Innovation and health-care metrics
In the debate over health-care, many other countries are held up as models of systems that, while not perfect, don't let anyone fall through the cracks and do a better job at avoiding preventable deaths than the U.S. The implication: keep your massive insurance premiums and plastic surgery and give me an effective, government regulated program.
The other industrialized nations seem to get more bang for their buck; across the entire 25 nations of the EU, according to an EU analysis of health-care spending and effectiveness, a mere 8% of GDP is spent on health as opposed to the US where we spend nearly double that at 15%. They don't give a tabular form of health-care spending as a percentage of GDP but it seems that in the EU15 (i.e., the Western European countries with whom our economies are most comparable) they spend more than the EU average; the text mentions that France and Germany both spend approximately 10% of GDP on health-care. However, one questions their metric on the rate of avoidable deaths when they note that
Whoa. So the German model of state-regulated organization of people into what are essentially health-care co-ops that get treatment from for-profit providers, is inferior to the public option model of Spain, a public insurance scheme in which most Spaniards take part? Or that the newer members (i.e. countries in Southern and Eastern Europe) are better too? Not to slander places like Spain and Greece and Slovakia (from where some of my ancestors trace their roots) but would you rather have the health-care accessible in Spain and Greece and the newer members of the E.U. than that, not of the U.S., but of Germany or France? Greece and Slovakia and Spain simply don't have the GDP and general level of technological advancement that make me confident that this metric is accurate.
But let's take the into account some other issues. One issue conservatives in opposition to the current legislation proposals bring up over and over is tort reform. One they do not is intellectual property. I have not heard once mentioned that one of the few sectors of the global economy where free trade has not been on the march as we've globalized the economy is pharmaceuticals. I heard some people ask at the health-care town halls why the U.S. government doesn't use its considerable bargaining power to get us the cheap drugs they have access to in Canada. The short answer is that if we paid the same as Canada for drugs there would be a lot less money for drug R&D. As a research scientist I'll tell you the way that funding is doled out by the Federal government via the NIH, sometimes the National Endowment for the Sciences and private foundations while meritocratic and not bad attempt at reaching an optimal distribution of limited public and charitable resources looks, in scale, like absolutely small potatoes next to what even a pilot program co-development contract with a big Pharma company looks like. Furthermore, even though an academic who, say, discovers a drug does not actually own the intellectual property rights to his discovery (generally the University or other research institution that employs him does) but if that drug goes on to be profitable, even though the revenue for the institution is only a royalty paid to license the drug, and then somewhere generally around 50-75% of the net revenue to the institution goes to the department, further research funding, etc, so a small fraction of a small fraction ends up with the inventor, that can still be enough to make that guy a millionaire many times over. (Note: this is an exceedingly rare consequence of becoming an academic scientist.)
At any rate, Big Pharma has that money to offer scientists with potential drugs to develop and the money to pay for licensing of basic science (they do their own proprietary, non-published R&D too) and also do things like have some of the most impressive biomedical journal libraries I've ever seen because they make a lot of money, it's true. They make most of their money in the United States market because a) it's a huge market and b) consumers or their insurers pay a lot more than people in other countries. In other countries, first of all, patent law differs and any disclosure of things like the molecular formula of a drug before an international patent is filed renders it public domain, whereas in the U.S. a placeholder can give drugs that were not developed in house at big Pharma R&D labs about a year of protection between say, publication or presentation at a conference and patenting. This is a small part of the problem, but it puts some drugs into the public domain in other countries that are profitable in the U.S. More importantly, other countries with nationalized health systems can basically make the pharmaceutical companies a pretty difficult to refuse offer (although not impossible; sometimes the most modern drugs for treating, say, a relatively rare cancer are not available in places like the UK because reasons of cost dictate that the national health-care system doesn't buy the drug) But generally, the offer is something like this: give us your drug at a price that is far below what it is in the U.S. but is still going to make you a profit in the sense that now that you've got the ability to mass produce the drug, the cost to make a pill is far less than the price on offer, or don't sell your drug in our country and reap no money at all. Let's see... the choice, after you've already done the R&D and built the factories is between: large volume of sales that generate far more revenue than they do expenditures on things like labor and materials, or have invested all that money in R&D and manufacturing and don't sell it to a huge swath of the world... Of course, that "profit" that the companies make when you look solely at the cost of making a pill versus how much the pill is sold for is not enough to both fund R&D and actually create real, net profits for the company which has to do lots of expensive R&D before it has a pill to offer,. Generally the difference is made up when companies recoup their less profitable sales with higher prices on U.S. consumers, who fortunately for big Pharma and foreigners but sadly for Americans, live in a country that does not engage in government price controls of pharmaceuticals (yet, anyways.)
We hear often asked "Why can't Americans pay what Canadians do for prescription drugs?" I think a better question is: Why can't the Canadians, the British, the Germans, the French, etc., pay as much in the future as Americans, which would be less than we pay now, but more than they do. Am I being unfair? Am I claiming that the Europeans are basically cherry-picking of expenditures made by the U.S. to sustain health care programs for a lower cost than they could if the U.S. didn't do what it does? Basically, yes. Let's take a look at, say, military expenditures. They slice a full fifth of the pie (20%) of the U.S. government's expenditures and the U.S. military frankly provides protection (sometimes literally, as in Germany and Japan and South Korea) and figuratively by providing a military option to deal with any rogue states who engage in aggressive acts for many countries whose health-care systems we can attempt to emulate like Germany, the UK, Canada and Taiwan. Taiwan is an exception to the following statement, but it certainly spends less on defense than it would if the U.S. didn't keep carrier groups in the western Pacific. With that exception, expenditures in the European and other industrialized countries by the government must be topped by the UK, which at 6.6%, spends almost exactly one third as much of its government expenditures as the U.S. spends about 4.5% of its GDP on its military; Germany spends a good bit less than a third of that at 1.3%. If we were in the opposite position and the EU spent so much on keeping the peace via military spending that we could go from 4.5% of GDP on defense to 1.3% and shifted that peace dividend to paying for health-care we'd basically have the disposable income of a country that spent a shade under 12% of its GDP on health-care, comparable to the 10% Germany spends.
The military situation is a non-sequitur, you might argue, we chose to be the global policeman or at the very least chose to invade Iraq, and at any rate we were the ones who demilitarized Germany and Japan and attempted to avoid military build-ups in other industrialized countries in the first place. True enough. A more direct issue of cherry-picking is the fact that as alluded to before in terms of prescription pharmaceuticals, all sorts of biomedical innovation takes place disproportionately in the U.S., where we spend more money per capita on R&D, driven by our more profit-driven health-care system, and the rest of the world reaps the benefits as medical devices, techniques, and basic knowledge generated in the U.S. become available for use in countries that have eliminated a powerful incentive to innovate from their health-care systems.
First of all, looking at research across a wide panel of biomedical research categories, using a metric of average impact of the research done in a field in a country (specifically "transferred Normalized Mean Citation Rate"--the world mean is 0 as will become obvious), the U.S. out competes every country in the world, with a mean of .155, versus a respectable .118 in the UK, but of the 6 large, industrialized countries in the study (the US, UK, Germany, France, Italy and Japan) the next highest value is Germany at .026, followed by France at .012, Italy at -0.052 and Japan at -0.111. That America's research would generally have an impact that much greater than Germany, original home of Merck (now an American company, natch) and once the land whose language was the lingua franca of science says quite a bit about their innovation. This measure in the field of Clinical Medicine is even more striking, with only the UK being competitive with the U.S., with the U.S. 0.165 and the UK at 0.093; Germany, France and Japan, all considered model health systems? They respectively come in at -0.029, -0.07, -0.10. Worse than the global average of scientific papers written.
OK, well, that's a metric about how good countries are at writing papers. What about the whole kit and caboodle of biomedical research. Glad you asked. Two countries in Europe outspend us on R&D as a percentage of GDP: Sweden and Finland. They spend 4% and 3%, admirably, compared to the U.S.'s 2.7%. The only model system frequently mentioned that comes close the U.S. is Germany at 2.4%, but as shown above, their bang for their buck is questionable. The study from which I'm quoting these new figures found something similar to Hu and Russeau, which is that per billion dollars of R&D dollars spent Germany generates 1200 and change citiations, compared to over 2600 for the U.S. Research spending in the original 15 EU countries (essentially Western Europe plus Greece) is 1.9% of GDP throughout the region compared to America's 2.7%, with generally less productive research, with 2665 citations per billion dollars spent in the U.S. versus 1723 for the EU-15.
This doesn't explain all the discrepancies but it points to the sources of some of them. We spend more on R&D because the market demands it as opposed to the state mandating how much we get. We get more bang for the buck because, heavily regulated though it is, U.S. research Universities and hospitals still are under more consumer pressure than their European counterparts to innovate. We pay more than we should because of a trade status quo where Pharmaceutical companies make up for nationalized price controls in the rest of the world by making up the difference by tapping the U.S. consumer. In other countries more regulated economic systems provide for less disincentive to becoming a doctor relative to the drop in pay (doctors in Germany and Japan make about half of what their counterparts in the U.S. do) because there is less income inequality. Regardless of how you feel about income inequality, it seems axiomatic that in a country with greater income inequality implementing cost controls to reduce the percentage of GDP spent on health-care by lowering doctors salaries will, ceteris parabis, mean more people dissuaded from becoming a doctor than in a country where more lucrative options are less plentiful and less profitable.
Health-care must be reformed. No one disputes this. But I question whether it's fair to argue, by implication alone, that the reason the U.S. spends so much more on health-care as a percentage of GDP is merely that we are lining insurance company CEO's wallets with profits. A number of structural factors mean that we spend more on research, are more productive in that research and therefore drive medical innovation in the rest of the world, and the cost of that innovation is therefore born disproportionately by the U.S. Similarly with prescription drugs, a trade regime that allows for price controls around the world leaves the U.S. consumer in a position where they pick up the slack for the a world of patients who are free riders. Simple structural differences in the countries like what a young person looking to make a career's options are, and the financial reward they will receive in relation to the amount of work they will do if they enter a health-care profession versus another profession all make U.S. health-care more expensive. We could nationalize health-care and control costs; in this country, though, doctor shortages of the type seen in Canada and Germany and Japan where their economic structures and socioeconomic and demographic pictures are more egalitarian and homogeneous than ours, would probably arise, and probably be worse than in those countries. In other words, before you say that big, industrialized countries aren't in financial ruin because they have more highly regulated health-care structures (and they spend less money, too) jumping to the conclusion that if we adopted the same structure that we could afford it (and the corollary that we'd actually save money) is far from obvious to me. I'd like to see these questions addressed before analogies to systems in other countries that differ in so many ways from our own are tossed about.
The other industrialized nations seem to get more bang for their buck; across the entire 25 nations of the EU, according to an EU analysis of health-care spending and effectiveness, a mere 8% of GDP is spent on health as opposed to the US where we spend nearly double that at 15%. They don't give a tabular form of health-care spending as a percentage of GDP but it seems that in the EU15 (i.e., the Western European countries with whom our economies are most comparable) they spend more than the EU average; the text mentions that France and Germany both spend approximately 10% of GDP on health-care. However, one questions their metric on the rate of avoidable deaths when they note that
Spain and Greece, which spend much less on health care than Germany (approximately 8% of GDP), do a much better job of avoiding mortality. Similarly, levels of avoidable mortality do not always refl ect levels of spending in the newer Member States either (Newey et al. 2004).
Whoa. So the German model of state-regulated organization of people into what are essentially health-care co-ops that get treatment from for-profit providers, is inferior to the public option model of Spain, a public insurance scheme in which most Spaniards take part? Or that the newer members (i.e. countries in Southern and Eastern Europe) are better too? Not to slander places like Spain and Greece and Slovakia (from where some of my ancestors trace their roots) but would you rather have the health-care accessible in Spain and Greece and the newer members of the E.U. than that, not of the U.S., but of Germany or France? Greece and Slovakia and Spain simply don't have the GDP and general level of technological advancement that make me confident that this metric is accurate.
But let's take the into account some other issues. One issue conservatives in opposition to the current legislation proposals bring up over and over is tort reform. One they do not is intellectual property. I have not heard once mentioned that one of the few sectors of the global economy where free trade has not been on the march as we've globalized the economy is pharmaceuticals. I heard some people ask at the health-care town halls why the U.S. government doesn't use its considerable bargaining power to get us the cheap drugs they have access to in Canada. The short answer is that if we paid the same as Canada for drugs there would be a lot less money for drug R&D. As a research scientist I'll tell you the way that funding is doled out by the Federal government via the NIH, sometimes the National Endowment for the Sciences and private foundations while meritocratic and not bad attempt at reaching an optimal distribution of limited public and charitable resources looks, in scale, like absolutely small potatoes next to what even a pilot program co-development contract with a big Pharma company looks like. Furthermore, even though an academic who, say, discovers a drug does not actually own the intellectual property rights to his discovery (generally the University or other research institution that employs him does) but if that drug goes on to be profitable, even though the revenue for the institution is only a royalty paid to license the drug, and then somewhere generally around 50-75% of the net revenue to the institution goes to the department, further research funding, etc, so a small fraction of a small fraction ends up with the inventor, that can still be enough to make that guy a millionaire many times over. (Note: this is an exceedingly rare consequence of becoming an academic scientist.)
At any rate, Big Pharma has that money to offer scientists with potential drugs to develop and the money to pay for licensing of basic science (they do their own proprietary, non-published R&D too) and also do things like have some of the most impressive biomedical journal libraries I've ever seen because they make a lot of money, it's true. They make most of their money in the United States market because a) it's a huge market and b) consumers or their insurers pay a lot more than people in other countries. In other countries, first of all, patent law differs and any disclosure of things like the molecular formula of a drug before an international patent is filed renders it public domain, whereas in the U.S. a placeholder can give drugs that were not developed in house at big Pharma R&D labs about a year of protection between say, publication or presentation at a conference and patenting. This is a small part of the problem, but it puts some drugs into the public domain in other countries that are profitable in the U.S. More importantly, other countries with nationalized health systems can basically make the pharmaceutical companies a pretty difficult to refuse offer (although not impossible; sometimes the most modern drugs for treating, say, a relatively rare cancer are not available in places like the UK because reasons of cost dictate that the national health-care system doesn't buy the drug) But generally, the offer is something like this: give us your drug at a price that is far below what it is in the U.S. but is still going to make you a profit in the sense that now that you've got the ability to mass produce the drug, the cost to make a pill is far less than the price on offer, or don't sell your drug in our country and reap no money at all. Let's see... the choice, after you've already done the R&D and built the factories is between: large volume of sales that generate far more revenue than they do expenditures on things like labor and materials, or have invested all that money in R&D and manufacturing and don't sell it to a huge swath of the world... Of course, that "profit" that the companies make when you look solely at the cost of making a pill versus how much the pill is sold for is not enough to both fund R&D and actually create real, net profits for the company which has to do lots of expensive R&D before it has a pill to offer,. Generally the difference is made up when companies recoup their less profitable sales with higher prices on U.S. consumers, who fortunately for big Pharma and foreigners but sadly for Americans, live in a country that does not engage in government price controls of pharmaceuticals (yet, anyways.)
We hear often asked "Why can't Americans pay what Canadians do for prescription drugs?" I think a better question is: Why can't the Canadians, the British, the Germans, the French, etc., pay as much in the future as Americans, which would be less than we pay now, but more than they do. Am I being unfair? Am I claiming that the Europeans are basically cherry-picking of expenditures made by the U.S. to sustain health care programs for a lower cost than they could if the U.S. didn't do what it does? Basically, yes. Let's take a look at, say, military expenditures. They slice a full fifth of the pie (20%) of the U.S. government's expenditures and the U.S. military frankly provides protection (sometimes literally, as in Germany and Japan and South Korea) and figuratively by providing a military option to deal with any rogue states who engage in aggressive acts for many countries whose health-care systems we can attempt to emulate like Germany, the UK, Canada and Taiwan. Taiwan is an exception to the following statement, but it certainly spends less on defense than it would if the U.S. didn't keep carrier groups in the western Pacific. With that exception, expenditures in the European and other industrialized countries by the government must be topped by the UK, which at 6.6%, spends almost exactly one third as much of its government expenditures as the U.S. spends about 4.5% of its GDP on its military; Germany spends a good bit less than a third of that at 1.3%. If we were in the opposite position and the EU spent so much on keeping the peace via military spending that we could go from 4.5% of GDP on defense to 1.3% and shifted that peace dividend to paying for health-care we'd basically have the disposable income of a country that spent a shade under 12% of its GDP on health-care, comparable to the 10% Germany spends.
The military situation is a non-sequitur, you might argue, we chose to be the global policeman or at the very least chose to invade Iraq, and at any rate we were the ones who demilitarized Germany and Japan and attempted to avoid military build-ups in other industrialized countries in the first place. True enough. A more direct issue of cherry-picking is the fact that as alluded to before in terms of prescription pharmaceuticals, all sorts of biomedical innovation takes place disproportionately in the U.S., where we spend more money per capita on R&D, driven by our more profit-driven health-care system, and the rest of the world reaps the benefits as medical devices, techniques, and basic knowledge generated in the U.S. become available for use in countries that have eliminated a powerful incentive to innovate from their health-care systems.
First of all, looking at research across a wide panel of biomedical research categories, using a metric of average impact of the research done in a field in a country (specifically "transferred Normalized Mean Citation Rate"--the world mean is 0 as will become obvious), the U.S. out competes every country in the world, with a mean of .155, versus a respectable .118 in the UK, but of the 6 large, industrialized countries in the study (the US, UK, Germany, France, Italy and Japan) the next highest value is Germany at .026, followed by France at .012, Italy at -0.052 and Japan at -0.111. That America's research would generally have an impact that much greater than Germany, original home of Merck (now an American company, natch) and once the land whose language was the lingua franca of science says quite a bit about their innovation. This measure in the field of Clinical Medicine is even more striking, with only the UK being competitive with the U.S., with the U.S. 0.165 and the UK at 0.093; Germany, France and Japan, all considered model health systems? They respectively come in at -0.029, -0.07, -0.10. Worse than the global average of scientific papers written.
OK, well, that's a metric about how good countries are at writing papers. What about the whole kit and caboodle of biomedical research. Glad you asked. Two countries in Europe outspend us on R&D as a percentage of GDP: Sweden and Finland. They spend 4% and 3%, admirably, compared to the U.S.'s 2.7%. The only model system frequently mentioned that comes close the U.S. is Germany at 2.4%, but as shown above, their bang for their buck is questionable. The study from which I'm quoting these new figures found something similar to Hu and Russeau, which is that per billion dollars of R&D dollars spent Germany generates 1200 and change citiations, compared to over 2600 for the U.S. Research spending in the original 15 EU countries (essentially Western Europe plus Greece) is 1.9% of GDP throughout the region compared to America's 2.7%, with generally less productive research, with 2665 citations per billion dollars spent in the U.S. versus 1723 for the EU-15.
This doesn't explain all the discrepancies but it points to the sources of some of them. We spend more on R&D because the market demands it as opposed to the state mandating how much we get. We get more bang for the buck because, heavily regulated though it is, U.S. research Universities and hospitals still are under more consumer pressure than their European counterparts to innovate. We pay more than we should because of a trade status quo where Pharmaceutical companies make up for nationalized price controls in the rest of the world by making up the difference by tapping the U.S. consumer. In other countries more regulated economic systems provide for less disincentive to becoming a doctor relative to the drop in pay (doctors in Germany and Japan make about half of what their counterparts in the U.S. do) because there is less income inequality. Regardless of how you feel about income inequality, it seems axiomatic that in a country with greater income inequality implementing cost controls to reduce the percentage of GDP spent on health-care by lowering doctors salaries will, ceteris parabis, mean more people dissuaded from becoming a doctor than in a country where more lucrative options are less plentiful and less profitable.
Health-care must be reformed. No one disputes this. But I question whether it's fair to argue, by implication alone, that the reason the U.S. spends so much more on health-care as a percentage of GDP is merely that we are lining insurance company CEO's wallets with profits. A number of structural factors mean that we spend more on research, are more productive in that research and therefore drive medical innovation in the rest of the world, and the cost of that innovation is therefore born disproportionately by the U.S. Similarly with prescription drugs, a trade regime that allows for price controls around the world leaves the U.S. consumer in a position where they pick up the slack for the a world of patients who are free riders. Simple structural differences in the countries like what a young person looking to make a career's options are, and the financial reward they will receive in relation to the amount of work they will do if they enter a health-care profession versus another profession all make U.S. health-care more expensive. We could nationalize health-care and control costs; in this country, though, doctor shortages of the type seen in Canada and Germany and Japan where their economic structures and socioeconomic and demographic pictures are more egalitarian and homogeneous than ours, would probably arise, and probably be worse than in those countries. In other words, before you say that big, industrialized countries aren't in financial ruin because they have more highly regulated health-care structures (and they spend less money, too) jumping to the conclusion that if we adopted the same structure that we could afford it (and the corollary that we'd actually save money) is far from obvious to me. I'd like to see these questions addressed before analogies to systems in other countries that differ in so many ways from our own are tossed about.
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