What most people, even professionals in the Health Care field, don’t realize is how skewed our public policy is toward promoting innovation in health care. This ever-changing world of new knowledge, new technologies, new treatments, and extensions of clinical education to keep up with all of it (doesn’t Magnet now require a doctorate, when less than a generation ago 2 and 3 year diploma nurses were VPs for nursing at good hospitals!!!)—- Anyway, the technical change in health care is widely thought to be responsible for at least  a third of the increases in spending since 1960, maybe up to half. —– THIS IS NOT JUST THE CONSEQUENCE OF incentives for UNBRIDLED SCIENCE IN THE FREE MARKET US ECONOMY.

Roughly, we spend about 1% of GDP (and 5% of Health Spending) on Bio Med R&D in America. Of this $150B or so a year, about 1/2 is spent by private industry, about 35% is funded by Federal taxpayers, and 15% is spent by other parties (foundations, universities) . Unlike other private investors, the taxpayers do not “own” or get any return on the YIELD of success that accrues to their investments in research (other than the benefits of progress) —  which of course are also available to the rest of the world.

The GOVERNMENT has been subsidizing health care R&D big time for many years, and more recently it has been actively protecting the viability of the vast Health Care R&D industry:

A. Patents-— the USG awards monopoly privileges to new chemical entities (and other things), giving them 18 or so years of monopoly power to charge whatever they want to consumers.

B. Taxpayer Subsidized basic research  —- taxpayer dollars have been flowing into R&D through grants to researchers from NIH, CDC, NCI, NSF, DoD, others.  Most of the money goes to BASIC research, from which additional investments must be made to create new products. Basic research is very important, but not something that private sector investors feel is worthwhile (because it often fails to produce viable pathways for commercial products). So the Feds divert tax dollars to do it–the results are published — and private companies can exploit the new findings to try to find viable products. The taxpayer gets nothing in return. The Chinese, for example, have a good R&D strategy that shows how this Basic-Applied distinction works. They spend virtually nothing on BASIC  research (unlike the U.S.) and put all their R&D money into APPLIED work (they of course can read the journals and learn all the new basic science without producing any for themselves. Patents aren’t available for new findings in physics, chemistry, or biology —   they are only available for potential commercial applications. Our tax dollars are therefore, subsidizing the Chinese APPLIED research machine that will soon exceed the size of the U.S. applied research machine.

C. Policy aimed at containing costs of health care in the country has exempted the R&D machine from being targeted. Their lobby is very effective, probably every bit as effective as the NRA in buying votes for elected officials. Policy has taken aim from time to time on Hospital spending, nursing home costs, medical procedure payment rates, and even administrative expenses and insurance underwriting. But, never R&D spending or pricing by the drug and device industry. The drug industry neutering the power of the DEA in the opioid epidemic punctuates the political power of the Health Care R&D Industry.

D. The ACA prohibition of using CE analysis to appraise the merits of new drugs and devices. In 1996, after 2 years of deliberation, the U.S. Panel on Cost-Effectiveness in Health and Medicine, composed of physicians, health economists, ethicists, and other health policy experts, recommended that cost-effectiveness analyses should use quality-adjusted life-years (QALYs) as a standard metric for identifying and assigning value to health outcomes

The Patient Protection and Affordable Care Act (ACA) created a Patient-Centered Outcomes Research Institute (PCORI) to conduct comparative-effectiveness research (CER) but The ACA says “The Patient-Centered Outcomes Research Institute . . . shall not develop or employ a dollars per quality adjusted life year (or similar measure that discounts the value of a life because of an individual’s disability) as a threshold to establish what type of health care is cost effective or recommended. The Secretary shall not utilize such an adjusted life year (or such a similar measure) as a threshold to determine coverage, reimbursement, or incentive programs under title XVIII”.So says the Congress about the idea of rationing (or controlling introduction of new technologies) into health care practice based on how effective they are vis a vis how much they would cost.

E. When Medicare part D was passed under W. Bush, it actively PROHIBITED Medicare from negotiating prices of drugs with the drug companies— forcing Part D to pay “list price” for all the drugs used by Medicare beneficiaries. Every other country like Canada, and all of our health plans here, pay around 50% of the list prices for using the same drugs used by Medicare beneficiaries. Bush had to negotiate this “deal” for the drug companies to get their support for Part D.

F. Orphan Drug Act (1983)— still provided Federal funds for small market drug R&D.Examples of some high priced orphan drugs are listed below (Haffner, 2017):

• $300,000 for Sarepta’s Eteplirsen for Duchenne Muscular Dystrophy,
• $375,000 – $700,000 for the BioMarin product Brineura to treat a rare subset of the rare Batten’s disease.
• $420,000 for Soliris of Alexion for hemoglobinuria
• $750,000 for Biogen’s SMA drug Spinraza
• $550,000 for Horizon Pharma’s urea cycle disorders drug Ravicti

G. Tax Credits for R&D expense by Private Firms (1981, 2015). Current tax law has an incentive aimed at encouraging R&D activities by private firms. This incentive is a tax credit (against earned profit taxes) for R&D expenditures.

H. Stevenson-Wilder Act ( 1980 ) — provided the possibility for private firms to make use of Federal Research Laboratories and opened the opportunity for research partnerships with the federal government.

I. Reverse Direction on the ACAs medical device tax. To generate revenue and slow the pace of introduction of new technology the ACA included a retail 2.3% sales tax on medical devices (scanners, etc.). That attempt to reduce the pace of innovation was reversed by the Congress.

Why the Bias in Policy?

The power and policy bias ultimately comes from the voters, who want the industry to be protected and nurtured. The piece i asked you to read about the “culture” in America is about this (Sasascus, The American, 2013). Americans want heroic health care. Ask anyone who worries about end of life care. We like to reward miracles of science in our culture, and this aspect of hope, and positive or optimistic attitude of Americans has always been the sources of the bias. We are different than the Europeans we fled from…. their cultures were rigid, no real chance of intergenerational upward mobility. We fled. We want better ways of doing things, we need science to show us a better way in all aspects of our life, we dont want to be trapped in a rigid and hopeless way of life when it could be better. We want this. We look to our NIH and NCI grants as a source of miracles of a better life, even more so than we look to our faith as a source of those miracles. We are different.

And our health policy reflects our unique culture.  That is, the absence of policy attempts to reduce price we pay for new technology, or regulations that would elevate the bar for new technology to be introduced into the health system or reduce the taxpayer investment in medical R&D. Or, even simple solutions like reducing years of patent protection or providing more price transparency for generic drugs. (Lieberman, S. M., & Ginsburg, P. B. (Brookings, 2017). Anything of these sort would reduce private sector investment in R&D. Americans don’t want that.

The policy bias is also reflected in the way government “looks the other way”, rather than by overt policy action. We fight over issues like the Medicaid expansions, and the generosity of the rates we pay hospitals and doctors. But we do not fight over the price of drugs, the pace of technology change, or the way drugs are marketed in America. Some issues are kept “off the table” by the R&D industry.

Marketing of drugs is an import issue. Influential doctors are paid to use, and to promote new drugs by manufacturers.These “bribes” help speed the uptake of new drugs. The local beer distributers here in Boston would be sent to jail for bribing bars to sell their brands. The well funded “push” to increase prescribing by such methods, often accompanied by “research grants” and “speaking fees” has supplemented the incomes of doctors for several generations, and corrupted the independence of doctors. The licensing authorities in states have looked the other way about all this “commercial influence” over practice. It is a shame.  Doctors are required by journals, if they author a publication, to identify conflicts of interest. Medicare and other insurers may limit the “self referrals” to labs or surgicenters owned by the referring physician.  If Licensing authorities were truly acting in the interests of the people, they should require practitioners to reveal all of their financial interests in the prescribing they may do.

Synopsis and policy regarding the FDA

The problem of reforming the FDA drug regulation functions is being suggested again. Good idea.The Globe reports (11/23/16) that Mr. Gingrich said “the FDA is a major prison guard stopping the breakout in health” and has called for the elimination of the FDA. I am not sure this would be a good idea. Before leaping to eliminate the regulatory functions of the FDA, lets consider again where we find ourselves in terms of Federal government policy regarding health care and medical technology.

We vastly outpace the rest of the world on health care spending per capita, and the vast majority of that spending is on curative specialty care, fueled by wave after wave of new knowledge, and new drug and other diagnostic and therapeutic technologies.

Yet, we are far behind the rest of the world in our health status. W.H.O. reports (in 2015) that the U.S. ranks 31st on worldwide longevity (right between Costa Rica and Cuba).

Yes, we have a seriously underperforming  and super expensive health system.The reform of the federal role in the health technology business needs to be seriously evaluated.

Reprise of the federal role:

1. Regulating safety and efficacy of new drugs and other technology (do they not harm people, do they more or less work as suggested). FDA nor other agency regulates price that is charged in any way.
2. Extensive taxpayer funded subsidies for new medical and health research (predominantly grant programs  from NIH and NSF) — of about$35-40B annually (compared to about  $60B spent by private companies) . The results of these research activities enable private organizations (including new ones started by academic researchers) to use the basic research findings to design new technologies. That’s why the basic research subsidies are funded by taxpayers in the first place! (And, by the way, the taxpayers do not get any payback or “ownership share” in the profitable new technologies that are spawned by the public research money).
3. The Government ensures that Drug companies get to charge high prices to Medicare enrollees (again, another taxpayer funded subsidy). Your elected representatives have made certain (by an explicit provision in the law) that the largest Insurer in the U.S. health system (eg Medicare) cannot negotiate the list price of drugs purchased from U.S. drug companies, as is done by  every health private plan and insurer in the U.S., and by Governments of other every other country in the world who wants to buy these U.S. drugs. Medicare pays about twice the price for the U.S. produced drugs as do citizens of Canada and other countries who buy the same drugs.

The government provides and enforces (free of charge)  a monopoly to all new drugs (and some other technologies) for up to 20 years. This means that no other firms can sell the same chemical entity until the patent expires. This allows the firms to charge whatever the market will bear, without worry of competition. This guarantees high prices, and substantial profit returns on successful R&D investments, and is intended (by our policy makers) to promote more private (company) investments in Research and Development to keep the wave after wave of new drugs coming.                                                                                                                                                                                                                  So, the U.S. taxpayer, through the actions of our government, have actively subsidized the research underlying new product development in drug companies, and also taken steps to make sure that taxpayers and other buyers of drugs in the U.S. here also pay more to buy drugs, and in the case of the tax payers supporting the Medicare program, more than people in other countries have to pay to buy the U.S. produced drugs.  Why did we do this? Presumably so that we can fuel the drug and technology companies with new knowledge and financial resources so that they will continue to invest in new product research to keep spewing out wave after wave of new products.                                                                                                                                                                                                  How fruitful is this engorged world of health care R&D ? Well, the industry is certainly attractive to scientific researchers from all over the world, who get visas to come here and work in our labs and pursue careers that are simply not available in their countries. And, recent research by Olfson and Marcus suggests that the efficacy of the recent research on new drugs (compared to the placebo) has been declining for 45 years ( Health Affairs, June 2013) as the volumes of research on new drugs has increased.  And, American longevity has continued to edge up over time, but so have all other countries.   It isn’t clear whether quality of that extended life is improved here.                                                                                                                                                                                                        Why do Americans keep reelecting these people who pursue these policies? In a nutshell, they don’t generally understand that the government (taxpayers, and medical bill payers) are largely responsible for subsidizing the interests of private drug and technology companies.  But, Americans also have a tradition of believing in high tech miracles of science are vastly better than engaging in healthier behavior at home. Every study that has looked at the determinants of preventable mortality in populations has shown that choices made in the household (diet, exercise, risk behaviors, etc.) is by far the key determinant of preventable mortality (more important than variations in genetics, environment, social factors and formal Health Sector). Americans just prefer to behave as they please, and when that gets them in trouble, they want a quick medical fix. Of course the curative health care sector (physicians, hospitals, etc.) support the policies too, because it drives utilization of curative services, and incomes of professionals engaged in curative care.

Yes, the  government’s policy needs some fresh thinking in this area of health care technology development.  Mr. Gingrich’s policy advice that  “the FDA is a major prison guard stopping the breakout in health” and has also called for the elimination of the FDA.   I disagree.  I doubt that Mr. Gingrich was thinking about  “breakout” in terms of health of Americans — nor even “breakout” in terms of the financial burden on taxpayers and bill payers. I suspect he was thinking about “breakout” in ROE for the stockholders of Pfizer, Merck, Abbot, Biogen and others. I cannot be sure. But, it seems that FDA and other aspects of federal policy regarding “breakout” could use a serious and transparent review soon. Current policy doesn’t seem to be producing as much a contribution to health as it might.