January 7 2010
On Wednesday, Forbes.com ran an excellent oped by Glen Whitman, economics professor at California State University, and Dr. Raymond Raad, a resident in psychiatry at New York Presbyterian Hospital, examining how Obamacare threatens medical innovation.
The pair co-authored the recent Cato paper, "Bending the Productivity Curve: Why America Leads the World in Medical Innovation," (read in full here) which compares the U.S. to other nations by their contributions to basic medical sciences, diagnostics, therapeutics, and business models and concludes that the U.S. has contributed more in these areas than any other country--and sometimes more than all other countries combined.
Take basic medical sciences, meaning advances in our understanding of disease and the human body. As measured by Nobel Prizes in medicine and physiology, the U.S. leads the world: 57 U.S.-based prize winners in the last four decades, compared with just 40 from other nations. How about diagnostics and therapeutics, which help doctors identify and treat disease? Of the top 27 diagnostic and therapeutic innovations over the past four decades, work in the U.S. contributed significantly to 20, including nine of the top 10. By contrast, all European Union countries together with Switzerland had a hand in 14 of those advances, and just five of the top 10. Important innovations developed solely in the U.S. include drugs like ACE inhibitors for heart failure and high blood pressure, selective serotonin reuptake inhibitors for depression, and treatments for cataracts.
So what drives America's investment in medical innovation? Whitman and Raad conclude it might just be the thing Obamacare intends to control...the cost.
Lower spending might seem like a good thing, until you consider the poor incentive it creates for innovation. Other things equal, people and firms tend to invest more in medical innovation when they expect a higher return, when the returns last longer and when the returns arrive sooner. As Sidney Taurel, former CEO of the pharmaceutical giant Eli Lilly once put it: America, "though hardly 'free' of government intervention ... is the one market where global innovators find the incentive they need to keep pushing the boundaries."
Critics often describe America's high level of per-capita medical spending as a problem--but when encouraging innovation, it's a feature. Unfortunately, the health care bills moving through Congress could curtail medical innovation. Imposing price controls on drugs and treatments--or indirectly forcing their prices down by means of a "public option" or expanded public insurance programs--would reduce the incentive for innovators to develop new treatments. Proposed reforms could also retard business model innovation--an area where innovation is weak. Congress has already used its control of Medicare to limit the growth of specialty hospitals. A nationally mandated insurance package would severely curtail innovation in payment methods and insurance products, which have the potential to improve the coordination and delivery of health care services.