Preserving medical innovation

Megan McArdle has one of the best posts I've seen about why she opposes national health care. She argues, and I totally agree, that putting the federal government in charge of health care will reduce the incentives for developing medical innovations. The profit incentive is the best method that we have for encouraging the development of medical discoveries. And once we implement a national health care plan, it will be too late. We will never know what discoveries won't be made in the future, but we can have some idea judging from countries that do have national health care and comparing the rates of medical innovation in their societies.

So in the absence of a robust private US market, my assumption is that the government will focus on the apparent at the expense of the hard-to-measure. Innovation benefits future constituents who aren't voting now. Producing it is very expensive. On the other hand, cutting costs pleases voters this instant. This is, fundamentally, what cries to "use the government's negotiating power" with drug companies is about. Advocates of such a policy spend a lot of time arguing about whether pharmaceutical companies do, or do not, spend too much on marketing. This is besides the point. The government is not going to price to some unknowable socially optimal amount of pharma market power. It is going to price to what the voters want, which is to spend as little as possible right now.

It's not that I think that private companies wouldn't like to cut innovation. But in the presence of even rudimentary competition, they can't. Monopolies are not innovative, whether they are public or private.

Advocates of this policy have a number of rejoinders to this, notably that NIH funding is responsible for a lot of innovation. This is true, but theoretical innovation is not the same thing as product innovation. We tend to think of innovation as a matter of a mad scientist somewhere making a Brilliant Discovery!!! but in fact, innovation is more often a matter of small steps towards perfection. Wal-Mart's revolution in supply chain management has been one of the most powerful factors influencing American productivity in recent decades. Yes, it was enabled by the computer revolution--but computers, by themselves, did not give Wal-Mart the idea of treating trucks like mobile warehouses, much less the expertise to do it.

She goes on to contrast academic research to that done by pharmaceutical companies. Academic researchers are important in identifying the theory of what new approaches might be worth exploring. But it takes the profit motive to give the incentive for funding all the expensive and time-consuming research in testing that new approach.

In the case of pharma, what an NIH or academic researcher does is very, very different from what a pharma researcher does. They are no more interchangeable than theoretical physicists and civil engineers. An academic identifies targets. A pharma researcher finds out whether those targets can be activated with a molecule. Then he finds out whether that molecule can be made to reach the target. Is it small enough to be orally dosed? (Unless the disease you're after is fairly fatal, inability to orally dose is pretty much a drug-killer). Can it be made reliably? Can it be made cost-effectively? Can you scale production? It's not a viable drug if it takes one guy three weeks with a bunsen burner to knock out 3 doses.

Once you've produced a drug, found out that it's active on your targets, and produced more than a few milligrams of the stuff, you have to put it into animals, then people. Does your drug do anything in animal studies? Does it do too much, like, say, killing the patient? How about humans? Oral dosing is just the start. Does your drug actually get somewhere after it's swallowed, or do the stomach/liver chew it up? Is there any way to wrap it in a protective package long enough to let it reach its target? Do clinical trials show efficacy compared to placebo, or other drugs? How big is the market (in other words, how many people want it, how badly, and how much of an improvement is your drug)?

This is the stuff academic pharma doesn't do, and as you can see, without it, you don't have a drug; you have a theory. What the NIH does is supremely valuable. But so is all that "useless" effort at the pharmas.

When politicians are in charge of the research funding, we'll see considerations like getting a grant for their local university or spreading the money around to a diverse group of recipients influence funding decisions. And when the budgets get tight, we'll see cries for cuts in unprofitable research efforts. This is why America is the source of the great majority of medical discoveries in the past decades. Think of the medical innovation that has occurred in our lifetimes. Would you want to get sick today with access to just the medical knowledge that was available when you were born. Think of the possibilities of discoveries yet unmade that await us over the next decades. And then imagine those discoveries never made. That is what will happen as the government takes over more and more of our health industry. And the sad thing is that we won't know what innovation we're missing out on. People will get sick and they'll go to the doctors and be told about available health care. And we hope that those methods will be sufficient to help. But if not, people will want to know what else is out there, what other treatments they can try. And perhaps that will be it. And we'll never know which discoveries might have been made if some private company had taken the risk to test out some new molecule to see if it could help. Profits for pharmaceutical companies are not evil; they're what drive the search for innovations and we should all be grateful for them.

Read the rest of McArdle's post. She argues for a reason to oppose a government take over of our health industry that will be difficult to measure, but will mean everything if your loved one faces a diagnosis of a dread disease like Alzheimer's or pancreatic cancer. You'll be praying that somewhere out there some company is doing the research on the new miracle medicine that will make all the difference. And you won't want anything to get in the way of that research. And if we remove the profit incentive from that research, where will it get done? And all those other countries where the government has taken over their health care industries will no longer have discoveries coming out of the United States to depend on. And once those walls are blown down in the U.S., where will that research be done? Where will those innovations come from?