My Health Care Co-Pay

“…and that one of its main conservative tropes—the inevitable expense and inefficiency of some kind of universal health care system—is wholly divorced from the data.”

Is there anything this administration, and the modern “conservative” moment, does that isn’t wholly divorced from the data?

It’s funny that from looking at the graph I came to a very different conclusion. It is my feeling that high spending on healthcare in the US reflects the high quality and availability of healthcare.

For example, when I lived in the UK I went in sick to my local clinic. Since I was there, I asked if they could take some blood to check my cholesterol. The doctor informed me that clinics were not allowed to take blood. For a blood test I would need to visit a hospital, but even there I would be unlikely to be tested unless it pertained to my current illness.

I had money for a blood test and was willing to pay for one, but the service was not available to me.

Yes, the UK has low per capita healthcare spending, but you get what you pay for.

Eh? So does (or did) the UK.

I believe the US and the UK are the two biggest countries when it comes to BigPharma. Unfortunately we won’t be allowed to turn the argument on its head because obviously the US patient and tax-payer is subsidising the profits of the British pharmaceutical companies.

You altruistic lot.

Higher spending on US healthcare does not yield better results, if by “better” you mean longer life. Both US males and US females die younger than people in other OECD countries. According to Lindert’s Growing Public, pp. 258-262, even controlling for bad habits, pollution, income and occupation, a chunk of this premature mortality is explained by amount spend on public healthcare. (A chunk is not. There’s a .pdf of part of the analysis here.

“For example, when I lived in the UK I went in sick to my local clinic. Since I was there, I asked if they could take some blood to check my cholesterol. The doctor informed me that clinics were not allowed to take blood.”

This is total rubbish. GPs clinics routinely do blood tests. I personally have had half a dozen over the past 4 years at 3 different clincs. Typically it’s done by a practice nurse rather than by a GP, generally a good thing as nurses are usually better at it, and usually if it’s not urgent your GP will make an appointment for you to see the practice nurse in order to have tests done. If it is urgent, the GP will do it.

Not only that but I’ve had, although not on every occasion, my cholesterol tested by my GP as a matter of routine when I’ve switched to a new GP practice.

I don’t know where you were told this — the clinics couldn’t do blood tests — but either your memory is incorrect or the doctor was bullshitting you.

It’s entirely possible to ask for a cholesterol test and it’s extremely unlikely you’d be refused. Last time I had one, less than 3 years ago, I had just turned 30 and had no medical history that suggested I was at risk of high cholesterol but my GP had it done just to check. An older person, someone in a high risk category or anyone anxious enough to want to know would not be refused.

There certainly are problems with the UK health system and my experience of emergency room care, for non-life-threatening ailments, has been mixed to say the least.

However, blatant falsehoods like “clinics can’t do blood tests” don’t help the debate.

Matt McGrattan:
He had his experience and you had yours. Both represent just one observation. Why such a nasty tone? Why is there always someone who behaves this way in any exchange when confronted with the experience of another that does not wholly match their own?

Steve Labonne: sd’s first two points are not new, novel or out of left field. Studying for a PhD in economics (concentration in health) I heard both routinely. There is nothing whacky about points 1. or 2. That isn’t a formal proof, to be sure, but at the same time I think that there is no reason to treat these views as exceptional.
There were apsects of the Gladwell piece that were very good, and other aspects of it that were less persuasive.

Peter:

As it happens, I too was struck by what john said, in particular, ‘clinics’ (depending on what he means by this, I presume he means GPs) can obviously do blood tests, it is the primary location for non-urgent tests like cholesterol, they would laugh at you if you went into hospital to get one. Also, it is very easy to get things done if you pay for them.

So if sd’s points 1 & 2 are true, perhaps they undermine his point 3 – because it may just turn out that these drugs aren’t worth as much to the Europeans or Canadians as they are to the Americans?

sd, I’d LOVE to hear your insider knowledge contradicting Marcia Angell’s contentions. The bottom would fall out of pharma R&D spending? is that right? WHO CARES? Pharma doesn’t do crap. Spending on obesity drugs and 400 iterations of the same erectile dysfunction pills and allergy meds? Wow. Maybe they could dip into their record-breaking profit margins to fund a bit of that R&D?

The real research subsidy is in NIH and NSF, and always has been. The major medical breakthroughs happen there – statins, the biggest new cancer treatments, etc. All of these things came almost fully-formed out of government-funded labs. Pharma adds a box, some gelatin and a huge price tag. The fact is, pharma companies aren’t interested in doing fundamental research – they have no need to. They’re perfectly happy growing fat off the productivity of academics.

So, piss off with your “insider knowledge”, and pharmaeceutical companies can just burn, for all I care.

signed, Bitter Academic.

Matt McGrattan:

I guess it depends in what context he went to the doctor – contrary to popular belief, the NHS is not keen on giving non-essential care to tourists.

Matt-Its all good.

Peter:

Not so, you have, as far as I can tell, two people with extensive experience of the system over many years, plus one person’s anecdote that may-or-may not represent much experience of said system. In other words, this isn’t a vote, he was wrong, why he was wrong I don’t know, but the facts are the facts.

I’m in England. I had a blood test on Monday, for anaemia, just because I asked for it and incidentally, last time I had that kind of test they did a few other tests (including cholesterol) just because the blood was there, and gave me the results next time I went in.

I think a testy tone is excusable. I’m now trying to analyse what is so annoying (because I feel annoyed too). Is it that the description of British health care is so inaccurate? No, I think it’s that the poster seems to overlook that there will be people reading the description who actually live in the country, and who know what the facts are at first hand.

And the offended tone when challenged.

Peter, for instance said “Both represent just one observation.”

But that isn’t true, one is the (in this case mistaken) observation of a visitor, weighed against the collective observation of people who have used a health care system for decades. 60 million people in the UK know you can get blood tests at clinics. Admittedly they don’t all post to Crooked Timber.

But Alison, what you and the others are offering is not a collective observation-you are offering your own. You are not a meaningful population sample for drawing any kind of conclusions about de facto realities (even if I am inclined to suspect that you are correct).

Further, the issue of tone (which Matt, to his complete credit, immediately recognized) is important in all discussions.

I’m afraid that on the internet there is pretty much only two gears: civil discourse and screaming match (aka dialogue of the death).

FYI, most original research done on the behalf of Big Pharma happens on college campuses via NIH grants etc across the country, which means we subsidize the original stuff through tax payer funds. Then Big Pharma takes the drugs developed and figures out how to patent the drug, use it for a hundred maladies not originally considered, publicize it on TV so that everyone is all agog for a prescription from their MD, and when the patent expires, figure out a hundred novel uses so that they canr epatent the drug under a new name.

Very little is actually spent on real R&D in this country. Countries in the OECD actually allow companies to expense R&D as they do here, so that really isn’t an impact on their profitability.

Peter:

It’s quite difficult for a factual dispute to be resolved if the experiences of those who really _are_ in a position to know i.e. life-long residents of the UK and users of the NHS are dismissed as not being a meaningful population sample. What would count as a meaningful population sample?

I am aware that it’s easy to slip into a war of competing anecdotes here but I really do think that this particular situation is not like that and it makes the resolution of debates near impossible if too high a bar is set for evidence.

Anyway, for what it’s worth, here’s the BMJs own article on cholesterol tests:

http://www.besttreatments.co.uk/btuk/conditions/5190.html

which strongly implies that tests are carried out by GPs in their clinics.

There is a reason so much R&D money is spent on weight loss and hair gain compared with an affordable malaria treatment. The cost of discovering a compound is not the same as the cost to develop a compound for human use.

It would be interesting to see what US healthcare costs are if sd’s points are factored out.

Peter

I liked ‘dialogue of the death’, it had a gladiatorial ring to it.

“what you and the others are offering is not a collective observation-you are offering your own. You are not a meaningful population sample for drawing any kind of conclusions about de facto realities (even if I am inclined to suspect that you are correct).”

I wonder if you can see the inherent silliness in that statement. I once went to America and the people there were green, but however many of you tell me that they aren’t green, and I must have been there on St. Patrick’s day or something, that is just your point of view, different to mine, but equaly valid, we would have to carry out a survey of the United States and calculate the exact proportion of green people…or, alternatively, I’m just talking out of my arse and all the Americans can just tell me that I’m wrong because what I am saying is patently false.

Post-modernism has a lot to answer for!

And I agree: dialogue of the death is growing on me too.

Peter:

It’s a public web-site and not a BMJ article so it won’t be on an e-journal database. It’s on the BMJs web-site which offers medical advice on treatment to the general public.

The only reason I can think why it’s not working is that it may bar non-UK IP addresses.

With due respect to peter, and also to Matt, the problem is that people do make things up. Matt’s experience is not just a bunch of anecdote; he is describing the policy in at least three health authorities. So those, at least, we know about. The original claim is therefore flat out false: ‘They don’t do tests in clinics’. There may indeed be a clinic in which they don’t do tests (maybe a small rural one?) but we know that it is not a true generalisation that they don’t.

The NHS is in trouble, and it, itself, has lots of inefficiencies (too many house calls, too many small clinics, not enough large clinics, not enough beds in some hospitals, staff shortages not completely unconnected to the high pay qualified people can earn in the US). But Kieran’s data very strongly suggests that the US system is hgihly inefficient. If Americans live unhealthily shouldn’t the government be preferring public health measures over high spending on emergency care? Practice a bit of triage? The inefficiency of the US system is the issue here, and saying boo to systems that look prima facie better doesn’t answer the question.

No claim is ever wholly

Fair disclaimer: I am a health economist who examines things like performance of health systems in lower income countries. My wife does the same thing for America’s VA system.

Harry, it is a nearly universal truth that system rules are never whollly adhered to. The question is how often do deviations occur? My only point, then and now, is that the individual observations we are hearing here, while are valid in and of themselves, do not bring us any closer to a meaningful answer to that question. It doesn’t matter what three health authorities sais, in some sense. THe closest thing I have seen here to evidence that might make this case is the article Matt mentions (which I assume relies on a random sample on one level or another)>

saurabh:

As has been pointed out here several times, there is a huge gap between identifying a clinically useful compound and developing a workable drug from it. Yes, government and academic labs uncover many lifesaving compounds that are later commercialized by pharma companies. And without that public sector R&D on the front end there would be no drugs. But without pharma R&D on the back end there would no drugs either. Unless you know many tenured Ph.D.s in biochemistry who would be satisfied spending 8 years doing high throughput screening and clinical trials work. The fact is that the R&D that the pharma companies do tends to be looked down on by academic researches as boring, mundane, and non-original. Which it is. But that makes it no less neccessary. I’ve worked for a large, very prestigious, US academic medical center in the technology transfer and licensing office before. I’ve seen the internal proprietary analyses of the costs and benefits of having different actors do different parts of the total drug development job. And the results are clear every time – academic and government labs are great at groundbreaking, innovative original research but they are terrible at doing the grunt work research required to take an identified compound to market. Without pharma R&D we would have hundred of really good ideas for disease treatments but no workable drugs.

More broadly on the Marcia Angel book: it is stunningly economic illiterate and/or deceitful. In particular:

1) Angel trumpets the thoroughly dishonest line that the real costs of drug development are $100M a pop instead of the $800M a pop claimed by the pharma companies because the cost of capital is a fictional cost that isn’t paid out in cash. Bullshit. A mediocre freshmen economics students could tell you why this is false false false. But to put it simply, if you buy Angel’s argument, please lend me $50,000. I’ll be happy to pay you back $50,000 in 30 years.

2) In measuring the profits of drug companies she relies on publically reported net income. This is an economically unsound way of measuring returns – net income is an accounting fiction that reveals little about the underlying economics of a business. The better measure, total-return-to-shareholders, shows that the pharma industry generates average returns for shareholders – nothing extraordinary at all.

3) In comparing the profits of pharma companies to other sorts of businesses she cherry picks the one year where a fluke accounting rule change makes the big drugs companies look like they account for an absurdly large proportion of total Fortune 500 profits. Either she doesn’t know what the Hell she’s talking about or she is trying to deliberately decieve her readers.

Lest it draw fire, let me expand on the “no claim is wholly true or untrue point.” What I am saying is that I have no prior reason to believe anyone isn;t telling the truth here. What I am saying is that a. it is entirely possible everyone is faithfully and honestly recalling their experiences and b. we still cannot draw broader conclusions from that. Not in any meanginful, intellectually defensible way.

Of course the pharma companies perform an essential function. The argument is over whether they perform it in a highly wasteful and irrational way (from society’s point of view) and whether the same functions could not be performed better under different arrangments. Basic research is also expensive, yet we don’t seem to have a dearth of it as a result of not leaving its provision to the market. Why, exactly, is bringing the fruits of that research to patients- again, fully recognizing that as also being an expensive business- somehow a totally different proposition in principle? I so often see this asserted, yet so seldom supported.

There is a silver bullet to “fix” big pharma in the US. Change the patent laws so that minor changes in a drug do not qualify it as a new drug and you’ll see a lot less money spent on legal and marketing and much more on R&D.

And no, NIH does not produce finished goods. The NIH focuses on basic research and passes off the long hard haul of actually creating a drug to the drug companis, which average 15 years and 500 million for each drug on the market.

Where did I specify that it would / should be done in universities? And sorry, I don’t see prima facie why “same goes for governments”- the government could (and maybe should) pay for clinical trials, which could be performed by either public or private organizations or a mix of both. The government, in the form of its patent laws, is actually directly responsible for the high profit margins that the companies now invest in developing (and still more, in marketing)slews of unneeded drugs as well as the occasional one that’s a genuine improvement. Something is wrong with “free-market” arguments when the actual basis for something claimed to be a triumph of the market, actually turns out to be rent-seeking.

Finally, a point that’s been raised a few times but nobody on your side of the issue seems to want to deal with. Let’s say for the sake of argument that it’s an established fact that our high health-care costs pay for essential pharma R&D on which other countries free-ride. WHY should we go on doing that?

sd – first, let’s not forget that many clinical trials are NIH-funded, meaning that taxpayers are also bearing a portion of the burden for bringing these drugs to trial on behalf of pharma companies. Furthermore, it seems probable, based on the average costs of phase I, II and III trials, that the cost of bringing a drug to market are inflated by pharma companies. So I won’t cry too hard over the weight these noble companies are carrying for us.

Second, regardless of all this, we should still take pharma companies to task for what they DO chose to bring to market – that is, not malaria medication that would save millions of lives, but male pattern baldness cures and other such rubbish. By that token, we already ARE missing out on important drugs.

No, NIH doesn’t produce finished goods, because the government doesn’t mandate this. NIH is underfunded and starved as it is. But that doesn’t mean it -couldn’t-, or that in the absence of a highly-profitable drug industry, we couldn’t come up with something better.

“My impression is that most of the R&D is paid for by the government and the results then given to the private sector for testing, patenting, marketing and production. Big deal, who needs them. They are mostly parasites.”

Your impression is deeply, horribly, awfully, wrong. See the above discussion.

Peter:

You can only be taking the piss.

“we should still take pharma companies to task for what they DO chose to bring to market – that is, not malaria medication that would save millions of lives, but male pattern baldness cures and other such rubbish.”

And McDonalds doesn’t provide nutritious meals for the poor of Africa, your point?

With respect to research, I found an interesting paper that I’ve now lost (it was some sort of Australian govt thing, no idea what the date was) that shows that public investment in medical research, as a % of GDP, is highest in Switzerland, above average in the US and Denmark, below average in the UK, and lower still in some other European countries, Canada and the Antipodies. On top of that the UK has very high charity contributions to research (Wellcome Trust and the cancer researc charities) and the US also has high per capita charitable funding.

So I guess the rest of the world could be described as benefiting from higher US research on both an absolute and relative level, but, of course, that is nothing to do with their health care system

“Sebastian, I read the above discussion as a vindication of my impression. It seems to me that if not for the patents (that they don’t deserve because they don’t do the R&D)”

What is that supposed to mean? That the R&D they do do, doesn’t reflect the actual costs of the basic research that preceded it? Or, this bizarre meme, that pharmaceutical companies employ all those scientists, and have all those labs, to do bugger all?

I’m a frickin socialist and I know there is a hell of a lot of work and expenditure in developing a drug and bringing it to market – and that is not all done by NIH, whatever you think!

Pfizer claims that the US pharma industry spends 18 billion on research each year. It would appear that a few cuts in the Dept of Ag (long coming) and a few base closings (decades coming) and the government could match pharma’s R&D easily. Would this be a good thing? Probably not. I’d say that fresh 18 billion should be added to the 13 billion already spent on NIH, and let the market figure out what to do with the extra generated drug leads.

And by definition, no one is going to spend 500 million doing research on a “cheap” anti-malaria drug. At a $1 profit a treatment it would take ~25 years to break even. So if it isn’t your tax dollars, then it is nobody.

It costs $500 million if you include the Super Bowl commercials and tons of free crap they hand out to doctors, etc.

Is it possible to watch an hour of network televison without seeing an advertisement for a
prescription drug ?

Same reason we let Europe free ride on international security—especially of the oceans for shipping, if we don’t do it it doesn’t get done and the world (including us) end up much worse off.

I read Derek Lowe myself, but as a chemist rather than a biologist, and one whose paycheck comes from the pharma industry, he wears some blinkers that a reader of his stuff ought to keep in mind. But as you admit, he’s no fan of pharma’s current business model and I doubt he’d buy your argument that we’re stuck with the current health-care system if we want useful drugs.

Sebastian, you told me to read the discussion above. I did.

The fact is that the R&D that the pharma companies do tends to be looked down on by academic researches as boring, mundane, and non-original. Which it is.

How does this boring, mundane, and non-original work deserve patents and all that dough and glory? It doesn’t. The government should hold the patents, based on real R&D that it organizes and finances.

If not for the patents, all those glorious pharma companies would be as rich and famous as the company that tests your tap water, and the drugs would cost a small fraction of what they do now – because of the competition, which is something you should be happy about.

Where am I wrong on this? I am open, just explain where you disagree and why.

and, for all the US spends, we leave what percentage uninsured? i see little of that discussed above, but it’s an important point. none of the other systems we’re discussing leave a significant slice of their population out of the system.

I mean, if you can give Americans the legendary glories of French health-care while simultaneously cutting their public health-care expenditures by 14%, who’s going to complain?

part of the problem, mr burton, may be that the private system is what has to go in order to dispel the inefficiency. the multi-payer system — the private component — is by far the largest source of inefficiency. what support could be found among the right in america to cut private insurers (and their profits) entirely out of healthcare? and how much lobbying cash to they spend annually?

While I agree that bringing drugs to market is important work, even if it is boring and mundane, I think the pharmaceutical industry vastly overstates its contribution to this process, as well as the difficulty of actually going through clinical trials. This is not billion-dollar research, here. It is not $500 million dollar research. That’s enough money to fund a thousand academic labs. What in the name of god are they doing for all that money, tell me? I don’t buy it, Sebastian. It’s bullshit.

Woops, damn the link feature didn’t work. The Tech Central Station article is here:

http://www.techcentralstation.com/011105F.html

Also, some drugs ARE developed outside of the pharmaceutical industry, the most famous example being Taxol, which was researched by NCI and then handed off to BMS for the money-making portion of the project.

“I think the pharmaceutical industry vastly overstates its contribution to this process, as well as the difficulty of actually going through clinical trials. This is not billion-dollar research, here. It is not $500 million dollar research.”

Why do you think that?

According to this report, more than 90% of drug candidates fail to get to Phase III trials. About 40% of those that make it to Phase III trials end up failing at that point. That suggests an approximate 6% success rate for drug candidates. And if you read Derek Lowe, you would know that it is difficult to rule out drugs very early, and that Phase I and II trials are hugely expensive as well (though less than Phase III). It is perfectly possible for large numbers of PhDs working full time careers in drug research to have no research contact to a successful drug. You have to pay those people somehow.

Universal required insurance with some assistance at the low-end (e.g. Switzerland as claimed) is preferable to, say, France because…it’s more expensive but free-market-pure? I don’t get it. Why would one prefer a slightly worse but vastly more expensive system to a slightly better but much cheaper system? It baffles me. Seems like adverse selection would make it less efficient, but keep rich folks from having to go to the same clinics as the rabble, which I guess is a plus for many Americans, who would like to think of themselves as rich. Still, we’d be better off with either model than what we have. I’m really tired of living in a place where 40-something-percent of the population has no health insurance. It’s not civilized.

I haven’t figured out why non-healthcare businesses like the current system at all (of course many don’t, given the endless cost spiral.) My only guess is that it keeps a tight tether on much of the working population who might otherwise be more mobile–stick around or you lose your health benefits. Not such a big deal for an unmarried 20-something, but a huge deal for those with families and huge mortgages.

Here’s a relevant post from USENET:

Socialized medicine—the *provision* of medicine, not just medical insurance (so-called “national health insurance”)—is inevitable for reasons of economic efficiency. This follows from the unique nature of the
health care market, as made clear from this excerpt from Phillip Longman, “The Best Care Anywhere,” Washington Monthly, Jan/Feb 2005, pp. 39–48. [note: VHA = Veterans Health Administration]

————————————–begin
excerpt—————————————————–

Why care about quality?

Here’s one big reason. As Lawrence P. Casalino, a professor of public health at the University of Chicago, puts it, “The U.S. medical market as presently constituted simply does not provide a strong business case for quality.”

Casalino writes from his own experience as a solo practitioner, and on the basis of over 800 interviews he has since conducted with health-care leaders and corporate health care purchasers. While practicing medicine on his own in Half Moon Bay, Calif, Casalino had an idealistic commitment to following emerging best practices in medicine. That meant spending lots of time teaching patients about their diseases, arranging for careful monitoring and follow-up care, and trying to keep track of what prescriptions and procedures various specialists might be ordering.

Yet Casalino quickly found out that he couldn’t sustain this commitment to quality, given the rules under which he was operating. Nobody paid him for the extra time he spent with his patients. He might have eased his burden by hiring a nurse to help with all the routine patient education and follow-up care that was keeping him at the office too late. Or he might have teamed up with other providers in the area to invest in computer technology that would allow them to offer the same coordinated care available in veterans hospitals and clinics today. Either step would have improved patient safety and added to the quality of care he was providing. But even had he managed to pull them off, he stood virtually no chance of seeing any financial return on his investment. As a private practice physician, he got paid for treating patients, not for keeping them well or helping them recover faster.

The same problem exists across all health-care markets, and its one main reason in explaining why the VHA has a quality performance record that exceeds that of private-sector providers. Suppose a private managed-care plan follows the VHA example and invests in a computer program to identify diabetics and keep track of whether they are getting appropriate follow-up care. The costs are all upfront, but the benefits may take 20 years to materialize. And by then, unlike in the VHA system, the patient will likely have moved on to some new health-care plan. As the chief financial officer of one health plan told Casalino: “Why should I spend our money to save money for our competitors?”

Or suppose an HMO decides to invest in improving the quality of its diabetic care anyway. Then not only will it risk seeing the return on that investment go to a competitor, but it will also face another danger as well. What happens if word gets out that this HMO is the best place to go if you have diabetes? Then more and more costly diabetic patients will enroll there, requiring more premium increases, while its competitors enjoy a comparatively large supply of low-cost, healthier patients. That’s why, Casalino says, you never see a billboard with an HMO advertising how good it is at treating one disease or another. Instead, HMO advertisements generally show only healthy families.

In many realms of health care, no investment in quality goes unpunished. A telling example comes from semi-rural Whatcom County, Wash. There, idealistic health-care providers banded together and worked to bring down rates of heart disease and diabetes in the country. Following best practices from around the country, they organized multi-disciplinary care teams to provide patients with counseling, education, and navigation through the health-care system. The providers developed disease protocols derived from evidence-based medicine. They used information technology to allow specialists to share medical records and to support disease management.

But a problem has emerged. Who will pay for the initiative? It is already greatly improving public health and promises to bring much more business to local pharmacies, as more people are prescribed medications to manage their chronic conditions and will also save Medicare lots of money. But projections show that, between 2001 and 2008, the initiative will cost the local hospital $7.7 million in lost revenue, and reduce the income of the county’s medical specialists by $1.6 million. An idealistic commitment to best practices in medicine doesn’t pay the bills. Today, the initiative survives only by attracting philanthropic support, and, more recently, a $500,000 grant from Congress.

For health-care providers outside the VHA system, improving quality rarely makes financial sense. Yes, a hospital may have a business case for purchasing the latest, most expensive imaging devices. The machines will help attract lots of highly-credentialed doctors to the hospital who will bring lots of patients with them. The machines will also induce lots of new demand for hospital services by picking up all sorts of so-called “pseudo-diseases.” These are obscure, symptomless conditions, like tiny, slow-growing cancers, that patients would never have otherwise become aware of because they would have long since died of something else. If you’re a fee-for-service health-care provider, investing in technology that leads to more treatment of pseudo-disease is a financial no-brainer.

But investing in any technology that ultimately serves to reduce hospital admissions, like an electronic medical record system that enables more effective disease management and reduces medical errors, is likely to take money straight from the bottom line. “The business case for safety remains inadequate [for] the task,” concludes Robert Wachter, M.D., in a recent study for Health Affairs in which he surveyed quality control efforts across the U.S. health-care system.

If health care was like a more pure market, in which customers know the value of what they are buying, a business case for quality might exist more often. But purchasers of health care usually don’t know, and often don’t care about its quality, and so private health-care providers can’t increase their incomes by offering it. To begin with, most people don’t buy their own health care; their employers do. Consortiums of large employers may have the staff and the market power necessary to evaluate the quality of health-care plans and to bargain for greater commitments to patient safety and evidence-based medicine. And a few actually do so. But most employers are not equipped for this. Moreover, in these days of rapid turnover and vanishing post-retirement health-care benefits, few employers have any significant financial interest in their workers’ long-term health.

That’s why you don’t see many employers buying insurance that covers smoking cessation programs or the various expensive drugs that can help people to quit the habit. If they did, they’d be being buying more years of healthy life per dollar than just about any other way they could use their money. But most of the savings resulting from reduced lung cancer, stroke, and heart attacks would go to future employers of their workers, and so such a move makes little financial sense.

Meanwhile, what employees value most in health care is maximum choice at minimal cost. They don’t want the boss man telling them they must use this hospital or that one because it has the best demonstrated quality of care. They’ll be their own judge of quality, thank-you, and they’ll usually base their choice on criteria like: “My best friend recommended this hospital,” or “This doctor agrees with my diagnosis and refills the prescriptions I want,” or “I like this doctor’s bedside manner.” If more people knew how dangerous it can be to work with even a good doctor in a poorly run hospital or uncoordinated provider network, the premium on doctor choice would be much less decisive, but for now it still is.

And so we get results like what happened in Cleveland during the 1990s. There, a well-publicized initiative sponsored by local businesses, hospitals and physicians identified several hospitals as having significantly higher than expected mortality rates, longer than expected hospital stays, and worse patient satisfaction. Yet, not one of these hospitals ever lost a contract because of their poor performance. To the employers buying health care in the community, and presumably their employees as well, cost and choice counted for more than quality. Developing more and better quality measures in health care is a noble cause, but it’s not clear that putting more information into health-care markets will change these hard truths.

Maybe this is a dead thread and I am wasting my breath. But…

1. There is an argument to be had about how to structure reimbursement for health care. It seems to me very unlikely that moving from the hodge-podge system in the US (some private, some public)to an entirely public system will achieve massive increases in efficiency. Here are some good arguments to doubt that this can happen

2. Pharmaceutical company profits, although a target of much ire, are not the major source of the health care cost crunch. This study (see figure 1) shows that prescription drug spending accounts for 22% of US healthcare costs. Let’s imagine that half of that is profit (it’s actually, far less than that, but I’m being kind). If so, completely removing pharma profit makes health care 10% cheaper. That’s good, but not the huge effect many would imagine.

3. Drug research is, in fact, tremendously expensive. Pharmaceutical companies do many sleazy things. BMY ripped of the NCI, no doubt other pharma cos ripped off the government too. That is not, however, standard operating procedure, nor does it mean that drug development is cheap. It is immensely expensive. I work for a biotechnology company, so perhaps this rules my opinion out as a self-interested party. We have raised (to date) $80mm, and this will not suffice to bring a single drug to market. If we want new drugs someone will need to pay for this. If we think having the government do it directly, will be more efficient, fine. But we will not get new drugs without substantial investment.

We could…do something as straightforward as eliminate the ability of insurance companies to look at a person’s health history, age, or zipcode, i.e. make a single risk pool and compete on price, service, and glossy marketing message without adverse selection ruining everything for the “everyone elses” of the country.

Doesn’t work. Insurance companies could still manipulate their risk pools by fiddling with the benefits and services they offer to make themselves attractive to the least expensive people to insure and unattractive to unhealthy expensive customers.

That’s all nice and well, but my sister is having her first baby in Amsterdam (the Netherlands) and the govt. subsidized “health plan” gives her 2 choices for birth: At home with a midwife or 2 hours in the hospital then home.

At this rate they will offer leeches for any post partum problem she might have!

Disagreement on shape of earth, now in progress.

Don’t let this thread die yet, I feel I’m almost to post-beginner knowledge of the world health care industry (which makes me an expert by DC standards).

Mill,
I hope you threw him a beatin’ back. After all, the standards for ethical conduct have risen dramatically since Russell Crowe arrived on the scene.

The $800 million comes from a Tufts study, and better than half of it represents opportunity costs. I can’t take that seriously; that’s not an expense.

Cost of capital, not opportunity costs, and if you don’t think cost of capital is a real expense, give me $10,000 now, and I’ll give you $10,000 in ten years.

A pharmaceutical company is not a bank; it is not in the business of speculation or investment. It’s an R&D budget for a reason. It’s stupid to account “cost” that way. Not to mention deceptive.

Hate to break it to those who go on about the US sacrificing itself for “freeriders” (in “security” too, yeah, because “security” today is exactly the same thing as invading other countries, absolutely) – but the Europeans who get “free” health care are not actually getting it for “free” but you know, paying it themselves through a little thing called *taxes*.

The big-name costly drugs, besides, you still have to pay for those, extra, when you need them. Unless you’re below a certain wage, or above a certain age. But even there, it’s not the US that kindly distributes medicines to the rest of the world, it’s the taxpayers of that country that subsidise those who need subsidising and help.

Now for the anecdote series, my father, who lives in Italy, was recently in hospital for surgery for an aortic aneurism, two weeks in hospital plus surgery plus all the pre and post tests and doctor visits, with some of the best specialised surgeons for that kind of operation, all “free” because… he’d paid taxes all his life, a much higher portion of his income than he’d have had to pay if he was in the US. For medicines he continues taking after leaving the hospital, he pays half the price on them, because his income was the average worker income, not below the level where it’s fully subsidised. That’s how it works.

So if you want to bitch about how the US pharmaceutical industry gets government subsidies, please, take into consideration they do it in their own interest, not the US or much less the European taxpayers. Much like the mega billionaire military budgets for Iraq are certainly not “giving a free ride” to other countries in “international security”, not least because now after Iraq the threat of terrorist attacks in train stations and cities all across Europe is a lot higher and who’s spending the money to keep police and intelligence and security at work in Europe? The European taxpayers.

And if you have a problem with the US keeping military bases across the world, please address the complaint to your own Defense Department, because today they don’t add anything in terms of security to the countries they’re located in, in fact, they require extra security, and it’s definitely not out of a generous impulse for motherly protectiveness that the US wants to maintain them. Just a thought, you know. About reality.

Rs,
I’m a frickin socialist and I know there is a hell of a lot of work and expenditure in developing a drug and bringing it to market – and that is not all done by NIH, whatever you think!

My question is: their portion (characterized by sd as ‘non-original’) of the total amount of work involved – why should it give them the exclusive right of ownership of the final product for a number of years?

If you invented an engine that runs, say, on dog crap and,say, GM designed and crash-tested a car that makes use of your discovery – yes, the GM has done a lot of work and without them the final product would’ve never existed, that’s all true – but should the GM own full unlimited copyright on this car and be able to turn around and offer it to you at some ridiculous arbitrary price? It doesn’t seem to make sense. I can imagine a whole spectrum of much better deals you could make with car companies.

Thanks.

“This might have been true when they were starting up, but obviously market dealings by mega-funds in mega-pharma are not about providing working capital for the organisations.”

Huh? This doesn’t contradict the explanation at all. They fund because of the high rate of return on successful companies which outweighs the risk nature of investing in pharmaceuticals. Take away the high rate of return and you are left with a risky investment that mega funds won’t invest in either.

It normally suggests a biological pathway to try and target.

I understand, but what do you get for suggesting a biological pathway to try and target?

I mean, what portion of the whole effort does the basic research amount to and what share of control over the final product does the entity that suggested the pathway receive?

Abb1:

I suppose you can also extend that kind of reasoning to ask who pays for all the expensive training of these MDs, pharmacologists, medicinal chemists and chemical engineers necessary for BigPharma’s survival.

Abb1:

But isn’t the IT sector full of patents? Just because totally generic ideas haven’t been patented (and only because they can’t, not out of some kind of altruism) doesn’t mean that there aren’t hundreds and thousands of proprietary systems out there – e.g. operating systems, computer programs, file formats, protocols etc. While people are within their rights to try and design workarounds that can achieve the same result without infringing the patent (e.g. Windows vs. Mac OS) the same is the case in the pharmaceutical industry (e.g. fluoxetine vs. paroxetine).

No, I don’t think you can protect your file formats and protocols so that no one else can use them; you can protect your code, of course, and algorithms in some cases. Somehow they created an environment where mammoth like Microsoft has to constantly defend itself against little guys working out of their garages.

I understand that pharma is different in many respects, but still, it’s hard to believe that the current system is the best government could come up with (in regards to the IP laws in this area) – assuming they were thinking about the public good, of course.

I think Qualcomm and CDMA might be a good example of what I mean in the comms sector.

Abb1:

“With the pharma, they could, for example, create a central agency that hires all these private companies to do what they do, just like the pentagon hires defense contractors; and that agency would hold all the patents. That would be kinda radical.”

So essentially state directed pharmaceutical research? But where would the money come from to pay the companies (because the state wouldn’t be able to profiteer in the same way)?

“What they could also do is to force the patent-holder to share the formula (well, it can be easily analysed anyway) with other companies for some kind of a compensation. This would be very similar to what they did with the AT&T, when they required it to lease the lines to all other long-distance companies. After that, long-distance rates fell in some cases to 10% of what it was under AT&T monopoly.”

They could do. But, again, in a market based capitalist economy, where does the money come from to provide the incentive?

Personally, I’m all for nationalising these things, but most people here wouldn’t agree (and it won’t work worldwide)…I was just arguing against infantile claims that pharmaceuticals companies don’t do anything for their money, not claiming we’re in the best possible world, which we clearly aren’t.

Abb1:

But in the pentagon scenario, taxes would need to be very high to pay for development – remember, that profits from sales will be -much- lower, and you need to make pay-offs sufficient to justify the R&D on failed projects – just like the current market. That is why so much of the US budget is military spending.

In the At&T scenario, again, the company would need to be sufficiently reimbursed to make R&D worthwhile (otherwise you’re in the cloud cuckoo land of people that moan that generics are so much cheaper than branded drugs, so therefore, drug companies are ripping us off).

I don’t think a utility company model would work for pharmaceuticals – R&D isn’t a commodity in the same way.

Abb1:

But under the US model, health insurance picks up the tab for drugs, but this way you are transferring costs to the state. Also, while R&D is obviously less than the total costs of the drug, there would stilll be a staggering cost to develop the drugs – i.e. even if R&D is less than half the cost (plus factor in manufacture and distribution), BigPharma is a multibillion dollar industry – half of that is still a multibillion dollar industry!

With regards to utilities, the analogy breaks down when you consider the uncertainty – build a power plant, costs lots, sell electricity, recoup investment and make profit. Do drug R&D, costs lots, find bugger all, make nothing, fold, lose all investment – the only way to make it worth while is to have staggering returns on the drugs that do work – and that is the current system of patents.

“As far as uncertainly, I don’t know for sure, but I suspect there must be some statistical certainty, so that you know that you need to spend between $X and $Y to discover with 95% probability something that will be worth $Z over the next 5 years (or something like that). And X and Y have to be close enough or private industry just wouldn’t be possible.”

Don’t think so. In fact I’m almost certain that isn’t the case, if you look at the pretty limited discovery of useful drugs over the last few years. In fact, as the easy drugs have been developed, new drug production has slowed down. Fortunately, at the moment, small biotech has taken up the slack.

I get your point about the need for returns to make private industry possible, but at the moment, as far as I can tell, the pharmaceutical companies are thinking that easy development (me too drugs, new uses for old drugs) are the bread winners, and scaling back R&D.

Although the GIF was originally developed in 1987 by a Compuserve special interest group, it has been regarded as an open, non-proprietary format since 1994, when Unisys negotiated with Compuserve to offer a limited, non-exclusive, royalty-free license for the format to the entire viewing on-line community.

Again, my only point is to demonstrate that in the software industry somehow it does work to everyone’s satisfaction (more or less).

I did mention Amazon’s patent. Patent and the lawsuit against B&N generated a huge controversy, activism, threats of boycott, etc. I’m not sure, but I don’t think it was enforced in the end. Again, somehow things did work out OK.

It doesn’t seem to happen in the pharma industry. One of the reasons is, probably, that getting a pill that might save your life is not the same as viewing a picture – you have a huge insentive to pay whatever they ask. If so, then it’s one the typical market failures, usually corrected by specially designed laws and regulations.