.

        So, as others have already pointed out, if you took the massive savings that Medicare for all or a single-payer system would produce and combined it with the massive subsidies given to Big Pharma and then added in the research work done by government and charities that is ultimately monetized by Big Pharma and diverted their massive marketing budgets, there’d be more than enough money to support the basic research that allows important medical innovations.

        Douthat never discusses this question of what Big Pharma spends it money on. Yet, if these innovations are the result of (1) taxpayer and charitable funding and (2) basic research done mainly by public institutions then all of this innovation Douthat is so proud of wasn’t the result of free markets. So we really wouldn’t need to keep Big Pharma fat and happy.

        Finally, Douhat’s last two paragraphs are simply amazing. He seems to be whirling and twirling and gesturing in every direction imaginable before deciding that the great opportunity we have is to allow private industry to screw even more people and make even more money. Douthat seems to believe that supporting “lemon socialism” is more important than providing better medical outcomes to more people at lower cost. But no, we can’t do that because…freedom.

        1. Big Pharma also tends to spend its research dollars to achieve maximum revenue per research dollar, rather than maximum social utility, or even maximum utility to the patients that consume its products.

          This shows up most clearly in the flood of new drugs to treat chronic conditions such as depression, high cholesterol, high blood pressure, etc. — drugs which the patient takes daily for many years — and the relative paucity of new antibiotics. Although new antibiotics are urgently needed to combat multi-drug-resistant bacteria, the projected payoff to Pharma is relatively low, because the patient takes only ten or twenty doses to produce a cure. They’d have to price such new antibiotics at thousands of dollars per dose to match the revenue expected from a new, marginally-better cholesterol-lowerer.

      2. Mark –Did you used to live in Venice, CA?/ If so an announcement came for you regarding a 30th reunion next year (2014) on May 1-4 for Friends School Baltimore. Just FYI. If not you…then, oh, well I tried.

    2. I agree with Mark. Douthat’s essay is very straightforward. He’s throwing his values on the table, and saying I think X is worth subordinating in order to achieve Y.

      Very few people do this. And dreadfully few conservatives writing about health care do this– they do everything they can to never discuss what they really think the values the health care system should fulfill should be. (Because for most of them, I suspect the answer is “health care is something that you should be able to spend your money on, but isn’t any sort of a right if you can’t afford it”.)

      1. Very few people do this.

        And, worse, very few people are called out when they do do this, so long as they avoid obvious cartoon villainy such as celebrating their malign intent. Take for example Paul Ryan, who Charlie Pierce famously named the Zombie-Eyed Granny Starver. Paul Ryan had the courage to actually throw some numbers out there, and despite his denials anyone who looked at the numbers could see that his schemes indeed involved no small amount of Granny Starving. But: he claimed that he just loved everyone and wanted the best for everyone, and so the media treated it as the height of poor taste to criticize the Granny-Starving effects his plans would have, or to accuse him of devaluing the victualing of grannies. Indeed, Politifact (or its doppelganger, I forget which vacuously onanistic outfit it was) declared as the Lie Of The Year the Democratic campaign to expose Ryan’s plans to destroy Medicare – even though the Democrats could quite rightly cite the Ryan plan to replace Medicare with a voucher whose fixed value would every year fall further behind the cost of health insurance.

        1. I agree about Ryan, but it seems to me Douthat is a lot more explicit than Ryan about what he’s sacrificing in order to ensure that there is money for pharmaceutical innovation, isn’t he?

          Ryan puts out the numbers, but then pretends there’s no trade-off. Douthat actually says “here’s what I’m trading off”.

      2. Yes, he is explicit about the granny starving but he really just conjures up the relationship between extreme profitability and innovation out of thin air. Even Ross Douthat must know that if Big Pharma is putting the bulk of its money into marketing and lobbying and is mainly free riding on the work of research funded by the government or charities, then granny is being starved in the service of obscene levels of profitability for Big Pharma and not in aid of glorious free market innovation.

      3. But, as I’ve been pointing out, that’s not really true since his supposed tradeoff isn’t as clear or as honest as you and Mark make it sound. If, as appears likely, there is only a minimal relationship between profitability and innovation, then his isn’t being honest about his preference. He makes it sound as if innovation depends on pharmaceutical companies making obscene profits because that’s how they finance all this wonderful innovation on which opportunistic foreigners are free-riding with their price controls.

        Yet, if it is the case that the bulk of the financing for basic research and also for the development of new drugs is coming from the public sector (government and large charities)the Douthat’s essay is a lot less straightforward. The real choice is thus between more innovation being financed by government out of the savings from rationalizing health care and a present system that favors drug company profits over innovation and lower health care costs overall. Basically, Douthat is hiding his real preferences. What he really wants is to put poor people like granny on the ice flows so that the neoliberal system he favors can continue to exploit the people.

  2. Right now the National Institutes of Health spend approximately 1% of total (public-plus-private) healthcare costs. It’s hard for me to believe that we couldn’t save 10% in healthcare costs, put half of that into more research – thus sextupling the research budget – and get back much more innovation than we’d lose

    I’m with you in general, but let me point out that this mechanism would be an utter disaster for research in this country; already we’re suffering under ever-increasing demands that research proposals must have not only scientific merit, not only possible implications for future effects on human health, but a direct applicability to the patient, so-called “translational” merit. Make the NIH the sole or even the main instrument of clinical research and the trends that already threaten basic science funding from the NIH would massively intensify.

    1. The NIH has put those rules into place because it’s been slowly strangled by budget cuts. Of course this has markedly reduced the amount and kinds of research the NIH has funded, proving,of course, that “Government can’t do anything right”.

      But fine, fund NSF, fund other forms of public research.

      In the main people like Douthat would discount this sort of plan anyway in their reflexive dislike of government.

  3. Mark:

    Well, I don’t think Ross really deals with the implications of his ideas. Well, the first place to cut healthcare costs is long-term care for the elderly. It has almost no plus on a strick lifetime cost-benefit analysis (compared to let’s say the benefits-to-costs of vaccines), and if you were dumb enough not to invest 10% of your income in Vanguard 401(k)s for the last 30-40 years, well, to hell with you. That would cut like the average sales tax in states from 6% to 4-5%, or save a percentage point or two in state/federal income tax, so obviously all of those massive savings will be well-spent.

    And of course, why spend money on prenatal care? Hell, if the pregnancy ends in a miscarriage or early infant death, she can just produce another? Not much cost there!

    But he is pro-life!

    I guess compared to Limbaugh he at least engages the left. But I still have trouble taking him seriously, as you can see above.


    1. Well, the first place to cut healthcare costs is long-term care for the elderly. It has almost no plus on a strick lifetime cost-benefit analysis

      This is like the grim old joke about how a massive proportion of healthcare spending occurs in the last six months or even the last fortnight of the patient’s life, an expensive and ultimately fruitless effort to extent lifespan and restore health. Eliminate that spending and we’re golden – but, of course, we don’t know it’s the last six months (or fortnight) until afterwards! Take for example my grandfather, who died fairly miserably (and, I imagine, expensively) in the ICU with congestive heart failure – but he had congestive heart failure for the last several years of his life, and pulled through two or three hospitalizations and rehabilitations, with some pretty good quality of life before the last, fatal decline. Maybe doctor or a diagnostic tool could have told us the last one was indeed the last one – but with how much certainty? Would we have believed them?

      1. Warren:

        I am not refering to all healthcare spending on the elderly. I am focusing specifically on long-term nursing home care for the elderly, many of which have vastly reduced mental faculties. That is a huge chunck of Medicare’s budget and state Medicaid budgets. For those that don’t know about Vanguard or can move in with their kiddos.

        But it is an irony that a lavish single-payor system is set-up for the elderly. Hopefully Ross wants to savage not just long-term care, but elderly healthcare in general.

        But he’s pro-life!


        1. Frank, you should explicitly note that Medicare has pretty limited long-term care benefits. You do imply it — many States’ Medicaid budgets are severely impacted by long-term care for the elderly. This is a consequence of (1) the lack of LTC in Medicare; (2) Medicaid eligibility rules; and (3) careful asset management by heirs or on behalf of the heirs.

      2. My impression is that generally when health policy people talk about reducing end of life costs by reducing treatments that don’t improve quality of life, they’re primarily talking about cancers. This can happen in two ways: by not treating fairly common cancers like slow-growing prostate cancer that are extremely unlikely to kill a person before something else does; or by not trying to treat things like pancreatic cancer or aggressive late-stage cancers that kill virtually everyone within a year. I am sure some people would go broader than that, but those are common examples I’m familiar with.

  4. As Douthat partly concedes, the rest of the developed world offers a superb cafeteria of good health care systems, all of them more cost-effective than ours and some of them with high degrees of patient choice. We could, of course, adapt what we adjudge to be the best of those, and then put a nice chunk of the staggering savings into NIH and other innovation-spurring programs. Win-win, and maybe win and win. Not to mention that we might want to lean on other rich countries to do more. But that actually would promote equality, and would not help Big Pharma, the private insurance industry, and the medical device industry; there’s the rub. Commitment to innovation is at most a tiny fragment of the actual reasoning for opposition to universal healthcare. It is shoved out front as a crude and cynical rhetorical trick by Douthat, McArdle and others properly embarrassed by most of the anti-reform case. Millian indeed.

  5. It’s a myth that only US medical wastefulness generates medical progress. I blogged here in 2009 on the interesting datum that GlaxoSmithKline – a British company – does not find the US market any more profitable than regulated Europe, probably because of the astronomical extra marketing costs in the States. Only four out of the biggest ten pharma companies at the time were American, though all are dependent on the US market. (The rankings churn a lot, as blockbuster drugs are launched and go out of patent).

    Where the US stands out is in the resources spent by the government on medical research. In the UK, the public Medical Research Council – the outfit that funded Watson and Crick – has a budget almost identical to that of the non-governmental Wellcome Trust: latest year, £759 million versus £746 million. The latest NIH budget is $30.9 billion: if its spending were parallel to the MRC per capita, this would be only $6.1bn. Per head, the US government spends five times as much on basic medical research as the British.

    1. What about nongovernmental spending in the US? The biggest one I can think of offhand is the HHMI, which is fantastic but which spends I think only (“only”) about $1 billion a year. There’s also the American Heart Association, the American Cancer Society, and innumerable others, but I don’t know how much spending they actually do on research (especially basic research, as opposed to clinical) – and, of course, they’re scattered, unlike the Wellcome. The Gates Foundation spends some money, and is almost unique in its interest in diseases affecting the global poor, but I think it’s not actually a huge amount.

      My (really rather vague) impression would be that the total nongovernmental spending on basic research in the US might struggle to be as big (proportionately) as Wellcome spending in the UK – but I’d be interested in seeing some real numbers.

      1. In any case, research funded by charities does not come from Douthat’s profit-seeking corporations and boutique clinicians, and weakens his argument, such as it is.
        The UK has other research charities than the gorilla Wellcome, such as Cancer Research UK (latest annual revenue £483m).

    2. You indeed blogged this in 2009, and one of your commentors at the time pointed out that the underlying data you are using to support your claim are not reliable for this purpose (due to the fact that companies have quite a bit of flexibility as to which countries they recognize costs (and to a lesser extent revenues) in. I’m pretty sure you saw the comment in question too, since you seem to have responded.

      It is true, as you point out, that both prices per unit and marketing costs are higher in the US than in Westerrn Europe for example. But you don’t provide sufficient data (I would assume because its not publically available) to compare the relative magnitude of the two effects. If direct to consumer marketing were such a huge drag on pharma companies’ profits as to wipe out the beneficial impact of higher prices than I would certainly expect that the large pharma companies would actively lobby to get such advertising banned (as cartels often do to “protect” themselves from “destructive” completion.).

      1. A lot of ifs and buts to explain away a clear datum. GSK – a British-domiciled corporation – is dependent on the tolerance of the British government, to whom it sells billions of pounds of drugs every year, in a way that Google is not. Creative tax avoidance would be very risky. Big Pharma likes marketing, on which it spends more more than research. It pushes the envelope in restrictive Britain – I provided a hostile reference from a doctor’s association. It’s academic whether the industry would collectively be better off without it.

  6. Douthat’s line is that is worthwhile imposing untold misery on the American poor by depriving them of health care today in order to finance a future cornucopia of medical progress tomorrow through innovations only available initially to rich patients. This is eerily parallel to Stalin’s argument for forced industrialisation at the expense of starving the peasantry by the millions. The golden future of communist plenty will justify all the cruelties of the Five-Year Plan and collectivisation. Never mind that later other countries like South Korea and Deng’s China showed that it’s possible to have just as rapid industrialization without the starvation. (I claim a reverse Godwin award).

    Douthat’s piece isn’t “somewhat hard-hearted”, it’s hateful high-class propaganda.

  7. Mark, I admire your patience and curiosity, though in this case I can’t share them. I am still in a pretty big funk from the recent DC shenanigans.

  8. Research prizes or bounties may well be an effective substitute for patent protection in spurring commercially useful innovation. We should experiment with such approaches.

    But increasing direct funding of NIH (and related) research at government institutions and universities would almost certainly not spur enough commercially useful innovation to compensate for an equivalent reduction in private sector R&D. The types of research that public sector labs do is very different from the types of research that private sector labs do. Both are critically important to driving innovation (the former by pushing out the boundaries of basic science and the latter by translating the insights of basic science into commercially useful technologies) but they are radically different domains that require different skill sets, different resources, different organizational and managerial processes and different ways of deploying capital. And both are incredibly complicated. Absent many years, maybe decades, to get down the institutional learning curve Harvard simply could not do what Merck does (nor could Merck do what Harvard does). Just because both are described by the term “research” and both employ people in (literal or figurative) white coats with early-career training in biology and chemistry doesn’t mean that they are substantively similar activities.

    1. Private-sector medical R&D consists of two very different things. One is medical devices: this is doing well, though the industry’s recent bid to exploit the budget/debt crisis to exempt itself from a small tax was sheer chutzpah. Some of the gadgets they come up with are useless cost drivers, like proton-beam accelerators, but SFIK that’s an exception. The other side is pharma: and that’s in very serious trouble, with steadily declining real innovation across the industry, worldwide. There’s reason to think the patent model is broken, possibly because it isolates researchers in secretive enclaves, like Hitler’s competing teams of atomic bomb builders. We may need to socialise pharma research just to keep it alive.

      1. I’m not so sure about the medical-device industry. Although they develop stuff that is not just useless cost-drivers, so many of the big-ticket items they sell are just that, and so many low-cost versions of diagnostic tools just somehow don’t seem to be on a priority push for development. They seem to be on the same trajectory as pharma, just at a different point.

        Pharma, meanwhile, is a poster child for why anyone who touts “innovation” should be immediately considered unserious. New erection drugs, longer-acting formulations of existing antidepressants, drugs for ailments that have to be marketed so people will know they exist…

        And what’s particularly galling: those huge “research” costs for Phase II and III studies? The more marginal (but profitable once in wide use), the bigger a study you’re going to need (or the more studies you’re going to have to conduct and cherry-pick) to get evidence of efficacy. A new drug with a dramatic effect on a life-threatening condition will generally take a much smaller sample to show efficacy.

        1. Your third point in particular is deadly. It’s reinforced by bitter competition in the me-too area, so many of the low-value trials must be more or less duplicated.
          However you do need large trials to detect modest but very worthwhile benefits in preventive medicine, which only the public or charitable sector will pay for.

    2. You are assuming that we have an accurate picture of what private industry spends and that it is spent wisely to secure the greatest improvement in health benefits for the greatest number of people. From everything that is known, private spending seems to be much smaller than the industry claims because of the accounting gimmicks being used to disguise spending unrelated to research as spending on “R&D”. Similarly, it appears that some money the industry claims is going to research is actually going not to basic research on drugs but rather on finding ways to most profitably exploit the basic research being done by others.

    3. Harvard can’t do what Merck does in terms of *profitable* drug development, which requires marketing research, drug sales reps, patent lawyers, and whatnot. Harvard, and hundreds of other med-school-affiliated universities, are totally capable of:

      a) Applying for drug-development research grants, doing early research, and publishing it. Public domain. No patents.
      b) Applying for human trials research grants, doing research towards FDA approval, and publishing it. Public domain. No patents.
      c) Applying for drug-manufacturing research grants—OK, maybe not Harvard, but somewhere with a Chem E program—in collaboration with for-profit generic drug manufacturing companies.
      d) Taking a big publicity photo, showing everyone involved shaking hands over a package of the new generic drug that’s helping tens of thousands of people at $0.2 per pill.

      I understand that clinical trials are frequently subcontracted to university groups anyway.

      Yes, you need some of the Merck-like expertise somewhere. It doesn’t have to be at the universities, and it certainly shouldn’t be at Merck, but rather at the NIH and FDA.

      1. On c): Is any research needed on drug manufacturing? I thought this was a routine step; any drug that can be synthesised in the lab can be manufactured in the factory. Manufacture is a trivial cost centre for the industry, and comes well behind marketing and research. Its main challenge is rigorous quality control, but the Indian generic companies have mastered this to FHA and European standards. Things may change with personalised drugs based on genetic analysis.

        1. I think you need to distinguish between small molecules, which are usually fairly straightforward in their synthesis (which is not to say easy, of course) and some of the protein-based drugs (injectable monoclonal antibodies and the like) that are actually massively expensive to produce in quantity and where the production facility must be continuously monitored lest the tiniest contaminant shutter a whole factory by lacing some of the product with bacterial endotoxin or with a virus (something of this sort happened in Boston about five years ago, if I recall).

        2. No, this is very much not a routine step. The methods that you use to synthesize enough product to test in a lab are not the methods you use to synthesize enough for clinical trials, which may in turn, as I understand it, not be the methods that you use to synthesize a drug for mass manufacture–this is why generic drug makers often find it quite tricky to get exactly the same product, even though they have the blueprints from the patent application. (I’m sure you saw the recent reports of the major Indian drug manufacturer who faked their FDA reviews because they couldn’t get the product up to the purity and activity of the original). Initial synthesis is slow, labor intensive, and uses methods that are not appropriate for scale manufacture. Pharmaceutical firms have entire departments who take over once the initial researcher has made the compound and determined that it’s promising, and the compound is ready to go into larger scale production.

          1. But whether or no this routine, the one thing that is very clear is that it can probably be done by anybody for roughly the same price (as in, anything Merek can do, Harvard can do better). It is also a step that in no way supports the propositions advanced by Douthat that (1) the high prices Americans pay for pharmaceuticals are necessary for Big Pharma to continue to innovate and (2) that the rest of the world, with their price controls are essentially free-riding. Neither proposition turns out to be true and this new argument you are making about manufacturing expertise doesn’t justify a health care system in which one of the main costs is simply paying rent to powerful companies in the health care sector—which is really what’s going on.

          2. Similarly, pharmaceutical companies have no trouble manufacturing the same drugs to equivalent standards in regulated Europe.
            Megan McA throws up a negative anecdote about the Indian generic companies (Tylenol anybody?), and i s impressed by the fact that pharmaceutical companies (America, European, and Indian) employ lots of qualified and thorough people on the manufacturing side. According to an old report by the WHO (1999 data), 19% of pharma R&D goes into developing the production process of new and old drugs, confirming her point that it’s not trivial. However, Mitch has provided the only evidence that this development is anything but a routine chemical challenge. When did you last hear of an approved drug that could not be marketed because of an insoluble manufacturing problem?

      2. This is seriously mistaken. Harvard et al. file patents all the time. There has been major litigation involving the patent rights of the UCLA, UC Berkeley and Stanford all within the last 3-5 years and all related to health care inventions. The University of Wisconsin, for instance, holds a patent on certain things that was widely viewed as a road block to stem cell research. And really, not everyone thinks giving universities this kind of financial stake (which goes back to 1982 even when the research was funded by the federal government, thank you Ronald Reagan) is compatible with a scientific mission of disinterested and independent research, but to say that universities “can’t do” what Merck does because of patents — that’s seriously incorrect.

        And yes, clinical trials are *sometimes* subcontracted to universities misses the trend in this area by a pretty wide mark — trials are less and less “subcontracted” to academic institutions and more and more conducted through organizations known as CROs (Clinical Research Organizations). Indeed, universities miss the “easy money” that they used to get in this area, but because others can do it more cheaply manufacturers have moved on for a lot of trials.

        Clinical trials for drugs have to meet regulatory requirements — they are much more related to meeting FDA standards and so what Merck et al. actually do better than anyone else is take an invention, wherever it was developed, whether it originated or purchased the patent rights, and push it through the regulatory undertaking that has to happen before it can be approved as a product. It also knows how to introduce and market a product, how to get it reimbursed, coded, and so on.

        1. Barbara, you’re right that this is what happens in the *current* mega-profit-oriented medical world. Yes, universities file patents on their (usually early) drug development work and hope for a windfall. Yes, for-profit drug companies subcontract their trials to the lowest bidder.

          My point was, contra poster Stephen, that an all-nonprofit medical world would somehow fail to conduct “commercially viable” R&D to equal what Merck is doing now. Universities are absolutely ready and waiting to develop and test market-ready drugs on their own. They’d be willing to do it on a “apply for drug development grants” basis rather than a “beef up the patent portfolio” basis, if that’s what the funding agencies insisted on.

          The only thing that universities are missing, I think, is the ability to *independently* decide what to focus on. If Merck sits down one morning and says “OK, let’s work on X”, they can just decide to spend a billion dollars on that. If Harvard sits down and says “OK, we’re interested in X”, they have to pitch that idea to the NIH before working on it. I don’t see that as a problem given that the Mercks and Glaxxos and Pfizers of the world appear to devote their independence towards, e.g., scrambling for a sliver of the high-priced-prescription restless-leg-syndrome drug market, rather than (say) undercutting one another on price on asthma inhalers.

  9. Here is a question for Douthat. If the money could be better spent elsewhere, where should it be spent? Of course the answer would be handwaving from Douthat. Is he really gonna support universal pre-K, a basic income, expanded social security, food stamps? See what’s right in front of you Mark.

  10. Every time I see a boner-pill commercial on TV, I say: “Look! Healthcare spending!”

    When I hear concerns about X% of GDP going to “health care”, I say: “Well, X% of GDP has to go to something. What would it better go to? Financial services? Pornography?”

    Also, if someday (near the end of my actuarially-projected lifetime) 50% of GDP is “health care spending“, won’t that mean that 50% of GDP will be health care income?

    Last I looked, the US had 2.3 physicians per 1000 population, Canada 2.1/1000 for about half the per capita “health care spending”.

    Just a few observations that I would put to Ross Douthat if I cornered him in a bar sometime.


  11. Seems to me that by focusing on the medical and not economic outcomes of extending Medicaid, Douthat missed the point.

    Extending Medicaid might not cure cancer, but it stops cancer from bankrupting a family. Isn’t that a worthy goal?

    Why are actual family finances irrelevant to this erudite policy discussion?

  12. I can’t really say that I agree with Ross Douthat’s argument.

    If you look at the income statements of Pfizer, Merck, etc. you’ll see that R&D costs are typically around 15%-25% of their revenues. The rest goes to production, distribution, advertising, plus the need to turn a profit. Add in the pharmacy markup, and you’ll get that for every healthcare dollar that is spent on drugs maybe 10 cents go to R&D. That’s fine; drugs not only need to be developed, but also made, distributed, and sold. But one has to understand that the vast majority of the money we spend on drugs does not go towards developing new critical drugs, but towards the making and selling of painkillers, heartburn relief, birth control, viagra clones, etc. (not to mention that a significant amount of pharmacy R&D actually goes towards inventing patentable clones of existing drugs with higher profit margins).

    One of the most pressing needs that we have in the area of drug development is to combat the rise of antibiotic-resistant bacterial strains. Yet, the development of new antibiotics has pretty much stalled, despite such a need; there doesn’t seem to be much of a profit in it (yet). Pushing at the edge of knowledge is already difficulty and expensive, and the number of MRSA patients is comparatively low. So, despite a lack of cost controls, there doesn’t seem to be much enthusiasm for pouring lots of money into expensive research for a critical need.

    That doesn’t mean (contra Mark) that we should pour all money in the NIH (if only because I’m skeptical that a single bureaucracy, no matter how well-intentioned — or precisely because it is well-intentioned — can do that well), but it means that subsidizing drug research via Tylenol purchases is not exactly the most efficient model. I think that making basic drug research profitable is very important, but throwing a lot of money indiscriminately at the healthcare system does not have that effect (contra Megan McArdle).

    I note also that the US government has one of the highest research budgets in the world (Japan, South Korea, Israel, Denmark, Sweden, and Finland have a higher budget, Germany and Austria are approximately on par as a percentage of GDP), and a comparatively large share of that is spent on basic medical research. Also, the US keeps attracting a high number of great researchers (see, e.g., the number of post WW2 nobel prize laureates in physiology or medicine).

    1. We’ve mostly gotten around the antibiotic resistance problem by introducing a class of antibiotics. That is, we attack a different metabolic pathway, preferably one we don’t use (much) and pathogens need. There are a finite number of pathways that meet the criterion, and apparently we’ve now hit all of them.

      So, we are reduced to figuring out ways to inhibit bacterial resistance mechanisms. This can be done: Augmentin is a combination of amoxicillin and clavulanic acid. Amoxicillin is a synthetic penicillin, and resistance is via a variant bacterial penicillinase. Clavulanic acid is not much of an antibiotic, but it is a penicillinase inhibitor.

      So there are strategies to coping with antibiotic resistance, but they are all more difficult than simply throwing a novel compound at the pathogen. All of them require understanding human and prokaryotic physiologies in much greater depth.

      The Pharm industry isn’t much interested in antibiotics: they are used episodically and for brief periods. Pharm wants drugs that will be taken forever. So, the focus on recreational drugs (Viagra), antihypertensives, diabetes, NSAIDs, etc. A really effective anti-Alzheimer’s drug would be a Pharm sales VP’s wet dream come true.

      1. But, once again, some people (perhaps many) will die and everyone has to spend vast sums of money to workaround problems created not by deficiencies or limitations of the drugs themselves but which were created simply because pharmaceutical companies and industrial food producers were looking for easy profits by selling and using antibiotics inappropriately and dangerously. And yet again we seem the neoliberal system of “Lemon socialism” allowing these irresponsibly actors to force society to clean up after them even as they are allowed to keep the profits from their recklessness. If corporate executives were forced to pay the true costs of their activities, the whole of society would be better off.

        1. No argument from me, except to note the following. Antibiotic resistance existed in bacterial populations prior to the introduction and wide-spread use of manufactured antibiotics. The spread of antibiotic resistance was therefore inevitable. Fleming and Lederberg both warned against the misuse of antibiotics, both were ignored. We have done many things that have accelerated the speed at which resistance has spread, but it is equally true that bacteria had their own set of tricks that were not well-understood at the time.

      2. An effective anti-Alzheimer’s drug would be a huge win for everyone. Dementia being, as I understand it, the major driver of long term care needs and the cost of that care. Well, and also because the families of dementia patients suffer a great deal for a long time.

        Just saying this is one area where the profit incentives seem line up how you’d want them to.

  13. “But it’s a convincing point only if there’s no alternative to unchecked spending on healthcare for the rich as a means of financing innovation.”

    Ok, serious question, very serious question: What legitimate reason could you have for “checking” spending on healthcare for the rich?

    I mean, the rich pay for it themselves, right? So it’s no skin off your nose if Mr. Random Billionare spends $200 million extending his life by a week, right? His money, not yours.

    I am entirely serious about this: From whence came that ‘unchecked’, to suggest that, barring the spending of the wealthy financing innovation, it would be appropriate to “check” it? Why would it even occur to you that “checking” somebody else’s spending on something like healthcare could be appropriate?

    1. Neither Mark nor I are arguing this. Britain for instance has a flourishing high-price private medical sector that attracts royal babies and Saudi princelings by the planeload. Nobody complains, as long as the NHS isn’t subsidising it. Douthat’s argument is about medical care for the poor. He wants to keep this mean so that unconstrained health spending by the rich supports magic innovation. He doesn’t consider the option of having both, at extra cost.

      It’s liberals who think there is a free medical lunch here, in the form of the hugely greater efficiency shown by every other industrialized country using a variety of more statist funding systems. There’s no reason why the American rich should consume less health care. But specialists, hospital chains, device manufacturers, pharma, and insurance companies should make much less money.

  14. I just don’t see how prizes would replace patents. (1) If they’re one-off, they’re nowhere big enough to cover the costs involved; if they’re ongoing but for a limited period, that’s not very different from a patent. (2) The US would continue to award patents in other areas, but not in medicine? That’s a hard problem, with about a zillion edge cases. (3) How would a prize board know the values to offer, and how would it assess all possible fields of medicine and medical devices? Another hard problem. The prize board, if it were to be a smaller institution than the Patent Office, would also be at least as susceptible to being gamed and/or captured.

    1. Surprise! All institutional arrangements have disadvantages. That doesn’t mean that the current arrangment is optimal. Innovators could have a choice of funding mechanisms: grants, requiring them to put innovations in the public domain; patents, allowing them to profit as under the current system; or prizes either for hitting pre-announced targets or for taking a patentable (or patented) innovation and putting it in the public domain instead. It’s a theorem that the gain to a monopolist is less than the losses to those paying monopoly prices.

  15. I think I wrote here previously, that one of the biggest problems with the patent, etc. model of innovation in health care is that if a problem cannot be monetized, it is simply not addressed. Moreover, if one solution (a drug) can be monetized but another cannot, then the “more expensive” and not necessarily more effective solution is utilized solely because it yields a marketing budget that can be used to bribe, I mean, educate physicians.

    To understand what I mean in simple form, you can also look at food, which has a similar dynamic (without the patent monopoly yielding monopoly profits, of course): cereal companies market fiber rich cereals that most people think of like medicine, but you can get as much or more of the stuff by eating two apples, a cup of broccoli or something else that has fewer calories and tastes better. But because farmers have no or modest marketing budgets we get subjected to relentless advertising giving rise to the myth of the importance of whole grains in our diet.

    The same thing happens with the funding of research: drug companies fund academic research into drug development, while research funding dries up for a more open ended exploration of all potential solutions (which might include drugs). This isn’t just an issue of “expense” though of course patented products are more expensive, it is a willful kind of epistemic closure that assumes that a drug will be the answer. Just one small example: drug companies invest a lot to develop cancer drugs for end of life cancers that have grim statistics, e.g., pancreatic cancer, but the real missing link is a way to identify and diagnose it earlier when it would be amenable to surgery plus modest (read: off-patent, existing) chemotherapy.

    Which means that you are as likely to get a solution to the problem of early diagnosis of pancreatic cancer from a high school student who hasn’t been co-opted by the research grant maw as you are from someone with an advanced degree (which high school student did win the Intel science fair, and deservedly so in my view).

    That’s why government funding of innovation is still really important. Because future solutions might not look like past solutions.

    I mean, philosophically, we see how technology becomes obsolete over and over again, indeed, we see a whole arc from birth to death of a technological “solution” (Think Blackberry) such that everyone moves on to something better and more convenient, but we almost never see this in the health care arena, not in the same way. So you might even say that the patent system has effectively destroyed innovation in health care, especially since very small “tweaks” are given the same protection as the original innovation. Well, it’s certainly something to think about.

  16. cereal companies market fiber rich cereals that most people think of like medicine, but you can get as much or more of the stuff by eating two apples, a cup of broccoli or something else that has fewer calories and tastes better.

    This is pretty far off topic but I was curious about this claim so I checked it out on the Nutrient Data Laboratory. According to them, raw broccoli has 7.7 grams of fiber per 100 calories, Fuji apples 3.3 grams, and FIBER ONE Bran Cereal 23.8 grams. So it looks like the “fewer calories” doesn’t seem to pan out. And if you’re going for a certain amount of fiber, a bowl of that cereal could easily have 30 grams which would be the equivalent of around 2.5 lbs of broccoli.

    I really like broccoli but if I ever start worrying about these things, I think I’ll stick to cereal (which, conveniently, I also really like).

  17. It’s good to have a conservative writer whom it’s possible to engage in serious policy debate.

    Yes and it would be even better if the NYT’s reader’s weren’t paying for Douthat’s healthcare with their subscriptions.
    If fact, NYT ought to take Douthat’s conservative positions to heart: Out source his column to a conservative in India or the Phillipines who writes just as well but for less money.
    Pass the savings on to subscribers.

    All Republican columnists for the NYT should be treated this way.
    Give them a face full of their own policy.
    (As a relevant aside: How long do you think Paul Ryan would be in Congress if his budget was passed on to his constituents as a model going forward?)

    [Following comment was based on the assumption that the NYT’s pays for Douthat’s healthcare.]

  18. Seems like Douthat’s two points are in tension, aren’t they? If we’re overconsuming health care today, why are further medical innovations so important?

    I have to say, though, that Douthat’s essay clarified some things for me. If I oppose the patent system (and I do), then I ought to oppose the various HSA/catastrophic coverage schemes a lot more than I have.

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