Universal Health Care and Innovation

Jonathan Cohn has a long article in The New Republic about innovation in health care and whether universal health care might lead to less innovation.  Here are a few points:

But one argument against universal health insurance isn’t so easy to dismiss: the argument about innovation and the cutting edge of medical care. It goes more or less along the lines of my conversation with Mike Kinsley: In a universal coverage system, the government would seek to limit spending by forcing down payments to doctors and pharmaceutical companies, while scrutinizing treatments for cost-effectiveness. This, in turn, would lead to both less innovation and less access to the innovation that already exists. And the public would end up losing out, because, as Tyler Cowen wrote last year in The New York Times, “the American health care system, high expenditures and all, is driving innovation for the entire world.”

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The single biggest source of medical research funding, not just in the United States but in the entire world, is the National Institutes of Health (NIH): Last year, it spent more than $28 billion on research, accounting for about one-third of the total dollars spent on medical research and development in this country (and half the money spent at universities). The majority of that money pays for the kind of basic research that might someday unlock cures for killer diseases like Alzheimer’s, aids, and cancer. No other country has an institution that matches the NIH in scale. And that is probably the primary explanation for why so many of the intellectual breakthroughs in medical science happen here.

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It so happens that, starting in 2003, President Bush and his congressional allies let NIH funding stagnate, even though the cost of medical research (like the cost of medicine overall) was increasing faster than inflation. The reason? They needed room in the budget for other priorities, like tax cuts for the wealthy.

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As books like Marcia Angell’s The Truth About the Drug Companies and Merrill Goozner’s The $800 Million Pill point out, a lot of the alleged innovation we get from private industry just isn’t all that innovative. Rather than concentrating on developing true blockbusters, for the last decade or so the pharmaceutical industry has poured the lion’s share of its efforts into a parade of “me-too” drugs–close replicas of existing treatments that offer little in the way of new therapeutic advantages but generate enormous profits because they are patented and because companies have become exceedingly good at promoting their sales directly to consumers.

He notes that some innovations have been found or made better by private companies, but none of the plans being discussed would get rid of private research. And this is one of the weak points of universal health care. It is much better than the private model when it comes to administrative costs, long-term planning, and cost control.