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Wednesday, September 23, 2009

Neglecting the "pharmaceutical umbrella" that the U.S. provides

Benjamin Plotinsky has a good article in the City Journal explaining how comparisons of health expenses in the U.S. and other countries neglects the differential provided by American spending on medical research. First he provides this telling comparison.
To understand one of the most persistent myths in our health-care debate, forget for a moment about public options, health co-ops, and loopholes for illegal immigrants. Instead, imagine that it’s 1962, the hottest point of the Cold War, and that you’re reading a report comparing two countries’ strategies for resisting the Soviet menace. The United States, the report points out, spends billions of dollars a year on troops, tanks, warships, and missiles, while France spends a tiny fraction of that. Nevertheless, France and America are both unscathed by Soviet bombs. Therefore, the report concludes, France’s Cold War strategy is far more efficient than America’s. And you snicker at the obvious flaw in the reasoning, since you know that what has kept the Soviets away from France is precisely America’s enormous military budget. If not for the nuclear umbrella that the United States has unfurled over the Continent, Volgas might be cruising down the Champs Elysées.
There are those who argue today that Europeans achieve the same or better health care results with their nationalized medical plans than we do with our medical care. They use their comparisons of money spent and health outcomes to argue that we are spending our medical dollars less effectively. What is left out of such analyses is the money that is spent on pharmaceutical research and drug development. And the comparison is remarkable.
And as a 2006 article by Henry G. Grabowski and Y. Richard Wang in the peer-reviewed journal Health Affairs makes plain, the lion’s share of new chemical entities (NCEs)—that is, genuinely new drugs—are invented in the United States. Between 1993 and 2003, the authors found, 437 NCEs were introduced around the world. America was responsible for 152 of them—far more than any other country—with Japan coming in second with 88 and Germany a distant third with 42. The United States also led the world in the introduction of “global NCEs,” drugs “introduced in a majority of the world’s leading drug markets.”
New research shows that the U.S. has overtaken Europe as a whole in drug development.
Why is this important? One reason for America’s drug dominance (though far from the only one) is America’s unsocialized medicine. Here, with the exception of a few programs like Medicaid and the VA system, the government doesn’t regulate the price of drugs, so when a company invents something big—the latest miracle cancer drug, say—it strikes it rich, making its executives hunger for more. Take away the profit motive, as government-run medicine often does by forcing drug companies to sell at discounted prices, and innovation will dry up. “EU policy has kept pharmaceutical price inflation equal to average consumer price inflation over the last 19 years,” write Joseph Golec and John Vernon in a 2006 paper for the National Bureau of Economic Research—“with real costs of about $5 billion in foregone R&D spending, 1,680 fewer research jobs and 46 foregone new medicines.” True, America’s unregulated environment benefits any drug company that sells here, regardless of its nationality—but American companies profit most, since even in today’s global economy, a higher proportion of their sales than of European companies’ sales takes place in America.

So socialist Europe, by using American drugs (especially the “global NCEs” that Grabowski and Wang identify), is profiting from good old-fashioned American free enterprise. Europe doesn’t pay its way, either. As Guy Sorman wrote recently in City Journal, France’s socialized health-care system bullies American pharmaceutical companies into accepting bargain-basement prices for their wares. The companies make up for the loss by charging Americans more.

But the lesson here isn’t that America should be stingy about subsidizing French health care. If American consumers and drug companies play a disproportionate role in protecting the world from dangerous microbes—just as America did in protecting it from Soviet missiles—we should be proud. (It would be too much to hope that this good deed will go unpunished among European elites.) No, the lesson is to be skeptical of reports speaking glowingly of socialized health-care systems, because those systems wouldn’t work nearly as well as they do without unsocialized American medicine.(Links in original)
Exactly.

But these statistics are crucial for another reason. If the profit motive is removed from the American market through government regulation of health care programs trying to lower costs by negotiating lower drug prices, the drug companies will respond by doing less of that expensive research and development. And the result will be the loss to all of mankind of future new medicines. We won't know about what we have lost. No one knows of the discoveries unmade. And that is one of the main reasons why I am so strongly against the sort of governmental tinkering with our medical industry that the Democrats are espousing. For we know that if the government becomes the major supplier of health care, there will, surely as night follows day, be governmental edicts coming out about the prices that they're willing to reimburse drug companies for expensive drugs. And gradually, the companies will stop their research into new medicines. Think of the advances that have been made medically in just the last 10 years. Then imagine your future health care without those new medicines. And think of the hope that so many of us have that, by the time we reach old age, that new medical discoveries will be there to help us through such diseases such as Alzheimer's. But those medical discoveries, and one of the most vibrant parts of our economy, will be drying up.

All the world will be the loser for those holes poked in the pharmaceutical umbrella.

16 comments:

Susan said...

I'd love to know: What important new medicines have come out of government-funded "nonprofit" research in the U.S. and worldwide?

tfhr said...

Obama is offering the "blue pill", so who needs to worry about finding cures for things that just drive up costs?

http://www.youtube.com/watch?v=HNLp0GRPJt4

Of course he doesn't really say how much that "blue pill" will cost.

Bill B. said...

The arguments are getting stretched exceedingly thin - righties don't want us to have health care like France because we spent all the money on the Armed Forces, protecting France.

Gee, seems like there's an obvious answer to that one.

And in answer to Susan's enquiry, add "swine flu vaccine" to the list of drugs prepared at the behest of the government.

Pat Patterson said...

And which has turned into a boondoggle as the latest vaccine is now estimated to only be available after the crisis has peaked in October. Plus just for curiousity could Bill point to one site that mentions the government is paying for the development because the only thing the government appears to be doing is expediting trials and guaranteeing that it will buy all the vaccine produced?

Plus Bill is again repeating an argument that was stomped flat just weeks or months ago as the current argument of healthcare insurance in the US bears no resemblence to the healthcare insurance in France. But at least he's not prattling on about living as miserably as the Scots anymore.

LokiTheSiberian said...

Comparisons can be misleading. Is the best comparison really between the US and Germany, or should the comparison be between the US and the EU because the populations are closer in size? On the other hand, even if European companies sell most of their pills in Europe, it is still possible (and I think likely) that they make more profit in the US (globalization and all). If that is the case, then at least some of the innovation in Europe could be attributed to the freer market in the US.

I think Bill B. might have missed the point of the quoted article. It is not about a package deal (the more spent on defense means less spent on medicines); rather it is an analogy. Besides, the US spends more (per capita and as % of GDP) on medical care than France does despite the bigger defense budget.

With regard to Bill B.'s answer to Susan, is there a link that would give the details about the swine flu virus in question? Susan asked about "...government-funded nonprofit research..." while Bill B. answered about "...at the behest of the government." - not the same thing. After all - to keep with the theme of the original analogy, Boeing invents lots of stuff at the behest of the government and clearly is not non-profit.

Bill B. said...

When the government is "guaranteeing that it will buy all the vaccine produced" it is effectively "paying for the development".

Finance 101.

In addition, government dollars funded the research and specification of the choice of strain to develop a vaccine against.

Sorry righties, if you oppose government intrusion into health care, you must avoid getting a flu vaccine every year.

Bill B. said...

"Besides, the US spends more (per capita and as % of GDP) on medical care than France does despite the bigger defense budget."

Yes. And we have worse outcomes (healthwise, as measured by WHO). And we cover a smaller proportion of our citizens.

So your point is an excellent argument in favor of health care reform, government regulation, and a public option, just like all those "Old Europeans" have had for generations.

Rick said...

No, Bill B. We cannot claim swine flu vaccine is being prepared at the behest of the government. That is, unless you are going to claim that no vaccine manufacturer would have worked on developing a vaccine without the government. The government did advance $1 billion to speed up development, but that is all.

On your other point, we don't want health care like France because they are in a serious financial bind:

"This year the annual shortfall is expected to reach €9.4 billion ($13.5 billion), and €15 billion in 2010, or roughly 10% of its budget."

So, France has been over budget for 20 years, but somehow the left thinks that a French style system is just the ticket. Guys like you seem to think there is some magic fairy dust that will allow us to provide more health coverage for less money.

Read my lips: IT. WILL. NOT. HAPPEN. WITHOUT. RATIONING.

As it is now, health insurers and private pay subidize Medicare and Medicaid. Obama held out Mayo clinic as some kind of example. What he didn't tell you is that Mayo does so well because it accepts private pay and insured from all over the country, but only Medicare patients from within Minnesota. That means Mayo has a very high ratio of private pay and insured to Medicare. I would try to explain the significance of that to you, but it would fall on deaf ears. Suffice to say, if Mayo had to accept Medicare patients from anywhere in the country or worse, some government option that underpaid like Medicare and Medicaid, their quality of care would decline just like any city hospital. It has to. Quality of care is not free and not susceptible to magic pixie dust.

If the lefties get their way with health care, do not be at all surprised if we still spend 17% of GDP providing health care. All we will have accomplished is more regimentation, poorer care, and more power and money for the politicians. What could possibly go wrong?

Rick

Pat Patterson said...

Semantics Bill, how about an actual link that even remotely agrees with you. Plus doesn't this mean you're fudging and saying that the companies, via the invisible hand, are merely responding to the possibility of profits. Plus there are currently four companies racing through trials and they all won't get approval.

It's like listening to the old argument of who can make a pencil? The pencil maker or the pencil pusher.

Rick said...

No Bill. You are wrong again when you say; "When the government is "guaranteeing that it will buy all the vaccine produced" it is effectively "paying for the development"."

Surely, you are not arguing the feds will buy every dose of the vaccine regardless of how many they already have, are you? Are you suggesting they will buy 10 doses per person?

You are probably not old enough to remember when the government mandated, in the early 70, we all get a swine flue vaccine. In addition, the feds barred suits over any side effects. So, we now have two examples, but only two examples about 35 years apart. It is hard for you to make a case that his is some kind of continuing adventure. So, Bill, how many doses of flu vaccine have been sold outside of government procurement in the last 35 years?

Then you follow with some absurd argument that is trying to claim because the CDC and WHO identified a new strain of flu, that puts the government in flu vaccine business. How would that compare to the AIDS virus? Are going to argue the feds are in the AIDS vaccine virus too because the CDC identified AIDS?

Then, you follow that with another absurdity (that seems to be quite a habit with you). The fact the feds identified the H1N1 virus (and btw, the feds did not identify how to make an anti virus. They only identified it), is not a reason to support some form of nationalized health care. We existed quite well for the past 35 years without it. H1N1 is not a compelling reason, nor is the fact that feds identified H1N1 (which is why we have a CDC) is not a reason for those opposing nationalized health care to avoid the vaccine. If it were, I could preclude you, who favors such a program, from using any pharmaceutical or surgical technique the government did not fund. But, unlike you, I would not be so absurd.

Rick

Rick said...

Again, No Bill, we do not have worse outcomes. We have significantly better outcomes for diseases such as cancer. In addition, once you factor out accidental deaths and homicides, we do not have worse longevity numbers even though we are a much more diverse society that the European societies.

Bill, you continue to be a fount of incorrect knowledge. Every time you post, the average IQ of Betsy's readers declines.

Rick

Bill B. said...

Rick: "Surely, you are not arguing the feds will buy every dose of the vaccine regardless of how many they already have, are you?"

You are correct, Rick. I am not arguing that. That was the contention of Pat "Mr Semantics" Patterson. And given how frequently he is wrong about plagiarism, and little matters like the US Constitution, I would tend to doubt him just as much as you.

Rick 2 "Bill, we do not have worse outcomes."

I'm afraid your argument is with the World Health Organization, not with me Rick. Take it up with them. They place Americans #37 on the list. Whoo hoo! We're number 37! Though of course if you adjust the numbers for arbitrary things, you can prove whatever you want to yourself.

Rick3: "Read my lips: IT. WILL. NOT. HAPPEN. WITHOUT. RATIONING."

We have rationing now. And we have 47 million Americans without health coverage.

So even if your claim is remotely true (and the "rationing" that you claim is inevitable, seems to work out fine in practice for Europeans), we will move from (Rationing + uninsured millions) to (Rationing). Fair-minded people would see that as a significant improvement in the lot of Americans.

Rick 4: "we don't want health care like France because they are in a serious financial bind"

We could afford the stupid and failed Iraq war. People here cheer-led that for literally years in the face of all evidence. We can afford health care for all Americans.

Besides, just because the French run over-budget on some necessary venture, doesn't mean anything about how Americans can do. Or are you one of those cheese-eaters who thinks that Americans are inferior to the French?

Bintohead said...

wow - Bill keeps serving up doozies...

"We have rationing now."

how do we have rationing? Is the government saying you can only have so much health care? Is the government limiting your access to health care? No. Our health care system is based upon a free market system. Most people have it - a few do not. One persons access to health care is determined by a number of different factors - only one of which is the policies of the insurance company they use.

To say we have health care rationing is like saying we have rationing of luxury cars in the U.S.

"And we have 47 million Americans without health coverage."

Wow - you're still quoting that number. Even Obama has switched to the lower number of 30 million.

And that number doesn't even account for people who could have health insurance, but choose not to (because they're relatively healthy and choose not to purchase coverage), and those who are eligible for things like Medicare and Medicaid - but haven't signed up. Not to mention, of course, any illegal immigrants who are without health insurance.

It's pretty sad that Obama wants to change the state of health care that multiple polls have showed that 85% of Americans are satisfied with. Why are we re-inventing the healthcare "wheel" when the vast majority of Americans are happy with the one we have?

Starting to feel like a tyranny of the minority.

Pat Patterson said...

Still not one link that proves Bill's point in his claim that the government is developing this or any other vaccine. And we all know to well how many times Bill has been caught and lamely tried various interesting theories of how his stealing of someone else's work is not plagarism.

Plus someone may indeed have a guaranteed sale but they still have to put up their own money to make the product.

Bill B. said...

Add "reading comprehension" to your list of problems, Pat.

Please read me words accurately when attempting (and failing) to rebut them.

Otherwise you are just propagating the "rightwingers can be ignored because they usually lie" meme.

Pat Patterson said...

Still no link? BTW perhaps the fault lies at your end because common use of behest means either an order to do something or a plea to do that same thing. I think none of us remember the CDC advertising on TV for someone please to invent the vaccine. And again where's the list of these drugs.