March 10, 2005

Good old socialized medicine

Posted by Daniel

Congratulations to the team at King’s College London, who have managed to achieve the first claimed “cure” of Type 1 Diabetes via transplanted islet cells. Just to drive the point home, the technique that they used was originally developed in Canada, so it’s a double win for socialized medical research.

The temptation is almost overpowering to speculate that the reason this particular procedure was developed outside the USA might have something to do with the fact that curing a disease with a single operation doesn’t produce a lifelong dependence on patented pharmaceuticals. But this temptation probably ought to be resisted; it’s only a single case. But well done King’s College, and perhaps this will shame our government into funding London’s hospitals properly.

March 04, 2005

Infant Mortality in the US

Posted by Harry

Bill Gardner notes an uptick in infant mortality in the US, and links to the National Center for Health Statistics report which tries to explain it. As Bill points out, undertsanding a slight rise in the rate is all very interesting, but not to the point when we know what can be done to lower the rate, even if what we know doesn’t address the sudden (and slight) increase. Here are his suggestions:

There is good evidence that there is substantial variation in the quality of neonatal care. Standardizing care on the practice of the best units might reduce the infant mortality rate.

Additional evidence that the rate could be improved comes from international comparisons of infant mortality rates, which show that the US has twice the infant mortality rate of (say) Sweden or Japan. There are controversies about how infant mortality is measured in different nations. I have not seen a demonstration that adjustment for reporting differences between Sweden and the US (if indeed there are any) will make the gap disappear. Finally, there is much evidence that economic inequality is associated with poor public health, including adverse infant mortality. Something to think about as we continue to cut the safety net.

(Go to Bill’s place to comment).

January 25, 2005

The Case for Medical Paternalism

Posted by Henry

Matt Yglesias mentioned a few days ago that he didn’t see anything that was morally wrong with paternalism, with the implication that paternalist policies ought to be evaluated on purely pragmatic grounds. The Washington Post has an interesting test case today for those who might disagree with him. It describes how “aggressive direct-to-consumer advertising campaigns” for Celebrex and Vioxx persuaded consumers to take these drugs, even though they would predictably have been better off if they had taken other non-prescription drugs instead. As the article says, the US is highly unusual in allowing direct-to-consumer marketing of drugs - Western European countries typically only allow these drugs to be marketed to doctors through specialist publications etc.

None of this is to say that the European system is perfect - drug companies pour an awful lot of money into “seminars” in nice places, golf excursions etc where they try to persuade doctors to prescribe their drugs. But there is a strong pragmatic case to be made that doctors are going to be better informed as a rule than their patients over the benefits and drawbacks of particular courses of treatment (otherwise why use them in the first place?). Thus, they’ll be better able, most of the time, to figure out when pharmaceutical companies are trying to con them into prescribing expensive and potentially dangerous medications where off-the-shelf drugs would work as well or better. Of course, this is not to say that consumers shouldn’t be able to get their hands on relevant information (doctors aren’t infallible) - but it’s surely a bit of a stretch to argue that aggressive TV advertising campaigns provide such information. Thus, I’m pretty well convinced of the case for banning direct marketing of drugs to consumers - it’s a relatively mild form of paternalism, which seems to me to have quite substantial payoffs. Any dissenters out there?

Update: via Bill Gardner, I see that James Surowiecki is similarly critical of the marketing of Vioxx:

But companies like Merck, which spend hundreds of millions on ads targeting consumers, have themselves to blame, too. Instead of getting people to think about drugs in terms of costs and benefits, these ads encourage people to think of medicine in the same way they think of other consumer goods. It would be one thing if Merck had marketed Vioxx only to people who really needed it—people who couldn’t take ibuprofen or aspirin safely. Instead, the company marketed it aggressively to everyone, so that some twenty million Americans had Vioxx prescriptions. That’s why the potential damages against Merck are so vast. If juries have a hard time accepting a risk-benefit trade-off when it comes to drugs, it’s in part because the drug companies have convinced them that no such trade-off has to be made.

January 20, 2005

Iraq: just about time to go

Posted by John Quiggin

The latest terrorist bombings in Iraq came closer than usual to home for Australia, with two soldiers suffering (reportedly) minor injuries in an attack on the Australian embassy1, while 20 more Iraqis were killed, adding to the tens of thousands already killed by both/all sides in this terrible war, which seems to get more brutal and criminal every day.

It’s pretty clear by now that Iraq is approaching full-scale civil war and that, as is usually the case in civil wars, the presence of foreign troops is only making things worse. But rather than arguing about this last point, it might be better to put it to the test. This NYT Op-ed piece by three researchers from the Center for Strategic and International Studies suggests a referendum on US withdrawal to be held soon after the forthcoming elections. They make a pretty good case that it would be hard for the Baathists to justify disrupting such a referendum, though no doubt some would do so anyway. At least, this would be true if the main Shiite parties adhered to their previously stated position of favoring withdrawal.

I expect such a referendum would lead to a majority vote for withdrawal. But a majority the other way would probably be an improvement on the current situation. The only really bad outcome would be the case where the Kurds voted solidly for keeping US/UK troops, reversing a majority vote the other way among Arab Iraqis.

Of course, withdrawal of troops wouldn’t produce instant peace. But I can’t see any better alternative. If military force, ruthlessly applied, was going to end the war, the levelling of Fallujah and the expulsion of the population ought to have done the trick. On the other side, I think the resistance would lose their main recruiting tool if the Americans were gone.

1 Despite this event, Australia has suffered far less direct loss in Iraq than many nations who were far less deeply involved in the decision to start the war.

January 17, 2005

Autonomy

Posted by John Quiggin

Following a lead from Bill Gardner (and a tip from Henry) I’ve been reading The Status Syndrome : How Social Standing Affects Our Health and Longevity by Michael Marmot1. The core of Marmot’s book, which is fascinating in itself is his empirical work showing that, as you move up any kind of hierarchy (Marmot looked at British civil servants) your health status improves. I’ve done a little bit of work myself relating to the links between health, education and life expectancy at the national level, and Marmot’s micro findings fit very neatly with mine.

What’s even more interesting though (to me and to Bill, I think) is the general idea of autonomy as a source of good health2. He debunks, for example, the long-discredited, but still widely-believed notion of executive stress and shows that the more control you have over your work environment and your life in general, the less likely you are to suffer the classic stress-related illnesses, such as heart disease.

It seems to me that autonomy, or something like it, is at the root of many of the concerns commonly seen as part of notions like freedom, security and democratic participation. I’m still struggling with this, but reading Marmot has crystallised some thoughts I’ve had for a long time. I’ve put some thoughts over the page - comments appreciated.

The points are clearest in relation to employment. Early on, Marmot debunks the Marxian notion of exploitation (capitalists taking surplus value from workers) and says that what matters in Marx is alienation3. He doesn’t develop this in detail, and the point is not new by any means, but he’s spot on here. It’s the fact that the boss is a boss, and not the fact that capitalists are extracting profit, that makes the employment relationship so troublesome. The more bossy the boss, the worse, as a rule is the job. This is why developments like managerialism, which celebrates the bossiness of bosses, have been met with such hostility.

So part of autonomy is not being bossed around. But like Berlin’s concept of ‘negative liberty’, this is only part of the story. Most of the time it’s better to be an employee with a boss than to sell your labour piecemeal on a market that fluctuates for reasons that are totally outside your control, understanding or prediction. This is where a concept of autonomy does better than liberty, negative or positive. To have autonomy, you must be operating in an environment that is reasonably predictable and amenable to your control.

Of course, the environment consists largely of other people. So one way of increasing your autonomy is by reducing that of other people, for example by moving up an existing hierarchy at their expense. But autonomy is not a zero-sum good. Some social structures give more people more autonomy than others.

In modern market societies, everyone but the very poor has quite a lot of autonomy in their role as consumers. There’s nothing much more autonomous than a supermarket where you can take a cart or trolley round shelves stocked with a vast variety of items, pick whatever you want and take it away, swiping a credit card on the way. On the other hand, Marx’s corresponding vision of a society where you might “hunt in the morning, fish in the afternoon, rear cattle in the evening, write literary criticism after dinner just as I have a mind, without ever becoming hunter, fisherman, shepherd or critic” seems as hopelessly utopian today as it did 100 years ago. This is partly because of some unavoidable technical realities - someone who did all these things would probably not be very good at any of them - but much more so because of the social structures required to manage work. These can be changed, though not easily.

As Robert Shiller pointed out very effectively, one of the roots of the dotcom bubble was the way the Internet gave new users an incredible feeling of mastery (which might more properly be parsed as autonomy). I don’t think this was entirely illusory and I continue to believe that the Internet has genuine potential to generate the kind of social transformation that will enhance autonomy for everyone.

I’ve got a lot more to say about this, but that’s enough for now. Go ahead and pull it to pieces. After that, I’ll try to put it back together in something like working order.

1 In the same order, I bought “The Working Poor : Invisible in America” (DAVID K. SHIPLER), also well worth reading/

2 Marmot also talks about social participation and makes a lot of sense, but that’s a topic for another day.

3 This is, I think, reflected in the old joke. “Capitalism is the exploitation of man by man. Communism is exactly the reverse”.

December 01, 2004

International AIDS day

Posted by Chris

I’ve been looking through the headlines on international AIDS day. The BBC discusses the disproportionate impact on women in Africa . India has 5.1 million people infected with HIV , and nobody really knows how many victims there are in China (CNN). “HIV and Aids are expected to kill 16 million farm workers in Southern Africa by 2010” reports the South African Independent Online . In Britain the Guardian tells us that a fifth of respondents to a poll blame the victims. In Lebanon , only a quarter of victims receive any kind of treatment. In Uganda a government minister warns the UN not to give advice to gays on safe sex because homosexuality is illegal. Please add more links in comments throughout the day.

November 22, 2004

Welcome back, Bill G.

Posted by Ted

Regular Crooked Timber readers will remember Bill Gardner, who joined us as a guest blogger immediately before and during the election to describe the scene on the ground in Ohio.

The bug has bitten him, and he’s started a blog called Maternal & Child Health, about the health of children and their parents. Says Bill:

I want to spur discussion on a broad range of topics in this area. The struggle to improve the health of children and families involves the disciplines of medicine, public health, the social and behavior sciences, economics, the information sciences, and the law.

I hope to provide a forum for discussion among both specialists and laypersons about what determines parental and child health, and how we can improve it. I hope to see discussion of how the health system works at every level, from international public health to the interaction of clinicians and families in an office visit. I would love it if any of the Crooked Timber readership would visit and comment.

These sort of blogs, like the Public Health Press, are rare in that they generate a lot more light than heat. I hope that Bill enjoys himself.

September 22, 2004

Blame it on Fatty

Posted by Daniel

Arnold Kling has a new book out, with the title What’s a nice guy like me doing in a flack shop like this? “Learning Economics”. If what you want is an introduction to economics from a somewhat aggressively libertarian perspective, I daresay it will be pretty good; in my experience, Arnold has almost never been intellectually dishonest himself (which further raises the question, why’s he providing window dressing to TCS?).

However, in plugging his book, Arnold repeats a mistake I’ve corrected him on a couple of times, so let battle commence. Specifically, he claims that

“If you think that paying for your own health care is too expensive, I argue that it is mental illness to believe that paying for each other’s health care is affordable.”

I think that this is based on a pretty egregious confusion between a dull statement about health care, about which this statement is trivially true, and health insurance, about which it is probably false. Read on …

The basic issue is that insurance is about risk pools, and bigger risk pools are more efficient than little ones, because the bigger the pool, the more likely it is that in any given period, the expenses will be close to the actuarial expectation. Or to put it in laymans terms, think of an operation costing $10,000, which everyone has a 1 in 100 chance of needing in any given year. If you pool a million individuals, then everyone can pay just about $100 a year and get their operation paid for. If, on the other hand, everyone pays on their own (the size of the risk pool is one individual), then everyone needs access to $10,000 to avoid a catastrophic loss.

This is the simple theory of insurance, and it means that Arnold is right away silly to be claiming it’s “mental illness” to suggest that pooling people together can make unaffordable costs affordable - that’s exactly what insurance does. In fairness, Arnold does mention in his TCS article that insurance makes the whole question more difficult. But I think he’s underestimating quite how complicated insurance markets can get, and in this post, I’m going to illustrate how complicated they can get with a simple(ish) adverse selection example1. In the case set out below, despite the assumed existence of insurance companies prepared to write business at a fair price, it turns out to be absolutely impossible for the insurance market to exist without government intervention. And it’s all because of a bloke called Fatty. Follow along with a pencil and paper if you like, or alternatively email me and I’ll send you the spreadsheet I used to cook up this numerical example.

OK, we start in a small economy2 with ten people in it: nine of them are called Jim-Bob and the tenth is called Fatty. There is a terrible disease that haunts the land, which is so nasty that anyone who caught it would be prepared to pay almost any amount to be free of the crippling pain it causes. However, as luck would have it, the disease can be cured with a simple operation costing $600. However, as luck wouldn’t have it, the Jim-Bobs and Fatty don’t have any savings, so if they find out they’ve caught the disease, they will have to borrow money from the local loan shark at a rate of 20%3. For the pencil & paper crowd:

Cost of providing cure: $600
Cost to individual of paying for cure: $720

Not everyone is equally exposed to the risk of this disease: the Jim-Bobs all have a 10% chance of catching it but Fatty has a 20% chance. Every consumer knows what their risk is, but the insurance company has no means of telling them apart4 ex ante. Once they have signed the insurance contract, however, they reveal their actuarial risk to the insurer5. I’m also assuming that the insurer has general information about the population risk:

Nine individuals with 10% risk of disease, one with 20%. Risk factor is private information to individuals ex ante, public ex post.

Now, let’s take a first look at this insurance market with one insurance company. The actuarially expected cost of providing operations during the period is calculated as follows:

Cost of insuring a Jim-Bob = 10% x $600 = $60
Cost of insuring Fatty = 20% x $600 = $120
Cost of insuring nine Jim-Bobs plus Fatty = $660

Ignoring profits and such6, the insurer needs to set a premium to cover this cost. Since the insurer doesn’t know Jim-Bob from Fatty, he therefore sets a premium of $66. Who buys insurance?

Jim-Bob’s expected cost of healthcare without insurance is 10% x $720 = $72 - he buys insurance @ $66.
Fatty’s expected cost of healthcare without insurance is 20% x $720 = $144 - he buys insurance

So the market works if we assume only one insurer offering a single insurance contract. However, this isn’t an equilibrium. It isn’t an equilibrium, because another insurer can come in and offer a contract which breaks the pooling equilibrium. They do this by offering a lower premium, but with an excess. The idea is that, usually, lower risks (Jim-Bobs) will regard it as a good deal, but Fatties won’t.

New contract!

Let’s assume that the new insurer jacks the deductible up as high as possible in order to scare off Fatty. If we set the deductible at $250, then the actuarial cost of insuring a Jim-Bob is:

10% x (600-250) = $35

and we assume that the insurer sets the premium at this level.

Who buys insurance at these rates? We assume that if someone under the new contract gets the disease, they still have to borrow from the loan shark @ 20%, to pay the deductible. So the cost to the insuree of the $250 deductible is $300.

Jim-Bobs’ expected cost of healthcare under the new contract = $35+(10%x$300) = $65. $65 is less than the pooled premium of $66 - Jim-Bobs buy the new contract
Fatty’s expected cost of healthcare under the new contract = $35+(20% x $300) = $95 > $66Fatty does not buy the new contract.

So, the new “separating” contract has broken the old pooling equilibrium. Is the new state of the market a separating equilibrium?

No.

Remember that the insurers are able to know the risk characteristics of their portfolios7. The old insurer now only has one customer (Fatty), and the actuarial cost of providing insurance for Fatty is $120. So this insurer needs to bump up the premium for the no-deductible policy to $120.

But …

Fatty can get a better deal across town8. Under the $250-deductible policy, his expected cost of healthcare is $95. So he’s going to buy that policy instead.

So now we have an equilibrium with everyone taking the new, high-deductible policy?9

Sadly, no.

The premium on the high-deductible policy is $35. That is the actuarial cost of insuring a Jim-Bob. When you add Fatty to the risk-pool, the total actuarial cost is:

Cost of insuring Jim-Bobs=$35/head (see above)
Cost of insuring Fatty=($600-250) x 20% = $70
Total cost of providing insurance = $385

So with Fatty in the pool, the premium has to go up to $38.50.

But now the expected cost of healthcare to Jim-Bobs is $68.50 (because of the premium increase).

So … this equilibrium can be broken by anyone who wants to offer a contract with zero deductible and a $66 premium!

So what’s the equilibrium?

There isn’t one. Basically, if there are lots of Fatties (such that the difference between the actuarial cost of a Jim-Bob-only insurance company and the cost of the pooled company is large relative to the loan shark rate of interest), then you can get into a situation in which there is a separating equilibrium. I constructed this example, however, with only a few Fatties, which makes the difference small enough that the Jim-Bobs can be attracted back to the pooled company to avoid the risk of paying the loan-shark. In this example, there is simply no contract that can be offered which leads to an equilibrium which can’t be broken.

And so we reach the punchline

In a perfectly competitive market, insurance could not exist in this situation. No insurer would commit capital to a market in which any contract was vulnerable to becoming uneconomic at the drop of a hat. In order to get insurance to exist, you either have to assume a cartel in pricing, or you have to introduce something like the NHS; a pooled insurer which Jim-Bobs have to pay for whether they want it or not10. Since one of the things which we do know about health insurance is that the costs are driven by a small number of very expensive patients, I would suggest that my “Blame it on Fatty” model is potentially a quite realistic stylised picture of the situation. And in this model, not only can we get something cheaper by pooling our funds, but if we don’t pool our funds, we can’t get it at all!

Footnotes:
1Adapted from a more rigorous treatment by Ray Rees.
2Also, an economy which only lasts for one time period; time isn’t important in this model.
3This assumption is doing the work of a proper diminishing marginal utility function; I’m just trying to get something that will insure that in the model, as in life, when expected values are equal, you prefer a small certain cost to a chance of a larger loss.
4Don’t get your hopes up too high about genetic screening as a solution to this problem. In our one-period model, the risk factor is important, but in a more realistic model, the variance of underwriting returns is driven much more by the timing of losses than by their likelihood or severity. Also, insurance companies (potential subject for another post here) are usually reluctant to be too aggressive in price-discrimination in health insurance, because if you have too aggressive pricing differentials, you tend to attract loads of business in areas where you have underpriced and none in areas where you have overpriced, and that’s a certain recipe for bankruptcy in the long run.
5This wholly artificial contrivance is meant to stand in for a proper dynamic process of updating the actuarial estimates, holding capital in the general insurance fund and all manner of what have you not related to the adverse selection question.
6Yeah, yeah, I know; everyone does it.
7And remember that this assumption is standing proxy for more reasonable dynamic assumptions.
8Remember the information assumptions.
9Note that even if we did, there would still be a rationale for government intervention here; this is a suboptimal solution because the Jim-Bobs would be buying less insurance than the really want as part of the cost of scaring off Fatty.
10Seems unfair to make the Jim-Bobs pay for what is fundamentally Fatty’s problem? Yeh, but remember that this is what happens in the competitive equilibrium too; the Jim-Bobs bear the cost of Fatty’s existence through having to buy less insurance than they would otherwise want to.

September 17, 2004

Status syndrome

Posted by Chris

I’ve spent the past couple of days at the latest in a series of conferences under the name Priority in Practice , which Jo Wolff has organized at UCL. I don’t think I’d be diminishing the contribution of the other speakers by saying that Michael Marmot was the real star of the show. He’s well known for the idea that status inequality is directly implicated in health outcomes, a thesis that he promotes in his most recent book Status Syndrome and which first came to the fore with his Whitehall Study which showed that more highly promoted civil servants live longer even when we control for matters like lifestyle, smoking etc. Even when people have enough, materially speaking, their position in a status hierarchy still impacts upon their longevity. One interesting other finding that he revealed was that being in control at home (as opposed to at work) was massively important in affecting women’s longevity, but didn’t really impact upon men. There’s an excellent interview of Marmot by Harry Kreisler of Berkeley in which he outlines his central claims.

September 13, 2004

Human Development and Capability Association

Posted by Chris

One interesting recent strand of research on justice and human well-being has been that inspired by Amartya Sen’s “capability” approach. There’s now an association dedicated to this, with Sen as its first President and Martha Nussbaum as President-elect. Details here .

August 04, 2004

How should we pay for medical research ?

Posted by John Quiggin

In reading the discussion on my post on pharmaceuticals and the US-Australia Free Trade Agreement, I thought it might be useful to look at the more fundamental question - how should we pay for medical research ? In the framework of neoclassical economics, it’s natural to start by looking at the free-market solution. In the absence of government intervention, firms innovate in the hope of securing above-normal profits by offering a superior product. They discourage imitators using a variety of methods such as branding and trade secrets. While these methods don’t work forever, in some cases they deliver enough profits to finance a satisfactory rate of innovation. But, as far as I know, no-one seriously suggests this is the case in relation to medical research. To finance adequate levels of medical research, we need some form of government intervention. There are three main options

  • Patents
  • Research grants
  • Research rewards

Of these options, patents involve the most intrusive government intervention and the largest welfare costs.

A patent is a temporary grant of monopoly rights1, imposing civil and criminal penalties on those who produce and market goods that are inconsistent with the terms of the patent. Moreover, since a monopoly is analogous to a narrowly-based consumption tax, it has higher welfare costs than an equivalent sum raised from general taxes. On the other hand, if the product market in question functions well in other respects (in particular, if consumers are well-informed and there are no cross-subsidies), the profit from the monopoly is a good measure of the social value of the innovation, eliminating the need for governments to make judgements on this issue. The problem in the case of pharmaceuticals is that the conditions for an efficient product market are not met. Consumers are largely reliant on the advice of doctors, who face a range of incentives that don’t align well with cost and benefit criteria. In addition, markets are generally riddled with cross-subsidies of various kinds, for example arising from public and private insurance.

Research grants of various kinds are the basis of most fundamental research. This category includes both project-based grants of the kind funded by national medical research agencies and the funding of universities and research institutes to undertake research without specific directions as to the content of that research. In the pure model of grant-based research, the products of research are freely usable public goods. In recent times, it has become common for grant-funded researchers and institutions to seek a second bite at the cherry through patents, though the amount actually raised in this way is much smaller than is commonly imagined.

The least familiar category is that of rewards for successful research. A famous historical instance is that of the Longitude prize. Explicit prizes of this kind are rare nowadays and are mostly privately funded. But in practice, research grants are awarded, at least in part, as a reward for past successes. More importantly, for the purposes of the present argument, the Australian system of purchasing pharmaceuticals is, in essence, a reward-based system. Pharmaceutical companies with new and innovative products offer them to the Australian government, which accepts them if the estimated social benefit of the drug exceeds the price demanded. For a bargain to be struck, the price must be somewhere between the company’s marginal cost and the net benefit to Australia. Where there is a wide gap, a standard bargaining problem arises, with the buyer seeking a price near the lower bound and the seller a price near the upper bound.

Because Australia is a small market, companies can cover most of their fixed costs in other markets such as the US, so that the marginal cost may be quite low. This strengthens Australia’s bargaining position. It is this aspect of the scheme that has attracted most attention in public discussion. If the US followed the Australian example, the resulting price (for both Australia and the US) would be higher. But it seems likely that the average price would be well below that prevailing at present and that the allocation of research effort would be more socially beneficial.

1 Historically, the grant of patents on items such as salt and playing cards first emerged as a device for raising revenue and rewarding favourites under the Tudor and Stuart monarchies. The award of patents as a reward for inventors came much later.

Free Trade Agreements are bad for your health

Posted by John Quiggin

Most of my blogging time this week has been devoted to criticism of the Free Trade Agreement between Australia and the United States. Wait! Don’t stop reading yet!

I know that “Trade agreement said harmful to small faraway country” is the stereotype of a boring newspaper story, but this one is really important to Americans as well as Australians, and to anyone interested in health policy. If you ever hope to see affordable health care in the US, you’d better hope that (against all the odds) this agreement falls at the final hurdle.

Although it’s called a Free Trade Agreement, it’s nothing of the kind. Australia has hardly any trade barriers to speak of, and the US has given very little ground on its barriers and subsidies. The important bits of the agreement are those relating to intellectual property and (closely related) pharmaceuticals. In both areas, the Americans have pushed Australia to adopt the strong IP approach prevalent in the US, which of course is primarily concerned with preventing people from producing and marketing products covered by patents and copyrights. In other words, it’s a free trade agreement that’s primarily concerned with making trade less free.

On IP, the main, though not the only, concession made by Australia has been lengthening the term of copyright from the life of the author + 50 years (already overly restrictive) to life + 70 years. For some examples of the kind of nonsense copyrights on the works of long-dead authors can produce you need only look at the recent squabbles over <This Land is Your Land (written more than 60 years ago) and Ulysses ( written set 100 years ago and completed more than 80 years ago)

The real action though, is in pharmaceuticals. Under the Pharmaceutical Benefits Scheme, the Australian government bargains with drug companies over bulk purchases of pharmaceuticals which are then sold at subsidised prices to the public. Before drugs can be included in the scheme, they undergo a cost-benefit assessment by an advisory committee. Big Pharma hates this, not so much because of the loss of profits in Australia as because of the fear that the US government might one day follow the Australian example. They managed to get Congress to pass legislation demanding that the Administration report on progress in “opening up” the Australian market. Then in the FTA, they inserted a clause allowing US drug companies to seek a review of unfavorable decisions, and some additional clauses about patent protections. The Australian government said that this concession was meaningless, and kept on saying it until they were black in the face.

The US Congress approved the agreement overwhelmingly (Bush signed it today) and it looked as if the Australian Parliament would do likewise. Because of our bicameral system and the opposition of minor parties, this required that the main Opposition, the Labor Party, support the relevant legislation. After bitter internal debate, they caved in, requiring only a couple of facesaving concessions, one on IP and the other designed to ensure continued access to generic drugs. Amazingly, the government rejected the generic drugs amendment.

It’s still unclear whether this was a piece of political brinkmanship, designed to force Labor into another humiliating backdown, or whether the government is acting at the behest of the US Administration (which would imply that the clause is vitally important to Big Pharma). But, as of today, both sides are dug in, and the legislation may be rejected.

You can read my general summary of the issues here or follow the unfolding politics on my blog (this is a good place to start, or you can look at this list of relevant posts.

July 29, 2004

Bloviator poll now up and running

Posted by Eszter

Don’t forget to cast your vote in the poll Ross is running over at The Bloviator about what phrase would offer “the best Progressive frame to encapsulate the commitment to remedying America’s myriad problems with health care”. The poll is a result of some lively discussions that occured here on CT while Ross was guest blogging with us earlier this week.

July 23, 2004

Annals of Personal Responsibility, Cathy Seipp Edition

Posted by Belle Waring

Who is to blame for America’s obesity epidemic?

“Feminists and liberals have transformed a legitimate medical issue of the poor into identity politics for the affluent,” [author and friend Greg Christer] told me, “which I find the worst kind of narcissistic behavior.”

July 21, 2004

Shall We Play A Game?

Posted by Ross Silverman

How about global biological war?

  • Late last week, Newt Gingrich testified before the House Government Reform Technology Subcommittee on the public health system’s use of information technology to defend against and respond to terror.
  • Yesterday, Tom Ridge engaged in a tabletop exercise with the nation’s Governors, simulating a biological attack on the United States.
  • This morning, President Bush signed into law S.15, the Project Bioshield Act of 2004, which sets aside billions of dollars for the development and stockpiling of vaccines for bioterrorism agents, such as anthrax and smallpox (a/k/a lots of money to Bush’s Big Pharma Buddies).
  • All this, and anonymous rumors of sock stuffing just hours before the 9/11 commission report comes out! How about that.

    Tabletop exercises and Rose Garden signing ceremonies make for pretty decent special effects, but in the case of bioterrorism preparedness, when you look behind the curtain, it becomes clear that the Administration’s committment has very little brains, heart or courage.

    That’s because, thanks to the Administration’s efforts (or lack thereof), the first responders can’t get the equipment they need to respond…
    Republican Mitt Romney of Massachusetts, who headed a task force that identified the weaknesses of homeland security from the perspective of state and local officials, said there continues to be a problem with getting federal money quickly to front line responders.

    Romney said it was a problem at all levels, federal, state and local, but some Democrats said the Bush administration could do more to ease administrative rules that require financially strapped local governments to buy equipment first, and then seek reimbursement.

    “Many of our communities can’t afford to do that,” Napolitano said. “I’d give them a C-plus.” Democrat Jim Doyle of Wisconsin said: “It’s created a kind of bottleneck, when everyone points fingers at everyone.”
    …and after 3 years, there’s still not enough support to have in place an infrastructure that would allow for a coordinated, rapid response to an attack…
    “Paper kills,” Gingrich told the House Government Reform Technology Subcommittee. “Paper prescriptions kill. Paper records kill. And if there’s a public health emergency, paper will kill a lot of people,” he said. ….
    In the case of a major nuclear event, he said, officials would need to mobilize every nursing home and long-term care facility as well as every veterinarian’s office, “because all the downtown hospitals will be gone.”
    ….
    “I can’t understate the importance of forcing [the Congressional Budget Office] and [the Office of Management and Budget] to calculate what we’re wasting now” with paper-based records systems.
    …and there is just not enough commitment to getting the necessary funding to our cities and states to administer all the vaccines we’re buying…
    Another metropolitan area agency noted that the percentage of funds it received from the state was inadequate in relation to the proportion of the state’s population for which that metro area health department was responsible. While the urban area overseen by the agency comprises almost 40 percent of the state’s population, the health department received only 12 percent of the state’s grant money. This limited the range of activities the urban department was able to underwrite. Local officials were dismayed to find that at, the end of the fiscal year, CDC funding remained unspent at the state level. The disparities between the percentages of population that the metro areas are responsible for and the percentages of resources they are receiving are large….
    The estimated percentages of their state’s population living in the selected metropolitan areas ranged from 9.1 percent to 29 percent (daytime percentages run even higher). In contrast, the estimated percent of state CDC bioterrorism funding received in the large metropolitan areas ranged from 4.9 percent to 12.8 percent.
    (if those vaccines are even the right vaccines).
    On January 14th, the team arrived at Vector, the main virology complex, in Siberia, and the next day, after being treated to vodka and piles of caviar, they were shown into a laboratory called Building 6, where one of the inspectors, David Kelly, took a technician aside and asked him what virus they had been working with. The technician said that they had been working with smallpox. Kelly repeated the question three times. Three times, he asked the technician, “You mean you were working with Variola major?” and he emphasized to the technician that his answer was very important. The technician responded emphatically that it was Variola major. Kelly says that his interpreter was the best Russian interpreter the British government has. “There was no ambiguity,” Kelly says. ….

    Then they went upstairs into Building 6, and entered a long corridor. On one side was a line of glass windows looking in on a giant airtight steel chamber of a type known as a dynamic aerosol test chamber. The device is for testing bioweapons. …

    The inspectors asked to put on spacesuits and to go inside. (They had brought along Q-Tip-like swab kits: they would have liked to swab the inner walls of the chamber, in the hope of collecting a virus.) The Russians refused. “They said our vaccines might not protect us,” Malinoski says. “It suggested that they had developed viruses that were resistant to American vaccines.” The Russians ordered the inspectors to leave Building 6.
    Absent remedying the nation’s public health infrastructure problems, these PR events by the Administration are kind of like, oh, I don’t know, expecting that a small Army armed to the teeth with high-tech gadgets will have the capacity to maintain order and establish a safe, peaceful democracy in a foreign land. Last July, my colleague and I had an opportunity to write an editorial on these issues in the journal Science.
    More prudent would be an emphasis on providing the manpower and capacities necessary for the public health system to monitor for potential outbreaks…. While inadequacies in basic public health programs such as surveillance and monitoring remain, however, it is these basic public health functions that should get priority. It is not insignificant that funding that prioritizes basic public health infrastructure promises benefits beyond bioterror defense. Strengthening the CDC’s ability to monitor disease outbreak, for example, benefits the nation’s health and safety even in the absence of a bioterror threat. Likewise, strengthening the capacity of hospitals and emergency services promises benefits for our nation’s ability to respond to non-terror related emergencies. Changing priorities to strengthening the basic public health infrastructure, then, has the rare and happy feature of promoting national interests in bio-terror defense, and non-terror related interests in promoting the health of the population. Even if our sole concern is with bioterror defense, however, current projects to address biological attacks are merely window dressing in the absence of a strong public health infrastructure that possesses the capacity to implement bioterror response.
    Unfortunately, one year later, the Administration’s war games have not moved us far enough down the path toward preparedness.

    While the 9/11 Commission may not point fingers in its report tomorrow, should this inevitable attack Tom Ridge keeps talking about happen to be bioterror, I’m afraid we’ll not only have failed to stop the attack, but also we’ll likely fail to keep the attack from becoming far worse than it might have been, had investments been more wisely made in our infrastructure. And we’ll know exactly who to point the fingers at then.

    July 20, 2004

    Tort Transform

    Posted by Ross Silverman

    Reformation of the medical malpractice system has been an issue of great contention in recent years. And then, John Edwards got the nod as the Democratic Vice Presidential Candidate. I’m not sure if you’ve heard this, but there are a few people who would like you to know that, before becoming a Senator, Edwards used to spend his days before neutral triers of fact representing those who may have been injured by others. And he was pretty good at it. Edwards’ presence on the ticket has whipped the pro-“tort reform” crowd into a frenzy, and over the past few weeks the drum beat for change has grown even louder (and the band would appreciate it if you pay no mind to whether the drummer has any rhythm).

    The problems within the medical malpractice system are myriad. The legislative solutions proposed, however, have generally been myopic. This is because the proponents of change — the Republicans and physicians — have successfully boiled down the debate to One Big Thing: a cap on damages. And that’s precisely the One Big Thing the Democrats and trial lawyers do not want to see put in place. It’s been largely like this for thirty years, and so long as the discussion remains on this single axis, there is little hope for making significant progress toward improving the quality of care delivered in our health system.

    Fortunately, there are a few people who are trying to reframe the debate, and in this month’s issue of Health Affairs, William M. Sage offers some exciting and innovative solutions to the medical malpractice quagmire. He does it by noting how different the health care system is from when the debate began three decades ago, and by focusing his attention on the aging hippopotamus that has been standing quietly in the corner, hoping no one would notice him.

    The aging hippopotamus is the liability insurance industry:
    The politics of liability insurance have been dominated by the offspring of the crisis of the 1970s: provider-sponsored carriers begotten by medical societies and hospital associations after commercial insurers had abandoned their members. Because of this heritage, the implicit relationship between public policymakers and these companies has been one of appeasement, not accountability. Especially in crisis periods, legislators offer tort reforms and outright subsidies to entice private liability insurers back into markets and expand their underwriting capacity rather than dispassionately assessing their effectiveness.
    And conducting such a dispassionate assessesment finds that the medical malpractice insurance system has not kept up with the increased industrialization and corporate nature of health care delivery. Instead of recognizing the collaborative, corporate nature of modern medicine, the insurance industry continues to function as if the 1950s “solo physician as captain of the ship” approach to health service delivery still applied.
    Organizational change has gone hand in hand with scientific progress; health facilities, financing entities, diagnostic enterprises, and suppliers of medical technology and expert labor now play a role arguably no less important than that of physicians….
    Compensation for medical injury is paid mainly by physicians’ malpractice insurance because physicians still plausibly control roughly two-thirds of health spending through their ordering and referral decisions, and tort law holds physicians primarily responsible for the care that patients receive. However, physician services account for less than 15 percent of national health spending, creating a trillion-dollar gap between physicians’ revenues and total revenues because of sustained medical inflation. The medical profession is insufficiently capitalized to fund insurance for such a large multiple of earnings, particularly when the burden falls mainly on a few specialties.
    Other concerns he raises about the current system include class rating as the means of pooling risk for the insured and the tighter, less flexible cost containment and reimbursement measures of the modern “managed care” system, which prevents physicians from passing on the costs of fluctuating insurance premiums to their patients.

    So what should be done? Sage offers a number of proposals, but his most innovative is to let Health Care’s Big Dog — Medicare — off the porch. Medicare is a major player when it comes to pushing for quality of care improvements. And Medicare already sets the pace when it comes to reimbursement of health services (except of course for drug prices — the biggest reason Big Pharma worked so hard to prevent Medicare from negotiating drug prices in the Medicare Modernization law was that as soon as Medicare negotiated discounts, every private insurer would follow suit, gutting Big Pharma’s profit margin). Why not, Sage argues, let Medicare take the lead and allow it to restructure the way med mal claims involving Medicare and Medicaid patients are treated? Doing so would allow access to remedies to our poorest and oldest patients — who have been largely short-changed by the tort system because, let’s be honest, they’re not very profitable cases for trial lawyers to bring to court. In addition, by factoring malpractice into Medicare reimbursement rates, it would also allow providers to better recoup their malpractice insurance costs.

    It’s a brilliant proposal. I hope it gets serious consideration. However, in the binary world of political debate, I fear it’s a bit too nuanced to get as much support as it deserves, especially from those who currently support reform. To put it another way: If you think Medicare costs are high now, how high do you think they would get if the administrative costs of medical malpractice (even a more streamlined med mal system) had to be folded in?

    Anyhow, a bit of food for thought.

    July 14, 2004

    Public and Private Health Care

    Posted by Kieran

    Brayden King notes that the Wall Street Journal is concerned about ever-rising health care costs in the United States. I’ve been looking at data on national health systems for a paper I’m trying to write. It turns out that there’s a lot less theoretical work done on comparative health systems than you might think, certainly in comparison to the huge literature on welfare state regimes. Here’s a figure showing the relationship between the “Publicness” of the health system and the amount spent on health care per person per year. Data points are each country’s mean score on these measures for the years 1990 to 2001.

    Update: I’ve relabeled the x-axis to remove a misleading reference to ratios.

    You can also get a nicer PDF version of this figure. As you can see, health care in other advanced capitalist democracies is typically twice as public and half as expensive as the United States.

    Now, this picture doesn’t resolve a whole bunch of arguments about the relative efficiency of public vs private care or the right kind of health system to have. (Brian discussed some of these issues last year. There’s not much evidence that the quality of care in the U.S. is twice as good as everywhere else.) Things are also complicated — or made worse — by the fact that, despite not having a national health system, U.S. public expenditure on health in the 1990s was higher in GDP terms than in Ireland, Switzerland, Spain, Austria, Japan, Australia and Britain. But a picture like this makes it easy to see that mainstream debate about health care in the U.S. happens inside a self-contained bubble, and that one of its main conservative tropes — the inevitable expense of some kind of universal health care system — is wholly divorced from the data.

    May 07, 2004

    FDA rejects Plan B

    Posted by Eszter

    The Food and Drug Administration has rejected over-the-counter availability of the morning-after pill. As I have mentioned here before, easier access to such emergency contraception could reduce significantly the millions of unwanted pregnancies in the US. In case anyone is wondering whether the decision was political, consider the following:

    The decision was an unusual repudiation of the lopsided recommendation of the agency’s own expert advisory panel, which voted 23 to 4 late last year that the drug should be sold over the counter and then, that same day, 27 to 0 that the drug could be safely sold as an over-the-counter medication.
    [..]
    The “not approvable” letter was signed by acting director of the FDA’s Center for Drug Evaluation and Research, Steven K. Galson, not by members of the FDA review team, as is usual. Former officials of the FDA said that generally means that the review team had made a different recommendation.

    February 14, 2004

    Science and politics

    Posted by Eszter

    Those interested in reproductive health and rights probably already know that back in December an advisory panel of the Food and Drug Administration recommended that the “morning after” pill1 be sold over the counter (OTC). The easy availability of such emergency contraception (EC) could reduce unwanted pregnancies significantly. Unfortunately, the issue is now running up against political hurdles.

    Opponents suggest that easy access to “Plan B” would lead to an increase in sexually transmitted diseases because people would take protection less seriously. However, studies have shown that easier access to contraceptives of this sort does not necessarily lead to change in the level of sexual activity or protections used against STDs.2

    For those concerned about abortion issues, please note that EC does not cause abortion, rather, it prevents pregnancy in the first place. So for those who are against abortion, supporting EC should be an obvious choice since by preventing unwanted pregnancies it is likely to reduce the number of abortions as well.

    Since the efficacy of this pill is closely tied to its prompt use, requiring women to see a physician in order to get it is a big barrier to its use and utility. Evidence shows all the ways in which this switch to OTC availability would be beneficial. EC is already available without a prescription in thirty countries and in Israel, Norway and Sweden it is sold OTC. A decision about its US availability is expected next week unless the FDA asks for an extension in which case we may have to wait another few months.

    1 Calling this pill the “morning after” pill is problematic. One does not need to wait until the morning after to use it, nor is it too late to use it later. The pill can be used safely and effectively in the 72 hours following the act (granted, the earlier the better).

    2 Jackson RA, Schwarz EB, Freedman L, Darney P. Advance supply of emergency contraception : effect on use and usual contraception―a randomized trial. Obstet Gynecol 2003;102:8-16.

    Glasier A, Baird D. The effects of self-administering emergency contraception. N Engl J Med 1998;339:1-4.

    Raine T, Harper C, Leon K, Darney P. Emergency contraception: advance provision in a young, high-risk clinic population. Obstet Gynecol 2000;96:1-7.

    Results from other related studies are forthcoming.

    January 09, 2004

    Health Costs

    Posted by Brian

    Kevin Drum picks up on something Matthew Yglesias noted a while ago: the American government spends more per person on health than some governments that run quite good comprehensive public health systems. The data almost suggest that public health care is more efficient than private health care. Of course, if America gets better quality health care for all the extra $$$$$ it is spending, this conclusion wouldn’t follow. There’s remarkably little actual data to bear that out, but if you trawl through Kevin’s comments board you’ll find lots of people reporting fourth- or fifth-hand anecdotes to that effect. So I thought I’d add my own little anecdotes, comparing the only two countries I’ve ever spent significant time in. My non-expert observations suggest

    1. A person with private health insurance in Australia gets higher quality health servives than a person with private health insurance in the US.
    2. A person without private health insurance in Australia gets much higher quality health servives than a person without private health insurance in the US.
    3. In some cases (e.g. mine) a person without private health insurance in Australia gets slightly better health servives than a person with private health insurance in the US.

    There’s a few points to be made about the use of Australia, rather than France or the UK, as a comparison here.

    First, we have an even lower population density than the US, so James Joyner’s good point that lower density leads to higher costs is accounted for in the comparison.

    Second, Australia does not have ‘socialised medicine’ by any stretch. We don’t even have socialised health insurance. We do have a universal health insurance system that covers most of what most people need from a health plan.

    Third, the distribution of coverage in the Australian plan is just what you’d expect from a public system.

    It’s pretty good on day-to-day stuff. If you need to see a GP with no appointment, you can see one, usually with not that long a queue, with no co-payment. That was the feature of the system I most liked, and most used, and most miss about my American equivalent. (Note I don’t have that even with a reasonably expensive private health plan.)

    It’s world-class on life-and-death matters. Even people with private health insurance will end up in the public system if they have a heart attack or are in a car accident, because at emergency care our public system is better than the private system at these things, and as far as I can tell, is as good as it gets.

    And it’s pretty lousy at the stuff in between. I wouldn’t want to be on a waiting list for a knee reconstruction, for example, in the Australian public system. Just how long the list will be will vary by state, and by the finances of the state at the time, but it could be a painful wait. The real benefit of private insurance in the Australian system is that it helps with the ‘in-between’ needs: worse than everyday stuff that a GP handles, but not life-threatening. I’ve seen people with private insurance in the states get put on fairly long wait lists for this kind of stuff too, so I’m not convinced this is a major advantage to America. It’s worth noting that the fourth- and fifth-hand horror stories one hears about public health systems seem to always involve these kinds of cases - not life-threatening but significant.

    Overall though, I’d say it’s pretty remarkable how much better the Australian public system is than the American public system, given that the American public system is more expensive.

    January 03, 2004

    BSE/CJD

    Posted by Chris

    Following up a link from Iain Murray on mad cow disease and the threat it does or doesn’t pose to humans I came across a column on the subject by Steven Milloy “an adjunct scholar at the Cato Institute” and proprietor of JunkScience.Com in the LA Times. Molloy is sceptical of the prion theory and reports of the British experience that:

    Though laboratory testing seemed to indicate that BSE and variant CJD were similar, no one could determine with certainty whether and how the BSE epidemic was related to the “human mad cow” cases. There were no geographic areas in Britain with a significantly higher incidence of variant CJD cases, and there were no cases of variant CJD among apparently high-risk groups such as farmers, slaughterhouse workers and butchers.

    Two minutes of googling found the report of the British government’s report into BSE and vCJD.

    First on the matter of geographical clustering :

    The 1999 Annual Report of CJDSU draws attention to the geographical distribution of cases of vCJD (see Figure 5.1, in which the data have been further updated) and shows that if the UK is divided into ‘North’ and ‘South’ regions, the rate per million individuals aged between 16 and 54, is 2.57 for the ‘North’ region and 1.30 per million individuals for the ‘South’.

    Perhaps Milloy wants to place some stress on “significantly highter”?

    What about occupational links? The British Government report again

    Among occupational groups exposed to BSE, farmers remain unusual in having such an excess over the incidence of CJD for the population as a whole. No cases of CJD have been reported amount veterinarians exposed to BSE. Four people in the meat industry (butchers, abattoirs, rendering plants, etc) have been reported to have vCJD.

    Note that the excess for farmers is accounted for by additional but unexplained cases of sporadic CJD (i.e. not vCJD). But what Molloy says about slaughterhouse workers and butchers “no cases” is directly contradicted by the Inquiry report.

    I hasten to add that I have absolutely no expertise in this area but was struck my the apparent mismatch between what I read in the LA Times and my memory of the British outbreak.

    Today’s London Times has an article by John Collinge , director of the Prion Unit at Britain’s Medical Research Council arguing that the threats to human health from the BSE/vCJD link may be great and that complacency on the basis of the small number of vCJD cases to date is misplaced.

    December 30, 2003

    Gin Lane

    Posted by Chris

    The image of Hogarth’s Gin Lane comes to mind after reading three pieces on Open Democracy on the booze culture in England , Ireland and Scotland . Central Bristol on a Friday and Saturday night is very much as Ken Worpole describes the centre of many British cities: full of inebriated teenagers, casual violence and, eventually, vomit. Dublin — a destination of choice for young Brits seeking to get smashed out of their brains — also has a big problem:

    The results of this behaviour are alarming –- doctors, from a variety of hospitals, estimate that from 15-25% of admissions to accident and emergency units in 2002 were alcohol-related. In March 2003, representatives of the medical profession highlighted some of the horrendous consequences of excessive drinking. Mary Holohan, director of the sexual assault treatment unit at the Rotunda Hospital in central Dublin, said the pattern of alcohol consumption had changed greatly. One shuddering statistic that emerged was that in the past five years there had been a four-fold increase in the number of women who had been so drunk they could not remember if they had been sexually assaulted.

    That last could be a dodgy statistic (if the number rose from one to four for example) but it sounds like there’s a serious issue.

    December 12, 2003

    Sen's Development as Freedom

    Posted by Chris

    I’ve been reading Amartya Sen’s magnificent Development as Freedom this week. A more bloggable books would be hard to find: startling facts and insights jostle one another on every page. Even when you already know something, Sen is pretty good at reminding, underlining and making you think further about it. So this, for example on the life prospects of African Americans:

    Even though the per capita income of African Americans in the United States is considerably lower than that of the white population, African Americans are very much richer in income terms than the people of China or Kerala (even after correcting for cost-of-living differences). In this context, the comparison of survival prospects of African Americans vis-a-vis those of the very much poorer Chinese or Indians in Kerala, is of particular interest. African Americans tend to do better in terms of survival at low age groups (especially in terms of infant mortality), but the picture changes over the years.

    In fact, it turns out that men in China and in Kerala decisively outlive African American men in terms of surviving to older age groups. Even African American women end up having a survival pattern for the higher ages similar to that of the much poorer Chinese, and decidedly lower survival rates than then even poorer Indians in Kerala. So it is not only the case that American blacks suffer from relative deprivation in terms of income per head vis-a-vis American whites, they are also absolutely more deprived than low-income Indians in Kerala (for both women and men), and the Chinese (in the case of men), in terms of living to ripe old ages.

    Shocking, for the strongest economy on earth to create these outcomes (which, as Sen reminds us, are even worse for the black male populations of particular US cities).

    UPDATE: Thanks to Noumenon for a link to this item . I closed the comments thread because I didn’t want to spend my weekend fighting trolls. But email suggests that there are some people who have worthwhile things to say so I’m opening it again (though I won’t be participating myself).

    December 05, 2003

    Playing safely

    Posted by Eszter

    Play safely this holiday season. (Heck, play safely even if it’s not a holiday season.) Brought to you by the UK National Health Service. [Warning: content - including audio - may not be appropriate in some work environments.]

    November 28, 2003

    Drug prices and the logic of collective action

    Posted by Maria

    As it’s Medicare week, the NYT seems to be focusing on how US trade policies can hinder healthcare abroad. Earlier this week, Nicholas Kristof marked the FTAA discussions by reporting from Guatemala, where the government hopes to win US favour by buying brand name Aids drugs instead of generics, even though it costs three times as much and means the Guatemalans can only, presumably, treat a third as many people.

    Yesterday’s front page story was about the US pharma industry’s drive, through the USTR, to stop other governments from imposing price controls on drugs bought to treat citizens. The Medicare bill was quite a victory for the drugs companies, as it prevents the US government from imposing price controls, and also mandates progress reports to Congress on efforts to open Australia’s drug pricing system.

    On a first read of the story, I was transported back to my happy days in Public Policy and Public Choice I. I could almost hear the pharmas arguing; ‘In the US, we’ve just managed to ‘tie the king’s hands’, and stop the government from naming the price it pays for drugs (otherwise the government would pay such low prices that developing new drugs wouldn’t be worthwhile and soon we wouldn’t have any.). But abroad, we’re forced by governments to sell our drugs at lower prices. Which means the durn furners are free-riding on all that American R&D.’

    In the US (broad brush strokes here, folks, very broad), most drugs R&D is done by the private sector and the pay-off is that these firms enjoy extremely, and some would say excessively, strong intellectual property rights (IPR) protection and can sell the resulting products at a price set by the market. (If anyone better informed wants to jump in on the role of HMOs in pricing, be my guest.) The US government in turn uses its clout in the WTO, WIPO and in bi-lateral trade negotiations to protect US companies’ IPR.

    In Australia, and other social democratic countries, the public sector funds more R&D, and in return the government (the biggest purchaser of drugs in these countries) sets the prices at a lower level. Or, if you like, the drugs actually ARE cheaper because some R&D costs have already been absorbed by the governments. Which doesn’t help at all if you developed your product outside Australia and are trying to sell into that market.

    The US pharma industry charges the Australians (and the rest of the world) with free-riding on US R&D, and says that US drugs prices are higher as a result. But, instead of urging other countries to do more R&D, the US is asking other countries to pay more for US drugs. Now maybe that makes sense to the USTR, but I can’t see how it could ever be in another country’s rational self-interest to pay more for foreign drugs instead of investing in their own R&D. (Especially when the Americans have gone to all the trouble of strengthening global IPR protections – now why not just invent loads of new stuff and free-ride on that?) Even if the Australian department of health dug a little deeper in its pockets, I don’t see the drugs companies passing the benefits on to US consumers.

    But the free-rider charge deserves consideration. It all depends on whether the price the Australian health system is paying is too low. How low is ‘too low’? And what if prices in the US are simply ‘too high’?. In Australia, prices are low because the government has enormous purchasing power and can set the rules. In the US, there are no statutory price controls, but HMOs can still distort the market by passing negotiated higher costs onto subscribers. Well, I’m no economist, but both markets seem too distorted to gauge what the ‘market price’ of drugs is, so it’s impossible to say whether the Australians are free-riding or not.

    But I am a lobbyist, sorry, ‘advocate’, and I know lobbying BS when I see it. The appeals to national self-interest (‘they’re free-riding on our ideas!’) and consumer interests (‘they’re stopping us cutting prices at home!’) are unconvincing. Big Pharma has run crying to the USTR to fight its battles because the pushback on pricing is a relatively new and painful experience.

    In the US, drug consumers are a heterogeneous group with a relatively high cost of collective action. In Australia, there is effectively only one consumer of drugs – the government. As bulk purchasers, governments (of wealthy social democracies) can force down drug prices. And as institutions, they do not take kindly to being told they should run their national health systems for the benefit of foreign manufacturers. Which means that US pharma companies, used to enjoying weak resistance, find themselves up against a significant force.

    The USTR and Depts of Commerce/Agriculture have long been captured by producer groups, be they producers of drugs, software, agricultural produce, etc. The producers are better funded, better resourced, better organised, and have privileged access to government. User interests face overwhelming collective action problems and mostly remain latent. They’re either weak, under-resourced, and on the fringe, or they simply don’t exist at all. These problems aren’t remotely limited to the US, though it’s worth noting that US trade delegations and delegations to intergovernmental negotiations are well known for their inclusion of, or closeness to, industry representatives.

    The real problem here is that the US administration seems to be equating the American national interest with that of a narrow set of producers, reducing the USTR to an unthinking mouthpiece for a small and vocal minority interest. But just because producers are better organised, it doesn’t mean they speak for more people. It’s the government’s job to weigh up all the arguments, not just those advanced by the people in the sharpest suits.

    But how much, ultimately, does any of this matter? At least for individuals, the main difference between the US and Australia is not so much the amount you pay, but when you pay it. Like so many policy debates, the question boils down to; ‘do you want it docked off your pay every month, or just when you go to the hospital, pharmacist, school, train station…?’ And then we’re back to arguing on first principles about the role of government, and what to do when the international trading system brings philosophically different types of government into conflict. Or at least I hope we would be arguing, and that we would all be invited to the table to say our piece. And not shuffled in after the producer groups had already done their deal and left by the back door.

    Back in Public Choice and Public Policy I, I learned how political institutions are captured by narrow interests. Out in the real world, I know that regulatory capture by producer groups* is not just a theory. It is real, and deadly serious.

    *tks Keith