Skip to comments.The Healthcare Myths We Must Confront
Posted on 06/29/2012 7:28:02 PM PDT by neverdem
As debate about whether ObamaCare is a good idea continues, rejecting four major misconceptions about healthcare is crucial to any chance of our eventually emerging with a better system.
In the wake of the Supreme Court’s ObamaCare decision, we must refocus. The Court’s decision was never about whether ObamaCare was a good idea, only about whether it was constitutional. The Court found a convoluted way to uphold the law.
That’s done, but the debate on whether ObamaCare’s provisions are good ideas will continue. To date, this debate has been unable to shake off a lot of mythology—things believed about healthcare and our healthcare system in general, or ObamaCare specifically—that simply are not so.
The goals of healthcare reform—covering more Americans, improving outcomes, and doing so more cost effectively—are all laudable, but are all hampered by the continued belief in these myths. Rejecting these misconceptions is crucial to any chance of our eventually emerging with a better system.
Myth #1: Healthcare prices have soared in the recent past
If we choose to subsidize a portion of the population we should do so openly, using taxation and government spending, which at least shines sunlight on the cost, not through tricky regulation that hides it.
Everyone knows that healthcare prices have soared, but everyone may well be wrong. The statistics we see are always about the amount we spend on healthcare, not the price of healthcare. Consider a comparison of healthcare in the 1950s versus today. In the 1950s, you had none of the subsequent developments in pharmaceuticals, surgery, diagnosis, etc. How much would you pay for that versus today’s healthcare? Not so much, I’m guessing. In fact, if you look around the world, in impoverished countries you can probably find a reasonable facsimile of this 1950s healthcare at a low cost. While this example is intentionally extreme, the measurement problem it illustrates is important. The quality of the best healthcare has soared over time. This measurement problem is not unique to healthcare. Measuring the price inflation in computers is incredibly difficult. If the price of a laptop today is the same as 20 years ago, but the laptop is ridiculously better now, hasn’t the price really fallen dramatically?
Consider another hypothetical. Imagine we develop a cure for all cancers that costs a flat $1 million per person and works perfectly. Let’s assume this is more than the total cost to treat these cancers otherwise. In this case, the amount we spend on healthcare will likely rise dramatically, because it just got much better and we chose to spend more on it. The cure we are talking about did not exist before now, so it does not make sense to ask whether the price rose. Here’s a better question. Are we better off even though we are spending much more on healthcare? Yes, we are, although some will cite the dramatic rise in our healthcare spending and demand that action be taken.
One more, and let’s get really simple. In the olden days, our great-grandparents might have had one pair of reading glasses. Now, many of us have one pair at home, one in the car, one at work, etc. Because we are more prosperous we spend more on reading glasses than our forebears, even though the price has not necessarily changed. Again, there is a gigantic difference between what we spend on something and its price. And again, the comparison of old and new prices is particularly vexing in healthcare because most of the healthcare we buy was not even invented when our great-grandparents were ill.
In these days of horrible discord, partisanship, and uncivil discourse (actually very much like the other 200+ years of the Republic) it is nice to know we can all still get together to rally around a really dumb idea.
The above is highly relevant to our ongoing debate because the “soaring price of healthcare” is often cited as a reason we desperately need reform, perhaps radical reform. Even if correctly referred to as the “soaring cost of healthcare,” this is presented as an unambiguously bad thing, when that is certainly false. It’s bad when it’s a function of waste or monopoly power gained through cronyism—undoubtedly part of our system and, as usual, with government the main culprit—but not bad when it’s the result of improvement, undoubtedly a huge component over time. The price of healthcare over time is hard to accurately measure, but those screaming about the price soaring are probably wrong.
Myth #2: The pre-ObamaCare system was ‘insurance’
It was not a system of insurance. Insurance, as practiced everywhere else but healthcare, is about catastrophes. What we had was a government-subsidized payment plan funneled through insurance companies.
OK, this part is going to sting a bit. I never promised you there would be no math. Let’s step back a bit and talk about how insurance works. Few of us buy insurance because we expect to make money on the deal. No, the insurance company expects to profit and we expect to lose a bit. Free marketers and socialists can both surely agree that the insurance companies expect to profit. Well, how do they profit? It’s statistics (I told you it would sting). If they sell 1,000 policies that pay out $100,000 but only 1 percent of the time, they on average pay out $1,000,000 (1,000 policies times a $100,000 payoff times 1 percent, as 99 percent of the time they don’t pay). If they sell them for $1,100 each they take in 1,000 x $1,100 or $1,100,000 and will make a profit of $100,000. But despite the insurance company profiting, insurance can often be a great deal for you. You take out insurance because there are events that would cause you severe financial hardship—for instance, the totaling of a car you can’t afford to replace, the death of your family’s bread winner, or the destruction of your house. It’s worth overpaying a bit to avoid catastrophic financial consequences. We often call insurance like this “catastrophic,” as you’re only paying a small amount to insure against improbable but devastating events. Actually, we usually don’t bother to even call it “catastrophic insurance.” We usually just call it “insurance,” as that’s how it almost always works… except in healthcare!
The insurance companies’ expected profits are not without risk. Companies compete on premiums to see who can sell the insurance for the lowest price while still being profitable, and, importantly, they compete on “underwriting.” Underwriting is attempting to assess risks and charge consumers most accurately, charging more for expensive, more probable risks, and less for the opposite (in my example above, I pretended we knew these risks; in reality, the insurance company has to guess at them). The insurance companies that predict more accurately are generally more profitable, and those that are woefully inaccurate go out of business.
Everyone knows that healthcare prices have soared, but everyone may well be wrong. The statistics we see are always about the amount we spend on healthcare, not the price of healthcare.
Let’s get back to healthcare. Due primarily to the tax subsidy given to employer-provided healthcare (a bipartisan, so-far-untouchable disaster), catastrophic health insurance is not Americans’ norm. Rather, employers provide essentially all healthcare from basic health maintenance and symptom relief to the most expensive life-saving procedures, and they do it because the government massively subsidizes this approach.
This is odd. You don’t go to your car insurer to fill your car with gas or to your homeowner’s insurance company to change a light bulb. Why do you go to your health insurance company for everyday medical services? That is not insurance, it is tax-subsidized provision of all your healthcare needs, and it causes two of our system’s biggest problems. 1) Health coverage is not portable, as it’s employer-provided, and 2) consumers are insulated from the cost of basic healthcare because they don’t pay directly for services. Educated consumers spending their own money would be far better shoppers for healthcare. Also, I wish I wasn’t asked for a $5 co-pay after a doctor’s appointment. Ask me to pay at least $200 or nothing. Paying $5 for a prostate exam is demeaning to both parties.
Why does this matter? ObamaCare sets out to fix health insurance, and to provide it to more people. Laudable goals. But the system we had was not badly managed health insurance. It wasn’t insurance at all. ObamaCare does not throw out the crazy system we had in favor of real insurance, which would actually work, but rather enshrines and extends all the problems of an insane healthcare payment system masquerading as insurance and built as a tax dodge.
Myth #3: Stopping insurance companies from charging based on pre-existing conditions is the one good part of ObamaCare
Even many Republicans fall for this one, perhaps because it polls well. In these days of horrible discord, partisanship, and uncivil discourse (actually very much like the other 200+ years of the Republic) it is nice to know we can all still get together to rally around a really dumb idea.
The comparison of old and new prices is particularly vexing in healthcare because most of the healthcare we buy was not even invented when our great-grandparents were ill.
Most of the economic function of any insurance company is precisely about assessing the expected economic cost of a pre-existing condition, and charging based on it. Whether your house is a firetrap or fireproof is a pre-existing condition for homeowner’s insurance. Whether you’re 90 years old or 20 years old is a pre-existing condition for life insurance. Whether you have a good driving record in a modern car with airbags and that cool new blind-spot indicator thingy, or you are Lindsay Lohan, is a pre-existing condition for auto insurance.
If it’s affordable to them, people should pay the cost of their own pre-existing conditions in all these instances. After all, sad or happy as their state may be, it is their state and not other people’s. Furthermore, economic efficiency is enhanced as, among other reasons, consumers have some control over many, though not nearly all, pre-existing conditions. An insurance company of any kind exists mainly to price these pre-existing conditions accurately, diversify across customers, and then do a lot of paperwork. This accurate pricing is the hard and economically valuable part of what an insurance company does. It’s really their main economic function. Yet ObamaCare bizarrely seeks to remove this benefit, while retaining insurance companies for, what, their famous customer service?
I snuck in something above, and I can sense the progressive reader ready to pounce: the phrase “if it’s affordable to them.” The trillion dollar question is what about those who can’t afford it? Well, society should debate that openly. Progressives can argue for a lot of help for those who can’t afford paying for their own pre-existing conditions, libertarians can argue for much less, and conservatives, if they haven’t learned from their recent history, can base their argument on whether they are currently running the government and will get credit for providing the goodies. But, if we decide to subsidize the unfortunate, as is likely to some degree, we should do so directly through taxation and government largesse. No matter what the final decision on the amount of subsidy, this way is at least honest. In contrast, ObamaCare hides a massive government transfer program from those without these conditions to those with them. Besides basic dishonesty, hiding costs always leads to bad decisions.
ObamaCare is asking some Americans to pay large amounts for others, and is trying to hide it as private insurance premiums rather than admit it is bigger government. It’s simply a scam for ObamaCare to not count programs like these, which force some Americans to pay for others, as government spending. The mafia keeps two sets of books, the government should only be allowed one.
The other very popular ObamaCare feature, “stay on your parents’ insurance until you are 26” (65 if you’re named Julia) follows the same idea. Comparing a family that wants that benefit to one that doesn’t (because they don’t have kids or their kids have their own insurance or they just don’t like their kids!), the family that wants it should pay more, as they are consuming more valuable services. Economically, a tax on everyone to pay for those who want to keep their kids on their insurance until they are 26 would essentially do the same thing as ObamaCare here, but we’d recognize it as a large growth in government spending, a burden on those who do not desire this benefit, and a brand new entitlement for those who do. But, again, ObamaCare hides this transfer payment through regulating what different people pay their insurance company. Again, if we choose to subsidize a portion of the population we should do so openly, using taxation and government spending, which at least shines sunlight on the cost, not through tricky regulation that hides it.
Those who would call the above mean-spirited (or worse), please remember that I’m leaving wide open the question of how generous to be, and how much government should or should not directly subsidize things like pre-existing conditions and 25-year-olds without insurance, while you are intentionally hiding it.
This theme of hiding costs is consistent throughout the progressive march to bigger and bigger government. Step number one, present great “benefits” you will bestow on the populace and present them as if you are nicer people than the other side who want to deny these benefits. Step two, hide the costs, either through the complexities of the tax system, or more overtly through off-the-books regulation like ObamaCare. Step three, continue to advance the progressive myth that if government provides something, or mandates something, it’s “free.” Step four, get the people hooked on the freebie until they are too scared to give it up even if it costs them well more than it’s worth to them. Step five, move on to destroying the next part of our economy and freedom.
Educated consumers spending their own money would be far better shoppers for healthcare.
Finally, note that the issue with pre-existing conditions is also an artifact of the government distorting the market away from insurance and towards employer-provided total healthcare (remember myth #2!). Consider your life insurance. You buy it on your own, not through your employer, and it’s usually “guaranteed renewable.” When you change employers, get sick, or just get older, you keep your policy and your premiums stay steady. This is the type of policy the free market, without massive government distortion, has produced. It would produce an analogous successful market in health insurance if left alone. People would buy insurance when young, and that insurance would include the right to keep buying insurance with no increase in rates due to getting sick. It’s only because you lose your coverage when you leave an employer that we even have this problem at all. If you are getting the sense that government is the root of our problems, not the solution, you have been paying attention.
Myth #4: Healthcare costs are very high in the United States compared to socialized countries
Like the opening myth about soaring prices, this one is used to undermine faith in our system and open us to radical change for the worse (ObamaCare or worse).
The statistics often cited by progressives seem to show that we spend a larger fraction of our GDP on healthcare and don’t get better outcomes than other countries. I won’t argue over whether we actually spend more, but will argue about why we sometimes spend a lot, and whether the outcomes often cited are measured fairly. Spending more is not always bad, and is not always only because we have (somewhat) private markets.
• Many of the surveys of “outcomes” that show other countries spend less for similar or better healthcare than the United States are just intentionally disingenuous (i.e., they lie). The ultimate example is the U.N.’s 2000 World Health Report, which has been extensively cited by progressives and the media. Yet there are concrete examples of its anti-American bias. For instance, the study included high-speed auto fatalities and murders in their assessment of a country’s life expectancy, and then progressives cited that life expectancy to indict the U.S. healthcare system. Well, Americans drive more often on a more extensive highway system than most others, and we sadly have more crime than many. Reputable studies exclude these fatalities as, while tragic, they are not the fault of the healthcare system and should not be used to judge or modify the healthcare system. With these fatalities excluded, the U.S. ranks 1st in the world on life expectancy.1 With them included, we rank 19th, as reported in the 2000 study cited so often by ObamaCare advocates. The studies of infant mortality may be even worse, with the comparisons of what constitutes a live birth (and thus an opportunity for mortality) substantially different across countries, with the United States holding itself to the highest standard (and thus producing worse statistics). But, this does not stop enemies of free-market healthcare from citing warped statistics showing the United States to rank well below the truth, while to a person they’d all opt to have their babies in the United States, particularly if it was a complex or premature situation. That kind of hypocrisy is simply breathtaking.
Perhaps even more insidiously, most of the U.N.’s 2000 World Health Report does not really even rank healthcare outcomes. The actual oft-quoted final rankings, with the United States ranking poorly, are an average of many different ratings, many of them explicitly about how “socialized” or “progressive” a healthcare system is. For instance, their rating system gives 25 percent weight to “financial fairness,” and if one goes through their other categories you find they again are not rating who lives or dies or lives better (you know, healthcare outcomes), but how much the healthcare system has such things as “respect for persons” (this is part of the 12.5 percent weight they gave to “responsiveness,” which is separate from the 12.5 percent weight they gave to “responsiveness distribution,” whatever on Earth that is). The report goes further, judging these things with such objective measures as “respect for dignity” and “autonomy.” In total, more than 60 percent of a country’s score in this survey was some measure of progressive desires, not what you or I would call a healthcare outcome. And, as in our auto example above, much of the rest contained expressly anti-American flaws. That we pay for the United Nations to lie about us is a topic for another day.
In other words, in this often-cited study, and in many others created by the international progressive community, the U.S. healthcare system has been ranked low solely for not being one of socialized medicine. Personally, when I am told how the United States ranks on healthcare “outcomes,” I want it to be about whether my kids get good treatment, not about where we stand on the U.N.’s politically correct progressive agenda. But it’s this and other similar nonsense that the Obama team cited again and again to denigrate the U.S. system and push the case for radical reform. In summary, they say “we have done a survey and found we must reform our system and become more socialist, because the survey says we are not socialist enough.” That’s how they argue. Really.2
• Part of the reason we spend more is other countries have price controls and we don’t. For instance, they restrict the amount drug companies can charge much more than we do. That sounds great; price controls save us money! But if nobody pays for new drugs, they don’t ever get created. Without these controls, our consumers here indeed pay more, but that funds much of the life-saving and life-extending healthcare innovation available for Americans and the rest of the world. It is frankly unfair that the world is free-riding off us. Free-riding means they let us pay for the innovation that benefits them at lower cost. But if nobody pays for the innovation, the innovation just does not happen. If we try to free-ride off ourselves, it doesn’t work—innovation dies for us too. U.S. consumers paying fair prices (not government restricted artificially low prices) does lead to higher U.S. healthcare costs, but the alternative is far worse: Joining the world in severely limiting prices, and not seeing the next generations of new innovations and improvements.
ObamaCare does not throw out the crazy system we had in favor of real insurance, which would actually work, but rather enshrines and extends all the problems of an insane healthcare payment system masquerading as insurance and built as a tax dodge.
• Americans lead less healthy lifestyles than much of the developed world. Americans historically value freedom more than other countries and cultures. We value it for its own sake, even if it sometimes leads to a worse outcome. But we mostly value it because these choices are personal. Frankly, some would sacrifice some health to eat what they want and avoid the StairMaster. Freedom isn’t always sugar-free. Our American choices are costing us more, and raising the healthcare cost figures progressives love to cite. But they are our choices to make, not theirs to gainsay.
I have to add that the progressive version of healthcare, where people don’t pay their own way, where someone else pays for their healthcare, actually pushes people to less healthy choices because they don’t bear the financial cost themselves. The market solution would impose much more of these voluntary costs on the individuals making them, and besides economic efficiency, would also make us healthier. Of course, the progressives have a solution for this, too. They just go around banning some things, forcing you to do some other things, and scheduling our mandatory jumping jacks for 5 a.m.! It’s all for our own good, of course. Finally, if you think the recently much-discussed “can they make you eat broccoli” hypothetical is a crazy, extreme notion, you just have not paid any attention to progressives for the last 80 years…
• We spend more on end-of-life care than more regulated societies with socialized medicine or systems closer to it. That’s our choice. It’s that pesky freedom thing again. How is this cost going to be reduced by ObamaCare without introducing, how do I say it without prodding the progressive beast too sharply, well, it rhymes with “meth manels”? But again, that those in a free system choose to spend more than those in other less free systems on the end of their lives is not an indictment of freedom or a call for government intervention. But it does raise our costs (and invalidates comparing these costs to others).
• The cost of a healthcare system is not just what we spend directly on it, it is also how much the healthcare system helps or hurts the overall economy. If socialized medicine slows economic growth, then this is part of its cost, perhaps a big part, and is left out of the simple analyses (looking at direct expenditure divided by GDP) that are so common.
• Lawyers. We got lots, they have far fewer. We can separately debate how to design our legal system (some of my libertarian friends advocate for a large role for lawyers), but the size and scope of legal action here dwarfs most of the world. It leads to doctors practicing tremendous amounts of “defensive medicine.” That is, prescribing procedures and drugs not medically called for but done to “cover their assets” in the event they are sued. That adds a lot to our costs and can and should be addressed and debated completely separately from much of the above. But, rather than address it directly, progressives instead simply cite how much we spend here versus other countries, a cost driven up by trial lawyers. Of course, progressives are tremendously supported by the trial lawyer lobby, the very group driving up these costs that progressives then cite as an indictment of our system. It’s really quite beautiful logic, if you can learn to appreciate the qualities of exceptionally well-designed evil.
So, the “we pay more but get nothing in return” story is simply not true. It’s beyond me to do a more thorough job and make a perfect comparison across countries, but it’s enough to know that their story, like the story that healthcare prices are absolutely soaring, is propaganda, and propaganda with a purpose.
In conclusion, we must remember that there are many vital things our more free American healthcare system gets right, and more right than the less free rest of the world. If you have an adequate health plan, you often get better care with shorter wait times here than elsewhere. If you have a truly devastating illness, you—like the rest of the world who flocks here—get the best care possible, and healthcare a more socialized system will often declare not cost effective and phase out. You live in the country that makes far and away the most productive innovations in pharmaceuticals and healthcare in general—innovations made possible by the profit motive. It may sometimes be cold comfort, but you are footing a bill that saves a lot of lives here and worldwide. And, while you might pay a lot, getting those innovations, and also having the right to live your life as you—not as Mike Bloomberg, Barack Obama, or a team of academics from Harvard see fit—might raise costs, but is your right as an American.
So, with the Supreme Court ruling that ObamaCare is constitutional, we’re all going to be working on fixing, repealing, or replacing ObamaCare. Frankly, fixing our system is not as complicated as many make it out to be. There are lots and lots of specifics I won’t cover (e.g., allowing interstate competition, the role of health savings accounts, whether individual policies should be some level of deductible) but the big ones are 1) removing employer deductibility and getting back to a system of individuals buying catastrophic insurance, and 2) deciding through open debate, not sneaky regulation, how much we want to subsidize those who can’t afford adequate healthcare or insurance, whether they are poor, have pre-existing conditions, or are adults under 26 who can’t yet pay their own way.
Finally, as a basic input to the whole discussion, we need to understand myths #1 and #4: The rising amount we spend on healthcare is not the same thing as rising prices, and often reflects good not bad developments, and the costs of our system versus others are often exaggerated, and the benefits of our system often minimized, for political purposes.
We can fix all this and maintain what’s very right about our system, and retain our freedoms, but we have to let go of our myths first.
Clifford S. Asness is managing and founding principal of AQR Capital Management.
Author’s note: Most of this essay was written before the Supreme Court decision. The Court's convoluted logic did one thing. It made it even clearer that, as this essay contends, the "mandate" is no such thing, but rather a giant expansion of the tax-and-spend state.
This article is new, but reprises some of a related, unpublished Internet working paper, "Health Care Mythology," available at http://www.stumblingontruth.com/, particularly myth #1 and myth #4. I’d like to thank Laurel Asness, Aaron Brown, John Cochrane, Chris Culp, Richard Epstein, Ken French, John Liew, and Scott Metzger for some incredibly helpful comments (though please don’t assume they all agree with every word!).
Image by Darren Wamboldt / Bergman Group
With Obamacare, there will be four social classes of American people, non-contributing recipients, those exempted from the system by wavers(to be termed "wavers"), screwers and screwees. Don't worry. Great care will be taken so those of us designated to be the screwees will be screwed equally.
Just remember, you can run but you just can't hide from Obamacare.
With this reasoning, all the vast improvements to Personal Computers would make them prohibitively expensive today. The Radio Shack TRS-80 debuted in 1977 with a 1.7 Mh processor and 4K of RAM for $600. $600 can buy you a a decent 2.4 Gh dual-core with 2 gig RAM today. And $600 today is worth a LOT less than it was in 1977. With this guys reasoning a PC of today should cost, say, $6000 or more!
In looking at obamacare we also need to consider some political myths;
Myth #1 the GOP will repeal obamacare. This is clearly a myth. In much the same way that the GOP tacitly supports illegal immigration, it supports obamacare. Keep in mind that there is going to be plenty of money made fleecing the taxpayers and the GOP, or perhaps more accurately, those who matter in the GOP, want their share of the boodle. This is not to say that the GOP won’t put on a good show of attempting a repeal, but rest assured that it will always be just a little too hard to do.
Myth #2 we need to elect GOP candidates so we can put more “conservatives” on the courts. This is particularly laughable given recent events.
There is nothing to fix. It is broken beyond repair. The total system is going to fail.
Any element of it that could be fixed will be fought over by both parties.
Neither side wants to fix it, they want to replace medicare with deathcare
My first computer cost $300 (not including tax or tape drive) in the early 1980's. Prices dropped off for awhile, to the point that one could get the same thing for $79, but but after awhile it became hard to find a newly-manufactured computer that cheap. The price point of the cheapest available mass-produced computer went up quite a bit before finally coming back down.
We pay a lot more than that for ones the don't work, so why not?
The idea that any treatment runs more than a million dollars is a testament to legalized robbery that the health industry performa regularly.
I don't have the actual figures at my fingertips, but it's like this:
Medical care has become ten times more effective since the 1950s, while simultaneously becoming (only) five times as expensive - so we shouldn't complain about "exploding health costs" because we're still getting a lot of "bang for our buck."
NOTE: Even if it were the other way around - (only) 5X as effective and 10X as costly, we still shouldn't complain, since that pentupling of quality (high-resolution CAT scans, heart transplantations, etc.) wouldn't have been available at ANY PRICE in the 1950s.
Computers have become a billion (or trillion?) times more effective (thanks to Moore's Law), but are only five times as expensive: Today any regular, commercially available Smartphone has more raw computing power than ALL of NASA's computers in the 1960s.
We need some help with price controls.
Here in Washington state Regence has a surplus far beyond what it needs and quite literally ripped people off in a variety of ways. One of the really cute things they did was refer people to a phone line on Thursdays only and then no one ever answered the phone. Ever.
Look I don't want the IRS or the federal govt in my healthcare but many many health insurance companies are as corrupt as they come...
Very good article in general. One thing I noticed though, in the Myth #1 about the “price” of health care soaring, he should have talked about how having the gubmint involved in health care in an ever increasing role has driven up COST (just like everything else that gubmint puts their filthy hands on).
The main "cost driver" in "healthcare inflation" is FREE HEALTHCARE!
Or, as PJ O'Rourke put it: If you think healthcare is expensive now, just wait till it's free.
Excellent piece. For those interested in more of the same, consider visiting the Covert Rationing Blog (covertrationingblog.com). In particular, the author has an on-line book called Open Wide and Say Moo where he dissects many of these issues in a brilliant and witty way. He also called the SCOTUS ruling correctly two years ago. And no, I have no relationship to the blogger. I just appreciate good writing and thinking.
Also, the linked blog Stumblingontruth is excellent. Loved the leftists lexicon.
There is a significant difference between computer and medical R&D. Computers don't have to be tested by thousands of customers before they can be sold to the general public, while every medical advance must be extensively tested. In the case of drugs and medical devices, the testing involves thousands of patients for several years before it can even be considered for the FDA approval. Any but the most trivial change in a medical device means it must be tested and approved by the FDA all over again. The cost of medical research is high, and that is a cost that cannot be disregarded in the cost of the final product. Computers are very amenable to mass production technology, which is great for bringing down prices. Other than the most simple procedures (like vaccination), I can't think of too much medicine that can be delivered on an assembly line.
I worked for a small pharmaceutical company as a payroll and accounts payable manager back in the late 90s, early 2000s. Long before a drug can even go to clinical trials and tested on people in a controlled setting, it takes many years and from what I saw, millions and millions of dollars and man hours spent on bio-chem research in the lab and then on to animal testing, with FDA applications made at several intervals. I saw the invoices and it was not unusual for my department to have check runs in the millions on a weekly basis, some of the outsourced animal testing invoices alone could be several hundreds of thousands of dollars just for one study.
And sometimes a new drug never makes it out of the lab or out of animal studies yet it still costs millions of dollars. Seeing firsthand the costs involved, I never again questioned why many prescription drugs are so expensive.
The company I worked for successfully developed a very specialized drug for Glioblastoma multiforme, the most aggressive and malignant type of brain tumor. They also developed a fast acting surgical anesthetic with fewer side effects than others in use. But along the way it cost a whole lot of money to get those drugs through the FDA approval process and into the hands of doctors and into patients, the clinical trials and follow up being also very expensive and there were many, many drugs that never went anywhere, never got out of the lab. Even with their successes, they eventually ran out of cash and the company was bought out by a larger pharma. Ive heard it said that it takes at least 10 years for an upstart pharmaceutical to turn a profit.
And the manufacturing process for drugs is also very expensive; the clean rooms and highly specialized equipment involved, not to mention the quality control and specialized and highly trained and highly paid people needed. You just dont put an ad in the local paper for assembly line or minimum wage workers in pharma manufacturing.
Exactly. I'm a basic researcher, so I look at the basic biological mechanisms that are or may be susceptible to drug intervention--meaning that my work is necessary even before the drugs can be developed. Scientists at the basic level are busily trying to develop new assays to weed out bad drugs long before they ever reach the clinical trial pipeline. I've seen a statistic that only about 1 out of 100 new drug candidates ever makes it to clinical use. Given the costs associated with R&D, the earlier those bad candidates can be weeded out, the better.
Unfortunately, there are way too many people--a depressing number of conservatives, even--who denounce the profits of "big pharma" and the high price of new drugs without having even a basic understanding of the expenses incurred while developing those new drugs. It's too easy to demonize "big pharma" when people are constantly reminded of the profits while being kept ignorant of the costs.
Yep. Exactly. And the same sort of logic or lack there of, is often used against the oil industry. Many people are ignorantly unaware of the upfront costs to find oil and drill wells, the costs of getting that oil out of the ground including all the regulatory costs. But Godz Forbid that those evil oil companies actually make a profit for their efforts. And some people also fail to realize how much of that gross profit goes back into R&D and employee wages and benefits. Thats true for both pharmas and the oil industry and in fact for many companies.
I currently work for a manufacturing, company in PA, a small division of a large UK owned company with worldwide subsidiaries. My division manufactures components for conveyance and power transmission systems; specialized polymer belts, o-rings and transmission systems used in a wide range of other industries including but not limited to mining, food processing, and industrial HVAC systems. Fortunately we are profitable even in this bad economy and are currently in a hiring and expansion mode. But without profits, we would not be able to expand, do R&D to develop new products, improve our manufacturing processes and expand our product lines that keep people working and provide new jobs. My division is also very active in donating to and giving back to the local community. For example, when the town we are located in was severely flooded last year after a tropical storm, we donated money, trucks, manpower and appliances to the local aid effort, several thousand of dollars. We couldnt do that if we were not profitable.
And without profits, we would also not be able to give raises, provide an excellent benefit package and pay the type of wages necessary to find the best people for the engineering and product development positions that keep us profitable and cutting edge in our industry. Even our lowest level assembly line workers make a relatively high hourly wage, get a generous profit sharing and benefit package compared to other similar manufacturing companies in the area. BTW we are not union :), .
Yet some of the same people who denounce the profits of Big Pharma and Big Oil have no problem shelling out big bucks for the latest I-phone or I-pad or some other technology gadget with seemingly little if any concern about the profitably of those companies. But the high cost to develop products prescription drugs and gasoline shouldnt matter; they should be cheap if not free for everyone and come out of thin air and no company engaged in such, should ever make a profit.
The difference is that cimputers are sold in a free markey, while healthcare is a sealed chain of monopolies.
Yes, we should expect to pay more for brand-new cures. In a free market there is a “learning curve” for newly introduced technology, after which competition sets in and it becomes cheaper. Old medicine, on the other hand, costs just as much as new medicine because it’s a monopoly. Remember that recent hapless tourist visiting San Diego who was charged $243,000 for treatment of a rattlesnake bite?
They have a functional monopoly, don't they? Likely government guaranteed? One generally doesn't get that bad of service without major government involvement.