I was with you up to the point where you quote Betsy McCaughey, which is, you know, trolling or something . There's a long literature on the demand for medical technology and increases in cost and the resulting political economy effects -- Chandra and Skinner from NBER have a nice summary here (http://www4.gsb.columbia.edu/null/download?&exclusive=filemgr.download&file_id=3723 ).
The debate we need to have, but don't even know how to start, is the extent to which institutions and incentives can be altered to either allow competitive forces to use technology innovation to drive costs downwards (Andy Kessler could be your guest blogger for that one, or Clay Christensen); or, to allow other mechanisms to restrict demand for systemically underpriced, low value, high cost interventions. Again, given the political economy of entrenched interests, it all seems deeply unlikely.
Our ethical stance demands that we be blind to cost when prescribing treatment, but the iron law of scarcity means we may be giving up something far more valuable in exchange. That is, when a physician makes a treatment choice for a given Medicare patient (call her "grandma"), she is also making a choice denying spending on another public good (education, say), or extracting a tax from a healthy young person. Not only is there is no free lunch, the lunch we bought via the costly transfer turns out to be lousy.
The only glimmer of hope I can see is that a state with a stronger polity and sense of the social contract (Minnesota? Utah? Hawaii? Massachussetts?) will attempt some of the large institutional changes required to make these choices transparent on the margin. We clearly do not have the ability to do so at the national level.
All the money we waste on drugs and medical devices does go somewhere.
Mostly it goes to drug companies and device makers. The U.S. market is very, very friendly for these folks. Once they get FDA approval they don’t have to convince a government that theirs is the best treatment, or better than other treatments.
They just go out and sell.
Doctors are the gatekeepers to the U.S. market, not insurers and not the government. So drug and device makers get a full retail mark-up here, without the haggling over price and efficacy that are common in Europe.
This has acted as a subsidy to U.S. drug and device makers, an enormous subsidy they are now spending:
- Abbott Labs is buying the phama unit of Solvay Chemicals in Belgium for $6.6 billion cash. It’s their third big buy this month. They previously bought Evalve Inc. of Menlo Park, Calif., and LASIK surgery equipment maker Visiogen.
- Johnson & Johnson today bought 18% of Crucell, a Dutch maker of flu vaccines, for $442 million. J&J is also reportedly eying Vertex, best known for its hepatitus drug teleprevir. Bristol-Myers Squibb is also eying Vertex, Business Week reports.
- AstraZeneca, the British-Swedish drug giant, is reportedly raising the drawbridge and expecting a bid.
The action is not all one-way. U.S. companies are also worth buying thanks to the good deal they get at home. That’s why Sepracor, which makes inhalants, was bought recently by a unit of Japan’s Sumitomo. Nearly $160 billion in health care related deals have been done this year, mostly in the drug area.
UPDATE: Covidien, which is based in Ireland, also agreed today to buy Aspect Medical of Massachusetts, which makes brain monitoring systems, for $210 million.
This is the flip side of health reform. Any effort to push down health care costs could cost these companies money and power. This is what Betsy McCaughey was talking about early this year when she charged health reform treats health reform as “a cost problem instead of a growth industry.”
It is a growth industry. And you’re behind the growth. The question is whether you can afford to continue being so generous. The industry’s merger frenzy suggests the answer is no.
