Innovation

Jonathan Cohn's article on why universal health care won't kill medical innovation is getting widespread praise and deservedly so. Here's Tyler Cowen for the opposition. May I note that I don't entirely understand this controversy? It often seems to me to take place in a hypothetical world in which we not only have a universal health care system, but we've also banned out-of-pocket medical expenditures, which I don't think anyone is proposing we do. Insofar as there might be some projects that aren't worth doing at the price the UHC system is prepared to pay, you could just try to get people to pay out of pocket for it. If the innovation's so great, why won't those with money be willing to pay for it? Obviously, the poor won't be able to afford it, but they're no worse off than they are today as un- or under-insured patients.

And of course if a significant quantity of medical innovations are coming onto the market that are inducing the rich and upper-middle class patients to pay out of pocket for these innovative treatments (thus signaling that the UHC system's budget has been set at a level that's too low to afford many newish useful technologies) then that'll create the political momentum for boosting the system's funding.

The arguments from innovation don't seem to me to be arguments properly directed at the universal health care proposals that are actually being put on the table. Instead, they seem to be arguments against hard price controls and bans on private insurance or out-of-pocket medical spending. Whether or not you buy those arguments (ask your local pharmaceutical company executive what he's done that competes with penicillin) it's worth asking what they're really targeted at. A lot of this stuff has a "because command-and-control athletic shoe design failed so miserably in the Soviet Union we shouldn't try to stop Nike from using child labor in its factories" quality about it.

Comments

[Only if] we've also banned out-of-pocket medical expenditures, which I don't think anyone is proposing we do

Well--Canada does; Clinton's 1994 plan did. (In both cases, not technically--but saying no one who provides covered care can provide any non-covered care means that non-covered care is effectively banned--you can't coordinate it with covered care.)

Posted by SamChevre | November 14, 2007 10:29 AM

BTW, that ad you have at the top of your page, the NJPSE one with the fake stock ticker? It is burning up my CPU time like nobody's business.

Ads that grab my CPU's attention like that tend to lead me to close my window and move on to other web pages.

Just saying.

Posted by Whispers | November 14, 2007 10:53 AM

"ask your local pharmaceutical company executive what he's done that competes with penicillin"

ampicillin, amoxicillin, augmentin, methicillin, dicloxacillin, piperacillin, ticarcillin, cefazolin, cefipime, ceftriaxone, cefaclor, cefuroxamine, cefotetan, ceftazidime, impinem, meropenem, ertapenam....

just to name a few.

Posted by GtK | November 14, 2007 11:06 AM

Matt, again, your naivete regarding political realities if often almost touching. Let us imagine a drug is developed for sale to wealthy people which will reverse dementia due to Alzheimer's disease. Let us imagine it is priced exorbinantly. Let us imagine that middle class and poor voters, with loved ones suffering from Alzheimer's, are willing to simply say, "Oh well, we can't afford the drug, and it would be harmful to future innovation to demand that Congress make the drugmaker to sell it to us for less, so we are simply going to allow granny to live in her current state, while wealthy people have their Alzheimer's cured". Let us imagine Congress saying "We will fund UHC in a manner which will promote future innovations, instead of funding all the other stuff which also gets us elected, or raise taxes, instead of simply forcing the drugmaker to sell the exsiting drug, that is in great demand now, at a cheaper price." Imagine private capital allocation not being affected by what Congress may do when faced with it's short term political interest. Yeah, right.

The analogy UHC advocates often draw with military technology innovation is entirely inapt. Unlike a drug which will cure Alzheimer's, extraordinarily few voters have a desire to have someone they love personally utilize a F-22 Raptor, and that changes everything.

I do think that intellectual property protection and patent law is likely not currently striking the optimal balance between innovation and price competition, but it purely a fantasy to ignore the likelihood of how UHC will put in place strong political incentives for hard price controls for medical technology.

Posted by Will Allen | November 14, 2007 11:09 AM

Your assurances would be assuring if Cohn hadn't written "And that is precisely what the leading proposals for universal health care seek to do. All of them would establish independent advisory boards, staffed by leading medical experts, to help decide whether proposed new treatments actually provide clinical value."

Don't worry about innovation, because the government will appoint boards to determine what is innovative. That actually does sound kind of Soviet.

Posted by ostap | November 14, 2007 11:50 AM

Will Allen has a point. His example is not implausible - except we don't need to invent a cure of dementia to illustrate it. What about expensive organ transplants? What about expensive end-of-life care that results in another 6 months to live?

The problem, in short, is that there is (potentially) unlimited demand for health care, and limited resources. In Britian, this leads to decisions like a person going blind can have an operation on one eye, but not both. Why? Because they determined that there is much more harm in going totally blind than in going blind in one eye.

My preference would be for a Singaporean style mixed system.

Posted by szr | November 14, 2007 11:54 AM

A lot of this stuff has a "because command-and-control athletic shoe design failed so miserably in the Soviet Union we shouldn't try to stop Nike from using child labor in its factories" quality about it.

Is it really any different in that regard from 99% of all "libertarian" economic ideology in the US c. 2007?

Posted by moron | November 14, 2007 11:57 AM

"ask your local pharmaceutical company executive what he's done that competes with penicillin"

Why not ask him what role his company had in making penicillin widely available and affordable? It was pharmaceutical companies that figured out how to mass produce penicillin during World War II:

"Pharmaceutical and chemical companies played an especially important role in solving the problems inherent in scaling up submerged fermentation from a pilot plant to a manufacturing scale. As the scale of production increased, the scientists at Merck, Pfizer, Squibb, and other companies faced new engineering challenges. Pfizer's John L. Smith captured the complexity and uncertainty facing these companies during the scale-up process: "The mold is as temperamental as an opera singer, the yields are low, the isolation is difficult, the extraction is murder, the purification invites disaster, and the assay is unsatisfactory."

[...]

Production of the drug in the United States jumped from 21 billion units in 1943, to 1,663 billion units in 1944, to more than 6.8 trillion units in 1945, and manufacturing techniques had changed in scale and sophistication from one-liter flasks with less than 1% yield to 10,000-gallon tanks at 80-90% yield. The American government was eventually able to remove all restrictions on its availability, and as of March 15, 1945, penicillin was distributed through the usual channels and was available to the consumer in his or her corner pharmacy.

By 1949, the annual production of penicillin in the United States was 133,229 billion units, and the price had dropped from twenty dollars per 100,000 units in 1943 to less than ten cents. Most British companies moved over to the deep tank fermentation production of penicillin, pioneered in the United States, after the end of the war to meet civilian needs..."

Posted by Fred | November 14, 2007 12:07 PM

"Will Allen has a point. His example is not implausible - except we don't need to invent a cure of dementia to illustrate it."

What Will Allen described is essentially what happens in other countries to drugs whose development was funded here. The rest of the world has been free-riding on drug R&D largely financed by American consumers for decades. If we move toward price controls (which would seem inevitable under UHC, for the reasons Will Allen mentions), there would be no one left for us to free-ride off of. Drug development and innovation would slow to a crawl.

Posted by Fred | November 14, 2007 12:15 PM

If we move toward price controls (which would seem inevitable under UHC, for the reasons Will Allen mentions), there would be no one left for us to free-ride off of. Drug development and innovation would slow to a crawl.

Americans are so charmingly parochial at times. Simply everything in the entire world revolves around you.

You don't think there's the slightest possibility that other nations, recognizing that the "free ride" was over, couldn't adjust their prices upward just a tad to compensate? Or decide to pump more money into academic and government R&D programs, which is where a large chunk of actual innovation comes from anyway? Or, and I know this is shocking, might someone start asking the multinational pharms how much they are spending on researching lifestyle drugs versus health drugs? How many different drugs are really necessary to ensure some guy can pop a boner on demand?

Posted by Keith | November 14, 2007 12:56 PM

"Pharmaceutical companies have been free-riding on drug R&D largely financed by American taxpayers for decades."

To help summarize part of Keith's point, I thought I'd fix that for you, Fred. No, no need to thank me.

"Don't worry about innovation, because the government will appoint boards to determine what is innovative. That actually does sound kind of Soviet."

Yes, heaven help us if America ever finds itself saddled with government-created panels deciding which areas of research are promising enough to receive funding. Scientific research in this country would collapse overnight.

Posted by mds | November 14, 2007 1:08 PM

Yes, Keith, and that brings us right back to the fundamental naivete in thinking that the parochial concerns of elected representatives will not play an overwhelming role in how they decide to allocate capital. Look, if you really believe that capital is allocated optimally by a very, very, small group of people who stand for election every few years, as opposed to hundreds of millions of decentralized decision-makers who provide feedback near-continuously, just say so.

Posted by Will Allen | November 14, 2007 1:08 PM

Oh, yes, yes, mds, let us promote the canard that private capital has not been critical to lifesaving pharmaceutical innovation. Look, if you actually believe that, why not follow that reasoning to it's logical conclusion, and simply do away with pharmaceutical patents? That'll take care of those awful free loading pharmaceutical companies!

Posted by Will Allen | November 14, 2007 1:13 PM

"If we move toward price controls (which would seem inevitable under UHC, for the reasons Will Allen mentions), there would be no one left for us to free-ride off of. Drug development and innovation would slow to a crawl.

Posted by Fred | November 14, 2007 12:15 PM"

Except that under the current system we get price controls that are balanced in the favor of big pharma. We don't have a laissez-faire pricing system when it comes to drugs. If that was true, anyone could buy generic drugs made in Brazil or India. Instead, drug companies get artificial monopolies on their patents for drugs. Tons of products require millions upon millions of HR. Gillette spent nearly a billion designing one of its newer razors. However, Gillette has to compete with other razor manufacturers that have three or more blades, thus driving prices down. Big pharma doesn't have to compete in such a manner.

Posted by Reality Man | November 14, 2007 1:24 PM

Yes, Reality Man, there is little reason to think that the current state of patent law provides the optimal trade off between price competition and innovation, so some gradual experimentation in adjusting patent law would probably be useful. That's not a good argument, however, for a UHC system which would very likely evolve into hard price controls managed by people who stand for elections every few years.

Posted by Will Allen | November 14, 2007 2:04 PM

"Look, if you really believe that capital is allocated optimally by a very, very, small group of people who stand for election every few years, as opposed to hundreds of millions of decentralized decision-makers who provide feedback near-continuously, just say so."

Now who's being naive. Has it ever occurred to you that the profit motive may not work in circumstances where no significant profit is to be made? Other than overuse, why are we facing circumstances where bacterial infections are increasingly resistant to antibiotics? Could it be that there's no profit in antibiotics?

Of course not, the supposed "free market" (I’d really like to know where this exists) is populated by autonomous "decision-fairies" that create a magical world of infinite innovation (as opposed to creative people constantly being stifled by short-sighted ROI calcs and a risk adverse corporate structure).

"Oh, yes, yes, mds, let us promote the canard that private capital has not been critical to lifesaving pharmaceutical innovation. Look, if you actually believe that, why not follow that reasoning to it's logical conclusion, and simply do away with pharmaceutical patents? That'll take care of those awful free loading pharmaceutical companies!"

"Why not ask him what role his company had in making penicillin widely available and affordable?"

Who discovered penicillin? Oh, that's right, it was a Merck executive. Who researched and developed anti-virals? Oh, that's right, it was a marketing rep at Pfizer. Thank goodness they have an additional 100 years of patent protection (obtained through utterly shameless congressional lobbying) for the minor biochemical tweak they made to a product that’s already been around for 10-20 years, otherwise people’d be dying in the streets right now.

What is especially funny is the penicillin manufacturing during WWII. Aside from the issue of whether scaling up a difficult to manufacture product qualifies as a medical innovation as opposed to an engineering innovation, where do you think that they received the funding to transform their operations into an antibiotic juggernaut? VC's?

Posted by Rihilism | November 14, 2007 2:12 PM

Keith,

In theory other nations could dramatically increase their government spending on R&D in the event of price controls here, but in reality this seems doubtful. In most of the other countries with significant pharmaceutical industries (e.g., France), government spending and taxes are already high and straining the economy. If all the R&D money had to come from government, politicians would have to ask their constituents to make sacrifices elsewhere. Try asking a French utility worker to postpone his generous government funded retirement a few more years to free up money for R&D; it's not likely to happen.

On the other hand, it's fairly easy to get investors to free up money for R&D by investing in drug companies. We're doing that now. But for that to continue, there needs to be at least one large, rich country without price controls where drug companies have a shot at recouping their R&D investment. In an ideal world, there'd be more than one.

Posted by Fred | November 14, 2007 2:27 PM

I take it, then, rihilism, that you do think that an extremely small group of people, who stand for election every few years, allocate capital better? And that patents should be repealed, with no more issued?

Posted by Will Allen | November 14, 2007 2:33 PM

"I take it, then, rihilism, that you do think that an extremely small group of people, who stand for election every few years, allocate capital better? And that patents should be repealed, with no more issued?"

As opposed to an extremely small group of un-elected MBA's. Our elected officials provide the grant money which researchers apply for. Their applications are reviewed by peers to determine who has the most promising research and who deserves to receive limited funding. Elected officials review the reviewers to make sure everyone is playing fair and putting taxpayer dollars to good use.

The revolutionary innovation takes place in university research labs, not in the boardrooms where the VP's are trying to determine what flavor the "new and improved" stummies should be.

"And that patents should be repealed, with no more issued?"

Patents should be issued to things that have not already been patented. By definition, this can be a subjective process until pharmaceutical lobbies tilt the scale with legislation. If the pharmaceutical companies were actually trying to recover R&D expenditures rather than trying to create monopolies, then I'd be more sympathetic. But, by all means, let's keep changing the rules so that pharma can afford to "discover" the newest cure for baldness and erectile dysfunction.

"But for that to continue, there needs to be at least one large, rich country without price controls where drug companies have a shot at recouping their R&D investment."

A little cart before the horse, dontcha think. How 'bout the pharmas socking to US consumers because they know they can? Heck, we have legislation on the books that practically begs pharma to reap profits off a monopolistic system.

Posted by Rihilism | November 14, 2007 3:09 PM

Rihilism, you apparently are under the impression that a handful of MBA control capital flows in this country. Yeah, sure. Is the Queen of England involved?

Posted by Will Allen | November 14, 2007 3:19 PM

"In Britian, this leads to decisions like a person going blind can have an operation on one eye, but not both. Why? Because they determined that there is much more harm in going totally blind than in going blind in one eye."

Makes sense to me. Going blind in both eyes is much worse than going blind in just one eye - it isn't just twice as bad.

I'm curious as to what this 'operation' is? Do you in fact mean wet AMD and anti-VEGF drugs? What is your objection to the NICE cost-effectiveness decision regarding these treatments? As far as I'm aware Medicare and most HMOs don't cover the full cost of e.g. Lucentis, with a hefty co-pay, whereas the NHS will pay the full cost for those where the second eye is in danger (and obviously you can pay for the drug yourself if you want). And like the US he NHS is actively pursuing the possibility of using Avastin instead.

Posted by PJ | November 14, 2007 3:52 PM

"The revolutionary innovation takes place in university research labs, not in the boardrooms where the VP's are trying to determine what flavor the "new and improved" stummies should be."

There are good ideas that come out of research labs, but translating a good idea into a drug is a huge leap. I know that manufacturing/scaling/quality systems/clinical trials isn't as sexy as a lone scientist coming up with the next big idea but it's what costs so much money to do. Penicillin is only a pipe dream unless somebody figures out how to manufacture it at a large scale.

There is a big difference between getting something to work in a lab on genetically identical mice (where things like delivery method don't matter all that much) and a pill in a bottle that works on a diverse set of people without causing too much harm.

Posted by JordanT | November 14, 2007 6:09 PM

In other words, as I understand those arguing for a free market over UHC, we should continue to take funds that would otherwise be spent providing health care to all citizens (either directly through government expenditures or indirectly through price controls that make the provision of such care affordable) and spend it on R&D? Because that's really the trade-off you're talking about. It's not as if the US doesn't ration health care as ruthlessly as any UHC country -- however, we do it through mechanisms that have no accountability.

Posted by Wayne | November 14, 2007 6:42 PM

I'm a little curious just how much health care we're entitled to. It seems that the libertarians here posit some virtually infinite boon of advances down the road that only the free market can midwife. In order for this scenario to occur, millions of people should forgo all health care lest some upper-middle class type has to pay out of pocket for a miracle longevity extender.

Excuse me for barfing. Few lives on dependent on costly new cures. Indeed, most people would be happy with a relatively healthy 75 to 85 years of life. If they want to live longer and healthier, there are all sorts of lifestyle adjustments they can make. But the very expensive cures that libertarians crave seem less like necessity and more like the pornography of immortalists.

If you really want to live long and healthy, emulate the Japanese with their relatively low-fat diet. And if by chance you're interested in other people living longer, hire more public health nurses to spread that message. Chances are, if you're a libertarian, you couldn't care less about other people.

Posted by walt | November 14, 2007 6:46 PM

"There is a big difference between getting something to work in a lab on genetically identical mice (where things like delivery method don't matter all that much) and a pill in a bottle that works on a diverse set of people without causing too much harm."

So tell me why Big Pharma is naturally suited for such endeavors?

And aren't Will Allen's economese spoutings precious. "De-centralized decision makers", hehe. I love when market fundamentalists kneel down and start quoting from their bible. If only the world were as simple as Econ 101. We all know that Big Pharma's development goals are not parallel with those of patients' needs (well except the horny impotent ones). And we also know that politicians won't be making any decisions on what drugs to develop. They'll be casually overseeing top scientists and doctors at major research universities who will actually be deciding. They will certainly be more rational than the billions of de-centralized decision makers, half of whom think they need anti-biotics for their Common cold or think a 24 hour erection is a good thing. Innovation is driven by scientists in this country, little geeks in white lab coats who think splicing genes is cool. Pay them a decent living and the innovation will continue and quit trying to scare everyone away from a UHS that will quite obviously save us all some cash and a bunch of headaches.

Excuse me, I have to call my insurance company now, because when I moved I had to switch companies and they didn't have me in their system and when I sent in my reimbursement I sent the wrong receipt and it turns out they might not cover that particular drug but would have covered a similar one which would have been known if the switchover had been processed in time... ... ... Ouch, my head hurts.

Posted by kj | November 14, 2007 6:51 PM

Unless UHC includes "hard price controls and bans on private insurance or out-of-pocket medical spending," how does it lower the cost of research and development?

Cohn thinks the lower costs will come from government oversight that will focus on long-term benefits rather than short-term gain. I guess I'm one of those conservative skeptics, because I don't see that a government wanting to be reelected every two to six years is going to do any better at long-term planning than profit-seeking corporations.

Posted by kwo | November 14, 2007 6:52 PM

There's hasn't been a true breakthrough antibiotic in years. Quinilones, the last true different class of antibiotics came out a generation ago. Drug company R&D has been spent on more profitable like antihistamines, cosmetics, etc.

Posted by Pioneer10 | November 14, 2007 7:07 PM

"So tell me why Big Pharma is naturally suited for such endeavors?"

I wish you were kidding, but I doubt it.

So, it takes years and millions of dollars to get a potential drug through clinical trials and to market. That takes deep pockets. That's why you see start-up pharma companies partner with big pharma as soon as they get something thru stage 1 or stage 2 trials. No scientist or university is in any way equipped to take a compound from the lab to the market. They simply don't have the expertise and resources.

I'll just ignore another aspect which I know nothing about which is how to take a compound isolated in a lab in small quanities, and produce it reliably on a commercial scale. These are not trivial tasks. Even within a pharmaceutical company the people discovering the compounds are not the same people who commercialize it.

Posted by TBW | November 14, 2007 7:39 PM

The example someone gave above of a drug to cure Alzheimers is a bad example-- such a drug would had wide usage, thereby allowing economies of scale to bring down its cost, while its use would save the system boatloads of money by eliminating the huge expenses associated with warehousing hundreds of thousands of Alzheimers victims in nursing homes. It's the kind of medical innovation a universal system would favor, because it would be cost effective to utilize on a universal scale. (Not to mention it would be politically impossible not to)
Where the trouble comes in is with treatments for relatively rare conditions, or treatments that are of limited or dubious effectiveness or perhaps carry a high risk. Of course any healthcare system is going to leery of financing such treatments because they aren't cost effective and may create additional costs to the system.

Posted by JonF | November 14, 2007 9:33 PM

kj, given you are dumb ebough to think that politicians will allocate amounts of capital many times more massive than the current NIH budget mostly by consulting "top scientists" and not consulting with their short term political interests, you'd be well advised to refrain from making condescending remarks about others' thinking. You are probably stupid enough to think that DOD capital gets allocated based upon what the experts in the Pentagon think is appropriate.

Posted by Will Allen | November 14, 2007 10:04 PM

Not just out of pocket. People could buy supplemental insurance and firms could provide it to their employees (do you remember medigap insurance ? Neither do I). They will have to deal with pre-existing condition hell, but they do now so who cares.

An analogy is probably useless. Would the oil companies mind a law which mandates that people buy at least a gallon of gas a week ? Many currently buy more, but so ?

Now as to innovation, for decades Sweden did ban the private practice of medicine (legally it was like a judge offering you special judging if you topped up his salary). So what country has the most Nobel prizes in medicine per capita ?

I assume Sweden. Of course they award the prize. I mean Swedes are very very good but they are human.

Posted by Robert Waldmann | November 15, 2007 1:13 AM

Finding a drug to "cure Alzheimers" is basically a bogus "and a pony" argument. Maybe I will discover the fountain of youth and charge $1M per person. Then the government will either have to give me $1M x 300M people or face an armed insurrection. Therefore, UHC sux.

Also, as we recently learned that 4% of people who vote don't have healthcare, are we really to think these same folks are going to rise up and demand something from the government? That also strikes me as implausible.

Posted by bob | November 15, 2007 1:39 AM

It seems that the libertarians here posit some virtually infinite boon of advances down the road that only the free market can midwife.

Sigh, one would think the last hundred years never happened.

Indeed, most people would be happy with a relatively healthy 75 to 85 years of life.

A century ago, many people would have been just thrilled to live to 60 or 65. In another twenty years will it be 90-100?

And if by chance you're interested in other people living longer, hire more public health nurses to spread that message.

If, by "public health nurses," you refer to the kind of government officials that still blather on about BMI and the food pyramid (both of which are frauds), what good will that do?

If they want to live longer and healthier, there are all sorts of lifestyle adjustments they can make.

Agreed, but people should also probably do a minimum of 10 hours weight training and cardio, every week for the rest of their lives. Do you?

Health comes with cost. In many cases (not all), that cost is an either/or provision--time or money. If you take the time to train for marathons over your life, you probably won't ever need heart surgery or pills. You probably won't have diabetes. If you choose the sedentary life, surviving a heart attack is likely, but will cost you financially. With national health care, the second person's health is paid by the first without reciprocation (which is impossible), creating a disincentive for the first person's lifestyle.

If you're saying that the second person should be made to behave like the first (in the interests of public health) I'll let you explain to your neighbor what the FBI is doing at their houses checking for workout journals.

But the very expensive cures that libertarians crave seem less like necessity and more like the pornography of immortalists

First of all, it isn't libertarians who crave these expensive cures, it's sick people and old people--people who would find the cures useful.

If "national health care" is about necessity, as you say it is, then the libertarian and conservative misperception of "national health care" is the fault of "national health care" supporters for not explaining themselves better. When "national health care" is discussed, it's always discussed in terms like "comprehensive" and "best care available."

"Comprehensive" health care, to me, means coverage for all sorts of things that are not only not life-threatening, but often of dubious necessity to begin with: painkillers, sleeping pills, anti-depressants, viagra, etc.

Not to mention the prospect of "medicinal" marijuana. I'm all for ending the notion of banned-substances, but using tax dollars to pay for the entertainment of a bunch of irritating hippie potheads? Please.

"Best-care-available" means going well above and beyond what is required to live--which is why high-end private health plans that cover luxuries like viagra or cosmetic surgery have higher premiums than more simple (catastrophic) coverage.

If, instead of "comprehensive national health care," supporters would:

-use the term "basic,"

-list exactly what kinds of health problems are covered (stab wounds, blunt force trauma, cancer, diabetes, AIDS, heart attack, stroke, poisoning, broken neck, other directly life-threatening conditions),

-allow for the purchase of private insurance which bypasses the government health system completely, if desired,

-make clear that anyone wanting treatment for, say, Restless Leg Syndrome or "anxiety" ought to look for a private health insurer,

It's possible you might see the libertarian and conservative bellicose roar of opposition to "National Health Care" soften to an irritated grumble.

But "basic" care is probably not what you had in mind, so there's no use pretending that libertarians and conservatives are opposing something you aren't advocating.

Chances are, if you're a libertarian, you couldn't care less about other people.

Two can play that game: Chances are, if you're a liberal, you have value your own ideas so little that you won't spend a dime of your own money in support of them. Exhibit A: S-CHIP.

Posted by Shinyk | November 15, 2007 4:09 AM

The FDA and its billions dollars of regulations is one reason why you're not seeing so much medical innovation. They've tightened the restrictions over the year. It's cost prohibitive to move any drug through the FDA process unless the government also grants years of monopoly power over the said drug if it safely passes.

Drugs that can't be patented aren't being made into drugs not because the pharmaceutical companies are "greedy" or "don't care about patients." They can't afford to make the monumentally stupid decision of paying billions of dollars for red tape and clinical trials without some form of payoff at the end. If you really want cheaper drugs and more drug innovation, start knocking down the doors of the FDA and tell them to loosen up the requirements.

A lot of this stuff has a "because command-and-control athletic shoe design failed so miserably in the Soviet Union we shouldn't try to stop Nike from using child labor in its factories" quality about it.

Have you ever considered for one second that Nike by employing children in its factories might actually be doing those children a favor? that the alternative to working in a shoe factory would be back-breaking labor on a farm or worse? Yes, working a factory for awful wages sucks big time, but it's usually better than the alternative.

One child working at that factory just might earn enough money to allow a younger child to go to school, get an education, and earn enough money to finally break out of their dependence on sustenance farming. It'll feel good to prohibit childhood labor, but you may be condemning many to an even worse fate.

The only instance when childhood labor is wrong is when it's slavery. But that's not because it's childhood labor. It's because it's slavery.

Posted by TanGeng | November 15, 2007 5:16 AM

"The only instance when childhood labor is wrong is when it's slavery. But that's not because it's childhood labor. It's because it's slavery."

You guys should put this in your platform.

My point about Big Pharma being natururally suited had nothing to do with their current infrastructure but more as a theoretically notion. Certainly they are better suited now, but mass producing and delivering drugs itself is a massive but trivial endeavor and doesn't need to be linked to the R & D side at all. I wasn't clear.

And if you guys are going to insult me, then try to be a bit more creative. This is discussion board theatre so take some pride in your work.

But to to answer Will, who didn't even address my main point, perhaps I answered your inanity about the rationality of de-centralized decision makers with my own about the rationality of politicians. Both are "dumb" so use your word, but the question is which is better. Your fundamental faith in markets, regardless of the widget, is "dumb". Invite some complexity into your thinking.

Posted by kj | November 15, 2007 9:20 AM

"The only instance when childhood labor is wrong is when it's slavery. But that's not because it's childhood labor. It's because it's slavery."

You guys should put this in your platform.

Come on! You missed the point. 200 years ago, child labor was ubiquitous in all rural and farming societies and it's far worse than working in a factory. It's part of the modern economic development that eventually eliminates child labor. Developing economies go through that a stage where children work in factories. It happened here in America, but then the economy grew out of it.

If you want to really benefit the children, start a charity to set up schools and pay children to attend school. But that's more expensive and require more hard work than voicing disapproval of Nike or any other corporation.

Anyways, the decentralized market decision process is much better. The market has a self-correcting mechanism. If someone in the market makes a monumentally stupid decision, that person pays the price. If the politicians make a monumentally stupid decision, he could stick by that decision, inflict horrible damage on the entire population and then still get re-elected to inflict more horrible damage.

Politicians also introduce the problem of graft, where connections become far more important than merit. Then the recipients of the graft pay the politician back by re-electing him back into office. This is a positive feedback loop, encouraging even more graft. The free market has no such mechanism promoting this kind of behavior.

Finally, I don't think you understand the business of drug development. Ideas like yours would destroy the drug development business and waste tens of billions of taxpayer dollars.

Drug companies need to figure out if they can mass produce a drug efficiently during the development phrase. If they can't, the drug isn't worth bring through the FDA process. It'll be too expensive to produce. Disconnecting the R&D and operations and management halves of Big Pharma would hamper this essential transfer of information.

BTW: The "massive but trivial endeavor" isn't very trivial. Try "massive but trivial endeavor." The chemical engineers that do it are extremely talented individuals.

Posted by TanGeng | November 15, 2007 11:03 AM

Ack, it didn't like the strikethrough or I forgot how to do it properly. I made a mistake, but you should be able to understand.

Posted by TanGeng | November 15, 2007 11:06 AM

When "Cutting Edge" is "Bleeding Edge"

... as it is in medicine, poor people end up being the guinea pigs anyway.

The idea that the rich would rescue, or need to rescue, medical innovation by paying for the latest expensive but unproven medical innovation out of pocket, is not reality-based. In medicine, expensive means invasive, and invasive is inherently bad. Really invasive, and therefore really expensive, is really bad. Liver transplants, open-heart surgery, bone marrow transplants, these are your expensive cutting edge treatments, and precisely because they are expensive, they are true bleeding edge horrors, that you could not be paid to endure for any price short of your life, which is why you would never agree to submit to them unless they held a reasonable prospect of saving your life when nothing else could.

When we don't yet have the proof that these wonder/horror cures work, it's not the rich who go under the knife to get that proof. Big Pharma may shell out money to develope high volume me-too drugs, but the government, and government-subsidized private entities, have been paying for true medical innovation all along. And they use the poor as their guinea pigs. The contribution of rich people paying out of pocket to have horrible things of unproven efficacy done to them could be about nil, and the pace of medical innovation would not slow even a bit.

Posted by Glen Tomkins | November 15, 2007 12:06 PM

Ahh, I was expecting more of kj's "market fundamentalism," but it wasn't the case.

Glen,

I don't think you are saying that the poor were involuntarily impressed into being guinea pigs. That would be illegal.

The first stage of innovation is producing a successful procedure where none existed before. This is where the government, the doctors, and the hospitals fund innovation. They give experimental health care to those that are facing death or can't afford expensive alternatives. For the most part, the subjects are willing participants. You do have instances of an unscrupulous doctor or organization pressuring patients into experimental procedures.

The second stage of innovation is improving efficiency and economy of procedures. The rich fund the innovation during this step of development. When proven medical procedures are still too expensive for the general public to use, the rich pay the elevated price as instruments, techniques, and labor are improved upon to reduce costs. The best example of this working properly is Lasik operations. The cost of Lasik has dropped dramatically since the days it was first introduced.

Lasik is not a good example of most medical procedures. It's an elective procedure and thus its consumers are more price sensitive. If it's too expensive, people can continue to wear glasses or contacts. But this characteristic of Lasik tell us what needs to happen for the market to reduce the price of medicine of non-elective procedures. If we make consumers more price sensitive to other kinds of medical procedures, we should see greater pressure to reduce costs and more affordable healthcare.

Yet, medical insurance (HMOs in the US) works in exactly the opposite manner. The coverage rate reduces marginal cost and the consumer is even less price sensitive than he/she would normally be. In fact most consumers don't know anything about the prices of their medical care. Most of it is completely hidden from them. The insurance system inhibits the second stage of innovation (optimization and economy) from occurring. Right now as consumers, all Americans are acting like rich people. But then Americans pay for health insurance as if we were all rich people. (note: not the richest of the rich people. They're in an entirely different category.)

Posted by TanGeng | November 15, 2007 5:11 PM