Smothering Medical Innovation
Two propositions dominate current debate over health care: that the nation spends too much on it, and that these expenditures will bankrupt our governments if current trajectories extend out into the not-so-far future. Indeed, these are the basic premises used in the attempt to sell ObamaCare.
The first of these is nonsense. How much we should spend on health care is a question of how much value we get for our money, and that depends on millions of individual calculations, not on some abstract budget. If one restates the proposition to say that the system is inefficient and we should be getting more value for the money spent, then the point becomes valid. The shift in perspective is important, though, because it dictates that we focus on improving efficiency rather than meat-axe budget cutting.
The second proposition is true, but trivial. As the saying goes, if something cannot go on forever it will stop, and commitments that can’t be met won’t be met, so health costs will not destroy the nation. The correct approach is to recognize the point made in PJM last week by Beth Haynes – once health care expenditures are turned into a commons, over-use becomes inevitable, soon followed by arbitrary rationing.
A logical response to both these concerns exists, and only the whinging culture of the liberal state could take one of the greatest opportunities ever presented to humanity – the astonishing progress in medicine and biology – and convert it into a cause for complaint and despair while at the same time taking one of the best-known issues in institution building — the over-use of a commons — and see it as an intractable problem beyond society’s capacity to address.
The response is to change. Innovate. Find better treatments to replace the inefficient approaches, and develop new institutional structures to meliorate the forces that are driving us to the economic cliff.
And therein lies the rub. In the abstract, the nation, including the government, is dedicated to innovation. Searching Amazon Books for “innovation” yields 43,000 hits, the White House issues sonorous reports on innovation strategies, and every other day brings another conference.
In the concrete — not so much. Serious change always runs into roadblocks, and in the health/medicine area even the basic innovation machinery of drugs and devices is getting creaky, while the barriers to institutional innovation are formidable indeed. Several recent studies, mostly commissioned by affected industries but carried out by reputable organizations, view the trends with alarm:
- A 2009 report by Batelle, commissioned by the Council on Medical Innovation, stated: “Today, global leadership in medical innovation and resulting biomedical development is ‘ours to lose.’ And we seem to be doing just that. While many other nations are strategically investing to support medical innovation as an economic growth strategy, we have allowed our ecosystem for medical innovation to decline.”
- A Stanford-based study of FDA Impact on US Medical Technology Innovation (Nov. 2010)(Makower Report) charged: “Unpredictable, inefficient, and expensive regulatory processes put the U.S. at risk of losing its global leadership position in medtech innovation.”
- PwC, in Medical Innovation Technology Scorecard (Jan. 2011), noted: “The innovation ecosystem for medical device technology, long centered in the United States, is moving offshore. Increasingly, medical technology innovators are going outside the United States to seek clinical data, new-product registration, and first revenue.”
- The number of new drugs approved annually by the FDA is stuck in the low-20s, and the payoff from R&D has fallen steadily over the past decade. The cost of bringing a new drug to market has reached a billion dollars, at least, a level which means that only a blockbuster is worth investing in. Big Pharma is pulling back from its investments in research, adopting a model that relies on buying innovations from small biotechs that do not have the regulatory and marketing muscle to finish the race alone.
- As for institutional innovation, it is like swimming through molasses. Clayton Christensen has written a fine book called The Innovator’s Prescription: A Disruptive Solution for Health Care, which focuses on organizational and institutional structures and how they might and must change to improve quality, provide incentives for innovation, bring the organization of the industry into the 21st century, and cut costs. But, as he says, institutions have a lot of inertia, and rarely change unless forced.
These trends are not caused by “spending too much” or some other buzzword de jour but by serious problems in institutional incentive structures, and by the barriers to innovation erected by the regulatory state. A proper diagnosis of the disease sapping innovative energy includes:
Regulators’ Incentives. It has long been known that the incentive structures facing the FDA are skewed. If a good drug is disallowed, the victims of the decision die quietly off-stage. If a harmful drug makes it through the system, the victims are identifiable, and, given the incentives of the plaintiff’s bar and a sensationalist media, very loud. The pressure on the regulators to err on the side of caution is great.
The FDAReview.org contains good information on the issue (up-to-date as of about a year ago, its masters tell me), and the late, and very lamented, John Calfee of the American Enterprise Institute returned to the issue often. See particularly his case study of Vioxx, where the equivalent of a flash mob overwhelmed science, reason, and risk/benefit calculations.
The effect is a one-way ratchet, as each new panic triggers another search for a barn door to close in the effort to make sure that no one ever suffers a bad effect from a powerful drug, or, just as good, that anyone who does cannot blame it on the regulators.
“Unpredictable, inefficient, and expensive regulatory processes put the U.S. at risk of losing its global leadership position in medtech innovation.”
In my former career in Biomedical Engineering, I would routinely replace DC fan motors (a high failure item) in Infant Incubators. I could purchase this replacement part from Radio Shack at that time for about $5. However, regulation forbade that, and this part therefore had to be purchased from an authorized medical device vendor.
From whom the same DC fan motor cost $225 each.
And that was in 1990.
Yes, I’d say a problem exists.
Most physicians can tell very similar stories. At the start of the laparoscopic surgery revolution, I remember well using ziplock baggies (yes, from the grocery store) to remove diseased tissue from the abdomen. Part of the reason they worked so well is that one side of the bag opening is blue and the other yellow, so it was easier to see both edges to grasp and bring out without spilling the tissue. And we really didn’t have anything else yet- techniques outstripped devices for a few years.
Fast forward a couple of years the devices caught up. Unfortunately, my little 5 cent baggie was replaced by a $75 model, and all the equipment went from being reusable to disposable. The cost of this particular procedure doubled. While I do believe that the procedure was made a little easier- and possibly safer- I have to wonder if the marginal benefit was worth it. To my knowledge, there was never any data to show it either way. However, I think there is no doubt that equipment advances made many other laparoscopic procedures possible that couldn’t be done before.
Technology is a double-edge sword. It’s almost always more expensive than older treatments and often no better at all- the laser fad is (was) a good example of that. Hopefully, the changes like those proposed in this article will help with the former problem, but the latter problem isn’t up to the FDA or any government organization- it’s up to the doctors who have to be able to tell the difference between revolutionary technology and the gadget-of-the-day, and we don’t seem to have good ways to do that efficiently.
Good points. I have been working in the medical device business for 20+ years from breast implants to urology to heart & brain catheters to drug device combination product to treat cancer.
Incentive to innovate falls off the cliff under FDA’s recent unwarranted regulatory aggressiveness by career bureaucrat physicians and PhDs with zero commercial experiences. Case in point is people like FDA’s Head of Urology and FDA’s revising the old rules on 510(k) clearance by raising the bar. Granted many foreign regulatory agencies like Korea and Japan are not easy deal with BUT they demand that the device must be approved in US before they consider approving the device for use in their countries. Canadian FDA on the other hand is pleasure to work with and breath of fresh air.
Obamacare will make it worse under social medicine disguise punishing the device companies by lowering the reimbursable rate for treatments. Physicians push back to the device makers resulting in less investment in cutting edge technologies. I personally witnessed a promising technology dropped as not economically viable under the current Medicare reimbursable rate as these are driven down further with each passing year. Many of the therapies may find use for other ailments (often thru off label use which gets adopted later) but again no incentive in socialized medicine. What’s WORSE was Obama slipped in additional medical device tax increase under Obamacare further constraining an industry once known as the best in the world.
Great article. This issue was largely ignored in the debate over Obamacare but it’s probably the most important consideration in the long run. Comparing European health care costs with ours is similar to comparing their defense costs because their approach to both medical innovation and defense are essentially “let the Americans handle that”.
We still have a chance to stop socialized medicine in this country. Please keep speaking out and get Congress to pay attention!
“Comparing European health care costs with ours is similar to comparing their defense costs because their approach to both medical innovation and defense are essentially “let the Americans handle that”.”
We have a winner. European socialism would have gone broke and been heaped upon the dustbin of history along with the Nazis and Soviets LONG ago if it wasn’t for the blanket of freedom GIVEN to them by America.
It’s interesting how quiet the medical community has been regarding the direction our government has ‘chosen’ for them and for the future of ‘medicine’ (as defined by the new definition government is assigning to the word) in this nation.
Traditionally, obviously, America has been the epicenter of medical advancements on almost every front. Not the least of which was funding, both here and abroad, of research and development as well as prevention and therapeutic medicine.
All I hear is crickets.
The regulatory and uncertainty assault on the industry goes back to HillaryCare. Even though that boondoggle was squelched, the pharmaceutical industry reacted with a huge contraction, consolidation, and mass exodus of manufacture and development overseas. Next came the defensive strategy of making “me-too” drugs over investment in truly innovative drugs. The rise of small biotechs was supposed to be “the answer,” but it’s more like a thoroughbred farming operation. Big pharma picks a potential winner; but if the horse doesn’t win big in the first race, it’s put out to pasture.
In the meantime, places like China and India, which have no compunction about stealing patents, will invade the pasture, steal the horses, and make winners out of them.
My entire career has been in the field of medical innovation. I have told friends numerous times that the worst thing a doctor can tell you is not that your treatment is expensive but that there is no effective treatment and you should get your affairs in order.
There is no doubt we have issues with the delivery of healthcare but these all represent discrete problems which can be addressed independently 1) defensive medicine = tort reform, 2) pre-existing conditions = risk pools (and a variety of other solutions, 3) excessive insurance costs = make it really insurance again and promote a competitive market for those medical services which are not truly unforeseeable 4) regulatory burdens = safe harbors for manufacturers that promptly report adverse events, etc.
The problems for medical innovation are also compounded by Sarbanes-Oxley (another government fiasco) which has strangled the capital raising process by reducing available funding sources and exit strategies. I have watched my industry consolidate to the point of absurdity. We used to build business plans to excite the imagination of the general public investor. Now we design business plans to please a handful of narcissistic oligarchs (private international funds and large pharma).
Technology is a part of the cost of medicine (compare an ICU room in 2011 to one from the 1970′s – the difference is almost medieval). The only way to ultimately tackle the technology cost of medicine is to push forward and develop new technology. Sadly, from my perspective in the industry there is no doubt that American efforts in medical innovation are stalled and likely in decline.
This is an excellent, well written piece. Proprietary prescription drugs follow one of two pathways in this country. Eventually the patent runs out and they all become generic. Some fade into obsolescence while others inexplicably hold on. One pathway is the journey to OTC status. Magically, they’re only “safe enough” for OTC sale AFTER the patent has expired. Some examples include ibuprofen, naproxen, cimetidine, ranitidine, omeprazole, loratadine, fexofenadine, etc. Once generic manufacturers can produce generic versions of the “Rx Only” medications, the brand name manufacturer releases their proprietary version OTC and is granted market exclusivity for a period of time to wring all possible profit out of the drug and the brand before generic OTC manufacturers enter the market. The reason these drugs were available as “Rx Only” until the patent expired is because that’s where the money is. The pharmaceutical manufacturers have more latitude in what they charge to a 3rd party payer. Further, insurers pay for Rx drugs but seldom for OTC medications. When these drugs are first released as branded OTC products the price to the consumer is almost always significantly greater than the price to a pharmacy for an “Rx Only” labeled generic version. The reason (i.e. excuse) given for this is that the brand name manufacturer jumped through all the necessary hoops with the FDA to obtain OTC approval and are therefore rewarded with extended market exclusivity. Other drugs (e.g. albuterol inhalers) are remarkably safe yet remain Rx Only largely to protect physicians’ interests. The specious argument offered up is that patients might self medicate symptoms that would indicate a more serious problem to a physician. This is a load of crap. The very same thing can be said of ibuprofen or omeprazole. The regulations are “adjusted” to meet the demands of the various special interests. The big fear is that if albuterol inhalers were to become OTC, insurers might not pay for them anymore. The horror! Patients having to pay for their own medications.
The other path is for the brand name Rx Only product to become a generic Rx Only product. Over time the price really drops. A pharmacist described to me that with their contract pricing, a 30 day supply of some of these drugs cost less than the vial he puts them in. The generic manufacturers base their unit price on volume. Lisinopril just became generic within the last decade or so yet pharmacies go through tons of it so the generic price is cheap. Spironolactone has been generic for over 25 years. It is still an important drug but considerably less is used, therefore it is considerably more expensive.
What annoys me is that the US consumer subsidizes the rest of the world by paying for the R&D for new, proprietary drugs. Generics should cost the same in Canada and Mexico as they do in the US (especially if they’re made in India or Israel). Canada and Mexico (and everybody else) should pay the same for new, innovative, proprietary drugs as well. But this is the reason that all of the UK’s drug concerns have all their research facilities in the US. The US consumer pays for their R&D and then they can sell the drugs back to their NHS at a discount.
Aside from all the protectionism of special interests, questionable regulations, lopsided marketing and inherent unbridled avarice, pharmaceuticals are still provide the most bang for the healthcare dollar. Along with the surgeon and the dentist…the drug actually DOES something for your health.
As a nation, we’re risk adverse, over-regulated and over-lawyered, a bad combination for innovation of any kind, but deadly for medical technology and drug innovation. No small part of the problem is the mind-set that for every bad thing that happens or even might happen, someone somewhere is responsible and consequently must pay. What a strange pass we’ve come to. I hope we can find our way around, over or through it.
Every stifled innovation reduces the number of Boomers on SS/Medicare.
20 years in medical devices and physician’s offices, starting with billing and moving up to contracts and budgeting.
Christensen’s piece resonated clearly and is one of the discussions on why pricing in health care is so high. A discussion no one seems to be willing to say much about in the open media. Very simply, the cost of healthcare in the last twenty years is at least by half the fault of continuing government encroachment into what was once a private industry.
If people understood half of the lobbying that goes on to congress from manufacturers and providers, they might be appalled. This lobbying ranges from demanding price increases to medicare and Medicaid, defending against price cuts and lobbying for the inclusion or exclusion of products, regardless of their real benefit or cost savings.
Just as a for instance, I remember about eight years ago, a new product for delivering oxygen to patients had been developed. Essentially, it was a compressor that could take the common oxygen we breath every day, scrub it and deliver the same quality of oxygen that could be delivered by a tank or a compressor (which is essentially a simple machine that takes regular air and compresses, no scrubbing involved, then delivers it through pressure).
The product even had a portable unit, like a portable compressor. The last was important because many oxygen patients are actually a fairly mobile group, even if it is something as simple as travel to the grocery store or physician or moving around their own homes. They aren’t all tied to their beds.
While the initial cost of the machine was slightly higher than the existing compressor and mobile units, it had a potential for decreasing the over all cost of oxygen therapy because it would eliminate the need for the filling, delivery and storage of many oxygen tanks. Most mobile patients would use a minimum of two to four tanks a day. People in the DME industry were excited about the development because the most costly aspects of the service were delivery and storage.
When looking at the mobile device, that could also stand as a stationary device, the cost of that single item was actually less than both of the devices commonly accepted and provided. So, the cost of service would have decreased, the equipment cost eventually decreased and that would have allowed a lower price to the payer, lower cost to the patient in co-pays, etc.
What happened? Well, first, the manufacturers of the commonly used compressor and tank (mobile) regulators lobbied congress good and hard to protect their place in the market and on the Medicare/Medicaid fee schedule. Companies who provided and filled tanks for hospitals and home patient DME joined in because they, of course, would lose an entire market. A market that was growing, as we all know, because the aging population was growing. There were vast amounts of money at stake.
You can imagine the obscene amounts of money that was floating around, events held, donations to PACs and campaigns. Lots of talking points including the “danger” of putting important providers of nationally “imperative” companies (because, of course, there are other uses for compressed oxygen in tanks, including the military) out of business.
Eventually, congress labeled the device “experimental” (the curse of oblivion for many innovations) and the compressor, tank regulators and tank fillers retained their places on the provider list as the devices of choice, the devices that Medicare/Medicaid would pay for. Of course, what happened next?
Well, DME providers began to lobby for an increase in the monthly fee for oxygen equipment because the “tanks” were not covered separately and the cost had to be made up somewhere. Especially as rising costs in fuel made the frequent delivery of tanks increasingly higher for both the producers as well as the service providers. Let’s not even talk about increasing regulatory demands for patient tests and documentation that increased administrative costs.
Certainly, it was not like the service provider could deliver a month’s supply to these home bound patients. Patients who were at home because it was common sense that the cost was lower than keeping them in hospitals and nursing homes. We’re talking about a month of tanks being from an average minimum of 30 to a maximum of 120 or greater (depending on mobility and prescribed use). There are all sorts of issues with storage from space to safety.
As you might have noticed, the price of fuel has continued to rise and so, then the cost of service and the demand for a higher fee reimbursement.
Where might we find this nifty “experimental” device? It is now sold on television, like a novelty item, marketed under “convenience” for oxygen patients that travel, are highly mobile or who just don’t want to have a big compressor (with the long extension cord) or tanks laying around the house. The people who buy it can afford to because they are not solely bound to the fixed income of social security and paying for medical services by Medicare/medicaid. Those where the benefit and cost savings would be greatest.
Private insurers won’t even touch it because, once it is labeled “experimental” by the federal government, that is where it reins on their fee schedule (due to the incestuous nature of price and coverage fixing between government and private industry).
We could blame these industries for lobbying congress to maintain their place on the approved provider list and fee schedule. How dare they stand in the way of innovation and saving tax payers millions. They could have just faded away gracefully. However, we are talking about money to be had by providing services to an ever growing market, the aging, and the only way to get access to the majority of that market is through government health care systems, on their provider list and fee schedule. This is simply business adopting to the system and every business is about edging out the competition. Even if it means leaving innovation behind.
Please don’t get me started with what is happening to providing services to rural communities or the government’s implementation of non-competitive, competitive bidding in healthcare markets. Suffice it to say that this and many other experiences have convinced me that a government healthcare system and any derivative where it is largely involved in the healthcare market (or any market), is the worst, most costly initiative anyone could have conceived.
Some place else, in some other time, this collusion of business and government to control a market, even to the adversity of the consumer, would have been called corruption, but today it is called “business as usual”.
As a disclaimer, I no longer work in the industry and was never employed by the manufacturer of the aforementioned device. Due to those issues of “consolidation”, I am now one of the “underemployed” who is happy just to get a check to pay the bills. A check that is about to be even smaller when the Obamacare program kicks in and I am forced to purchase the really cr@ppy, over priced insurance (I should know, I worked in the industry)of the small franchise I work for or be penalized by the government or forced to choose a probably even worse public sector insurance. I would rather to do as I do now which is pay for services out of my own pocket. It is one tenth the total cost of just my share of the premium.
I would like to make a plea to congress to repeal this disaster and really get a grip on the real fraud that is currently being perpetrated through government control of healthcare. However, I hold out no hopes because that would be like asking the fox to stop going through the open gate to the chicken house and eating all the chickens.
It is a sad day when stifled innovation can reduce the number of boomers. But much sadder is when it reduces the numbers of the following generation.
Poor health is no respecter of persons and devastating accidents have no favorites in exemption. It can happen to anyone.
Yet the socialist/marxist path the lefties have chosen to walk down will not lead them to health. The policy of enslaving the intellectual brain will bring about the failure of innovation that could save their own lives and the lives of their loved ones. They literally shorten their days on earth in the persuit of an imaginary utopia.
A sobering and insightful analysis. One key question: if medical innovation wanes in the United States, will it shift to other nations?
There’s no incentive so answer is no. Not going to happen.
Innovation is good. How can government promote innovation?
Promoting innovation in medicine is not the the same thing as paying for care. Neither are they unrelated. You can go to Abu Dahbi and check into the plush Cleveland Clinic.
Israel has had socialized medicine. They are also leaders in medical innovation. I think that they have a unique set of circumstances which will not work here.
What we need is an American approach, not a borrowed one. We too are unique.
Shifting resources to medical education and research sounds easy. Yet it is more cultural than that. How to capture the young minds and get them excited. How to make them feel that it is worth trying something new. Words alone are not enough.
There is some role for government there but it is more comprehensive than this narrow focus. Seems like government is always too busy swatting alligators to get back to draining the swamp.
These are all superb points and I agree with them, but what group at a town hall meeting or subcommittee in Congress is going to have the patience to listen to all this, or even understand it, since most people have no knowledge of how the health insurance and medical device industries work
Jim,
Thank you for this really useful, valuable synthesis. I was (and continue to be) profoundly disappointed about how little attention the issue of medical innovation received during the healthcare-reform debate. Thanks for reminding me and others of the continuing importance of focusing attention on the critical issues you have raised. –Tom