Saturday, September 15, 2007

Biomedicine Revolution, Motivated By Profits

Last night on 20/20, Michael Moore praised government-controlled health care systems in Canada and Europe. He then called for "the elimination of all private profit-making companies in the health care industry" and suggests turning over all health-care spending in the U.S. to the government to provide "free" health care to everyone.

Before turning over the entire profit-making pharmaceutical industry to the government,
consider this fact:

"Looking at a broad range of pharmaceuticals, scholars at Tufts University examined all 284 new medicines approved in the U.S. in the 1990s. They found that 93% originated from the pharmaceutical industry, with 7% split between government and academic or nonprofit sources."

In other words, it was the profit-making private sector that developed 264 out of 284 new medicines in the 1990s, and many are saving lives today. Without the profit motive, most of those drugs probably wouldn't exist today.

And what can we expect in the future from the profit-making pharmaceutical industry?

Looking to the future, one can see the tremendous potential for the flow of pharmaceutical innovation to expand and accelerate. In terms of the science, we are now in the early stages of a revolution in biomedicine, an explosion of new knowledge that will translate into a whole host of new and better medicines. Yet, the business of finding these new medicines is risky and costly. No one is guaranteed to achieve the financial returns that encourage investment in pharmaceutical R&D. However, two important principles guarantee that such a return is possible: a market-based system of pricing, and intellectual property protection.

I don't think Michael Moore understands the "
invisible hand."

20 Comments:

At 9/15/2007 9:15 AM, Blogger Walt G. said...

"Yet, the business of finding these new medicines is risky and costly."

What would happen if drugs were invented that allowed a person to live to be 100-years-old with perfect health, but cost 1-million dollars-cash with no insurance accepted. The 1-million-dollars was the least amount needed to make the drug company a profit on its investment, and there were enough people willing and able to pay.

Would the drugs be acceptable morally just because it was financially feasible? With all the new expensive technology available today, maybe we’ve come to the point where rich people in the future will live long lives while non-rich people will die young. Will we see Census Bureau data in the future that lists human life expectancy by income in the U.S.? Maybe something like this:

Life expectancy < $50,000: 50 years

Life expectancy >$1,000,000: 100 years

People are going to die: that's life, but the big question is who and when.

 
At 9/15/2007 3:09 PM, Blogger juandos said...

Hey walt g, I think you bring up some interesting points as you usually do...

The real question/situation you may not have considered is that first consumers of any new product always pay a lot... Think iPhone...

I do believe that drugs are, "acceptable morally just because it was financially feasible"...

In a free market society the drugs will eventually become affordable to the many instead of just the few...

 
At 9/16/2007 5:17 AM, Anonymous Sudha Shenoy said...

The real point: resources are scarce. So initially only small quantities _can_ be produced. That's why the 'high' price, which "only the rich can afford". If govt officials seized the supply, the small quantity _could_ not be increased. But as resources increased, larger quantities _could_ be produced, prices would drop.

This will _always_ be the case. There will _always_ be procedures, drugs, etc, that can only be produced in small quantities -- at present.

 
At 9/16/2007 10:29 AM, Anonymous bob wright said...

walt g:

So, what are you suggesting - that such a medicine not be produced since some people would not be able to afford it?

Rich people have been living longer and better than poor people for centuries. This is nothing new.

Today, the difference between rich and poor is most stark in socialist countries, where the leaders live like kings while the proletariat live like dogs - eating scarps from the table of the privileged few in government.

I think the pharmaceutical industry is doing more to level the "life expectancy" playing field than any government program in existence today.

Yes it would be moral to produce a drug that would cost a million dollars cash. Eventually, that drug would make its way to the masses.

 
At 9/16/2007 10:54 AM, Blogger Walt G. said...

Juandos,

I believe in the free-market, but I don't think the U.S. health-care industry qualifies for that title. It is already socialized and run by monopolies.

If you can't afford an IPod or I Phone you don't buy one and you still live. Not so if you can't afford surgery for a life-saving brain tumor, heart surgery . .... You either get the surgery and someone else pays (that's socialized medicine) OR you die (that's whatever you want to call it--Free-Market maybe?).

Prescription drugs and hospital services are not priced to what the market will bear or with profitability in mind. If what people could pay is what is charged, the drugs would have to be cheaper or the drugs or procedures could not be profitably performed and would not be offered.. Additionally, drug companies and hospitals (can’t price compare them easily) are protected from competition. So, the drugs are priced by the manufacturer and services by the hospital and not by the market. That's not a free market. Is it?

We've already got socialized medicine, but it does not have constraints on cost or any other controls. I think Adam Smith's "invisible hand" has the middle finger pointing at the U.S. public when it comes to health -care costs in the U.S.

I don't have the answer, but the notion that we have a free-market in the U.S. health care industry is incorrect.

 
At 9/16/2007 2:56 PM, Anonymous Anonymous said...

Private industry created more drugs than govn't and non-profits but consider that some (anyone want to do the research) of the drugs created were just to replace other drugs that were going out of patent.

Other drugs were developed to compete against other manufacturers drugs to treat the same illness with similar results.

How many new drugs were created that were truly new and not just part of the normal competitive process?

 
At 9/16/2007 10:37 PM, Blogger juandos said...

"Prescription drugs and hospital services are not priced to what the market will bear or with profitability in mind. If what people could pay is what is charged, the drugs would have to be cheaper or the drugs or procedures could not be profitably performed and would not be offered.."...

I do believe a varient of this has been happening since at least the dawn of real medicine walt...

The poor have never been able to pay for what could save their lives...

"We've already got socialized medicine, but it does not have constraints on cost or any other controls. I think Adam Smith's "invisible hand" has the middle finger pointing at the U.S. public when it comes to health -care costs in the U.S."...

Hmmm, how much of this is the fault of both the voter and the consumer walt?

Personally I lay most of the blame on both parties... Companies and governments will get away with anything the masses allow them to get away with...

 
At 9/17/2007 6:36 PM, Blogger Simon Clark - Formerly The Cynical Libertarian said...

"With all the new expensive technology available today, maybe we’ve come to the point where rich people in the future will live long lives while non-rich people will die young."

Everyone is living longer, rich and poor. Rich and poor have always had different life expectancies. In my country, Britain, where we have 100% socialised medicine there is still a huge gap between rich and poor in terms of health and life expectancy.

If the drug you describe was invented, so what? Should we ban it because it only benefits some? Isn't it better that some people get better off whilst the rest stay the same than that we all stay the same? By banning it, you prevent it from ever becoming affordible to poorer people which it surely will in time if allowed to be sold. Also, such a drug would doubtless create a black market.

"I think Adam Smith's "invisible hand" has the middle finger pointing at the U.S. public when it comes to health -care costs in the U.S."

Adam Smith used the "invisible hand" metaphor to describe how merchants tend to go where risk is least. It had little to do with free markets or prices, though he was what we would today call a free-market proponent.

However, I do agree that the US healthcare system is far, far from a free market.

To Mark Perry though:

I found the 20/20 preview very entertaining and linked to it (and this post) on my blog. My question though is this: this research suggests that 97% of new drugs are made by private companies, but what percentage of new-drug expenditure do they get? More or less than 97%? I suspect it is less, but it would help to make sure ;)

 
At 9/18/2007 7:23 AM, Blogger Walt G. said...

Here’s an article below that relates real cases that expands on my hypothetical case. My question: Should doctors be allowed to prescribe medicine that has not passed FDA efficacy tests for their rich patients who want to try experimental drugs? If so, and the patient dies, are they liable?

“As Costs Rise, New Medicines Face Pushback: Insurers Limit Coverage
To FDA-Approved Uses; $300,000 Drug Denied” from The Wall Street Journal 9/18/2007.

 
At 9/18/2007 9:12 AM, Blogger Simon Clark - Formerly The Cynical Libertarian said...

"My question: Should doctors be allowed to prescribe medicine that has not passed FDA efficacy tests for their rich patients who want to try experimental drugs? If so, and the patient dies, are they liable?"

Yes, they should. They should also be able to do so for poor patients - not all experimental drugs are expensive, and even poor people may be willing to spend a lot on certain things.

It would depend. If a doctor assures you that a drug is safe, and it is not, he may be liable. If he warns you of the risks, and you accept them, then no.

 
At 9/18/2007 10:18 AM, Blogger Walt G. said...

Simon Clark,

It's not necessarily the poor people who have a problem. It's the non-rich. Social programs take care of the poor and the rich can pay for themselves. Take for example, a family who makes $20,000-$40,000 combined income for an employer that does not provide health insurance. After paying for taxes, food, shelter, and clothing, they often cannot pay another $6000-$12,000 a year for health insurance. There’s just no money there.

I realize it’s easy to not fell badly for the poor, lazy, uneducated people, but the biggest problem of health care costs is in the middle-class. These are your hard-working friends and neighbors. Something must be done about health-care costs. It’s very possible that the next U.S. President will be the person who comes up with a popular solution—whether it is economically feasible or not.

 
At 9/18/2007 4:02 PM, Anonymous bob wright said...

"Something must be done about health-care costs."

Precisely.

It seems that a major step would be to re-introduce transparency into the system. Eliminate or dramatically change third-party payer systems.

Health care consumers have no idea what their care costs.

It's not the health care system that needs fixing - it's the payment system that needs to be addressed.

If consumers had more control of the purse, costs would change.

 
At 9/19/2007 7:38 AM, Blogger Walt G. said...

You can’t have price transparency when different people are charged different prices for the same product and services because it makes people mad. Medical procedures are priced using differential pricing instead of cost-basis pricing for a lot of reasons.

Since people who don’t have money receive life-saving services they can’t pay for, the patient who can pay always pays more. The alternative is hospitals going out of business.

You might say that’s wrong, but so is having dead bodies stacked up like cordwood outside of hospitals.

 
At 9/19/2007 8:33 AM, Anonymous bob wright said...

The same people who can't afford health care probably can't afford food and electricity either, but they pay the same price that I pay for a gallon of milk and a kilowatt of power.

Health care should work the same way. Everyone pays the same price. Who pays is another question.

85% of Americans have health insurance - the vast majority. 255 million people could exert enormous pressure on prices if they were informed.

There is price transparency in every other facet of life - there is no reason health care should be different.

We don't need a huge government bureaucracy to administer health care for 300 million people when only 45 million people are uninsured at any one time.

 
At 9/19/2007 8:39 AM, Anonymous bob wright said...

If America needs universal health care because a small minority of its citizens can't buy the services of this basic human right on their own, why don't we have universal food stamps for everyone?

Food is every bit a basic human right as health care.

Since some people can't afford to buy their food, shouldn't the government give free food to everyone?

 
At 9/19/2007 11:26 AM, Blogger Walt G. said...

The federal, state, and local governments are already paying an estimated 44% of all health-care costs, and the rest they are heavily regulating. It’s 16% of our GDP and soon to be 20%. I’m not for socialized medicine, but we already have it for the most part.

Everyone isn't paying the same price if some don't pay.

As far as food, what if everyone had to eat lobster to live? You can't have cheap tastes and cut corners and meals if you need brain surgery or some other expensive procedure. You can't really tell the doctor to cut your brain cancer out with a boy-scout knife and no anesthetic: Can you?

 
At 9/19/2007 11:30 AM, Blogger Jack Peter Gunning said...

Walt G. said "If you can't afford an IPod or I Phone you don't buy one and you still live. Not so if you can't afford surgery for a life-saving brain tumor, heart surgery . .... You either get the surgery and someone else pays (that's socialized medicine) OR you die (that's whatever you want to call it--Free-Market maybe?)."

This is thinking typical of a libertarian. (I've no idea if Walt is a libertarian, sorry Walt) A conservative would know that this is a false dichotomy - charitable giving is an alternative.

Charities have to spend money more efficiently than governments, otherwise people stop giving them money.

 
At 9/19/2007 12:16 PM, Blogger Walt G. said...

I'm don't align with a specific group. I consider myself unique.

With health care at 16% of the GDP and soon to be 20%, charity isn't a viable alternative. Charity can't handle the health-care cost problem unless a lot of people are ready to make five-figure yearly donations. That’s not very likely.

 
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