Health Care Policy that Kills

A recent letter from Congressman Henry Waxman, demanding that a pharmaceutical company justify its pricing of Solvadi, a new drug to cure Hepatitis C, precipitated a selloff in biotech stocks. Waxman’s concern about Solvadi’s price does not appear well-founded when one compares Solvadi to the alternatives.  While more expensive per dose than the previous treatments, Solvadi is more effective and requires a shorter course, marking it as a substantial advance for curing this serious illness.

The Congressman’s intervention raises larger questions about the relation of government policy to innovation. Anyone who is getting older—and that is all of us—should see medical innovation as one of the most important measures, if not the most important measure, of a successful health policy. As Eric Topol details in his fine book, The Creative Destruction of Medicine, technological acceleration, including advances in genomics and stem cell research, suggests that we are on the cusp of a golden age of medical innovation. But government-imposed price controls and other policies can reduce the incentives for devising new treatments, resulting in preventable death and illness.

Sadly, our health care debate does not sufficiently focus on innovation. Indeed, the very name of the so-called Affordable Care Act emphasizes the current cost of health care, not its benefits, and certainly not future benefits from innovation. Supporters of the Act have focused on holding down health care costs and limiting their growth. Certainly, we want efficient provision of health care, as we should have efficient delivery of other services.  And some of our current policies, like the tax preferences for health insurance, may make health care less efficient by shielding consumers from the costs.  Moreover, it is fine to debate the extent to which subsidies should be given to those who cannot afford vital health care services, like Solvadi.

But it is a mistake to cap either the prices of particular drugs or limit health care expenditures as a share of GDP. As a result of innovations in medicine, we should want to spend more money on health care, not less. Even beyond this simple economic point, it should be noted that health care is kind of Aristotelian good—one that is important to a flourishing life. Certainly it is a sin against the human spirit for government policy to retard medical innovations so that people can spend their dollars on ever bigger and flatter TVs.

Even opponents of Obamacare, with their emphasis on death panels, neglect medical dynamism. The concern about death panels focuses on identifiable individuals who could be saved by some available treatment. My far greater fear is that fewer new treatments will be invented as result of government intervention, thereby sending unidentifiable individuals to a premature death. As the great economist Frederic Bastiat noted, the unseen effects of policy may be the most important. The absence of medical innovation is the greatest unseen effect of bad health policy. I should note that I own shares in biotechnology mutual funds as I do in other kinds of funds.

John O. McGinnis

John O. McGinnis is the George C. Dix Professor in Constitutional Law at Northwestern University. His recent book, Accelerating Democracy was published by Princeton University Press in 2012. McGinnis is also the co-author with Mike Rappaport of Originalism and the Good Constitution published by Harvard University Press in 2013 . He is a graduate of Harvard College, Balliol College, Oxford, and Harvard Law School. He has published in leading law reviews, including the Harvard, Chicago, and Stanford Law Reviews and the Yale Law Journal, and in journals of opinion, including National Affairs and National Review.

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Comments

  1. Kevin R. Hardwick says

    John,

    Part of the problem we confront is that the exchange of information necessary for consumer medical markets to flourish is severely hampered. Simplistic market solutions, like high deductible insurance, are unworkable in the absence of basic information. It is not possible in advance to ascertain reliable pricing information on just about any even moderately sophisticated medical procedure. For example, it might be useful for a consumer to know in advance how much a cardiovascular stress test will cost, if for no other reason than to plan budgets. But this very basic information is utterly unavailable. Absent information of this sort, what alternative to regulation is there?

    I take your point about benefits to be obvious. But I also think it verges on the insane to suggest that we just forget about costs and prices. ACA may very well not be anything close to the best answer, but I take it to be foolish to suggest that cost is unimportant. And in the utter absence of functioning consumer markets, the only game left is regulation. I think any step we can take to create viable markets is positive, but to do that we need to know why basic information is unavailable, to know just why hospitals and clinics cannot say, in advance of a procedure, “this is what we will charge you to conduct this procedure.” This is very basic to the operation of any functioning market, and the systematic absence of this kind of information is a pretty good index of just how abysmal our current situation really is.

  2. gabe says

    Richard:

    Actually, obtaining pricing information for most medical procedures (within certain “uncertainty parameters”) is not only possible but actually quite easy.

    Do as I do. I simply ask and have always been given credible information regarding costs. As an example, recently I required an MRI. I had the choice of obtaining this service at my Health Care provider’s hospital site or going to an independent provider of imaging services.
    The hospital was going to charge approximately $5,000 as due to government regulations such facilities are able to ADD a facility fee of several thousand dollars.
    Whereas, the independent provider, using the same equipment had a price of $2200. In fact, in the past when my eldest son required similar imaging services and was w/o insurance at the time, utilizing the same independent provider and paying cash, I obtained the service for $1240.
    Now one can ask why the difference between cash and insurance, but I suspect we all know the “games” that are palyed with pricing and reimbursement of medical services.

    However, if one is interested in determining costs, it is easily done. In fact, in my State it is the law. Medical providers must furnish a reasonably accurate estimate of costs upon request. The real issue is that for too long far too many people have been insulated from the costs of medical care via 3rd party intervention. In practice, this has served to raise expenditures in the health care sector and left little incentive for people to do what they are otherwise accustomed to do – shop pricing!

    Then again, maybe it is just me – I don’t like paying retail!!

    take care
    gabe

    • Kevin R. Hardwick says

      Gabe,

      It depends much on just where you live. In rural Virginia, the options are few. And determining just what the true out of pocket expenses really are is almost impossible. Local hospitals and clinics cut deals with insurers, and these vary from plan to plan and hospital to hospital. The details of these price structures are proprietary, so in some cases where business offices have the information, they can not dispense it. Moreover, you will not be billed just by the hospital or clinic. You will receive independent bills from physicians and others. Unless you want to forego procedures that your primary care doc tells you are necessary, you really have no choice save to sign up for the procedure without knowing just how much it will cost you.

      What you describe above is the way it should work. But it is emphatically not the way it works in practice, at least not in my experience. I think high deductible major medical insurance absolutely is the way to go, but only if the various medical providers can provide accurate information about costs. But in my experience, they can not.

      I do not mind paying for services for which I contract in advance. But agreeing to services in the absence of dependable price quotes is an invitation to larceny. The consumer medical market is badly broken.

      All best,
      Kevin

      • gabe says

        Kevin:

        I am sorry, but not surprised top hear that.

        I should add that my cost saving efforts have met with mixed response from my doctors. My G.P. thinks it great – but it is clear that my neuro guy looks askance at it and goes out of his way to make it difficult to get an appointment and has set it up such that i must personally carry a digital copy of my imaging results.
        Ha, ha! – that’s OK, my independent provider gives me that for free.

        take care
        gabe

  3. says

    I understand that it may be bad form to link to one’s own publication in a comment thread, but I addressed many of the issues described here some years ago in response to another commenter on a healthcare blog. A copy is here.

  4. Kevin R. Hardwick says

    Gabe,

    Markets require the rule of law, and thus government, in order to function. So your comment that in your state health providers must by law be transparent regarding pricing is intriguing. Can you elaborate? I would like to see such laws in my state, and indeed every state. If law is necessary for markets, then we need a lot more of the right kinds of law.

    Thanks!

    Kevin

    • gabe says

      Kevin:

      A number of years back, in response to consumer complaints, the Legislature enacted legislation that required medical providers (with usual small scale exceptions, I think) to provide upon request of the patient the most accurate estimate of costs for a given procedure. It is as simple as that – You ask, they tell!
      Obviously, given a somewhat involved surgery, the estimate is just that an estimate based upon expected outcomes – but who know if something goes wrong in surgery.

      However, for such costly medical engagements as imaging, routine surgeries, (hip / knee / joint surgeries) an expected cost is provided. Not having had any of these, I do not know if it must include the costs of medications, etc – but i did get a price for my son’s hernia surgeries – and it was spot-on (of course, not spot-on for my wallet but at least i could plan it out).
      It may be worth an effort on the citizens part to push for similar legislation at the State level. I wish you good luck in that regard.

      take care
      gabe

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