Wednesday, December 30, 2009

Clinical Innovation - Health Reform Threatens U.S. Lead in Medical Innovation

U.S. Lead in Medical Innovation Under Threat from Reform Bills

By: Kishore Jethanandani

Preface: In the following article, in Health Care News, published by the Heartland Institute, the author quotes my views, as well as those of other authorities on innovation on the negative impact of reform. Her main points are; 1) current reform bills undermine innovation; 2) the U.S. outperforms socialized systems in developing new drugs, devices, and information technologies by a wide margin, largely due to market-based compensation incentives.


A new study measuring medical innovation puts the United States at the top of the list for advancements, identifying an area where the benefits of a free market system are clearly outweighing those of socialized medicine, an advantage the health care legislation currently under consideration could seriously undermine.

Outperforming Socialized Medicine

Many proponents of socialized medicine point out the American health care system spends more money and performs poorly compared to government-run systems in Canada and Europe. A World Health Organization study conducted in 2000—which was abandoned after methodological flaws were identified—indicated the United States lags behind countries with socialized medicine in metrics such as life expectancy and infant mortality.

Yet one measure of progress—medical innovation—was conspicuously absent from most studies until the Cato Institute released a new report, “Bending the Productivity Curve: Why America Leads the World in Medical Innovation,” by Glen Whitman and Raymond Raad and published in November 2009.

U.S. preeminence in research is indicated by the number of Nobel Prizes awarded for medicine, and by roughly $30 billion in annual research spending via the National Institutes of Health versus $4 billion in all of Europe.

“Of the 95 recipients in the past 40 years, 57 (60 percent) were from the United States, while 40 (42 percent) were from the European Union countries, Switzerland, Canada, Japan, or Australia—countries whose combined population is more than double that of the United States,” the authors write. [Editor’s note: Two recipients are identified by the authors as being from both the United States and another country.]

Measuring Actual Effects

The study concentrates on truly effective innovations and avoids standard but potentially deceptive measures such as expenditures on research and development or bald numbers of new products launched, in diagnostics, therapeutics, and pharmaceuticals.

“Innovation is best measured by looking at advances that have withstood the test of time and are widely regarded as having had important positive effects on health care,” the authors write.

The researchers took a list of 30 major innovations in diagnostics and therapeutics and ranked their importance based on feedback from 225 leading primary physicians.
“[Of the] 27 innovations for which a country was identified, work performed in the United States significantly contributed to the invention or advancement of 20, including nine of the top 10.” Regarding drugs, “Sixteen of the 29 representative drug classes were developed in the United States, while 15 were developed in the EU or Switzerland.”

A key factor explaining these vast differences is the role market-based compensation plays in the United States, the authors note.

“Single-payer and other centrally organized health care systems, like those in much of Europe, are characterized by a great deal of monopsony [buyer] power that pushes down compensation. Prices for prescription drugs in Europe are 35 percent to 55 percent lower than in the United States,” they explain.

Infant Mortality Myth Busted

The study criticizes certain metrics, particularly references to infant mortality, a measure that has come under fire from other observers.

“Americans are far more aggressive in trying to save the lives of tiny premature babies. In some of the world’s most advanced nations where governments run the health care system, prematurely born infants are viewed as too expensive. It is just not cost effective to allow them to be born,” notes Gregory Dattilo, coauthor of Your Health Matters (Alethos Press 2006, $24.95).

Socialization Hurts

According to Tevi Troy, a senior fellow at the Hudson Institute, a U.S. move toward a more socialized system could erode the incentives that drive innovation in drugs, devices, and information technology here.

“The unlocking of the human genome and knowledge of the micro-level determinants of human health, health informatics and the thousands of records that help us understand what works, and personalized medicine are in jeopardy with price controls and additional fees,” said Troy.

Dr. Richard Reece, a consultant to several innovation-focused health care companies, agrees the reform plans under consideration in Washington could suppress innovation.
“Many of the new innovations, especially in medical devices, are tied to new business models for reducing costs and improving quality”, said Reece. “These devices are often developed or adopted in creative ways by small primary physician groups to save costs by reducing the need for recourse to specialists. Small physician groups can barely afford to set aside the time and financial resources to organize their practices for new technology and will be adversely affected when costs of equipment rise as a result of taxes charged on medical devices.”

Undermining Innovation

According to Grace-Marie Turner, president of Galen Institute, which recently held a conference on health care innovation in Washington, DC, the proposed health care reforms will centralize decision-making within the government and create a climate of uncertainty.

“Comparative effectiveness research will add another layer of uncertainty and costs for emerging biotech companies on top of compliance with FDA rules,” said Turner. “Medical devices such as implantable defibrillators have already encountered obstacles due to a preference for lower rates of compensation by Medicare, and health care reforms will extend these disincentives for innovation.”

Jason Hwang, executive director of the Innosight Institute, a health care consulting firm in Massachusetts, agrees.

“Innovation is possible when patients have choices and are empowered to make decisions,” said Hwang. “The proposed health care mandates and comparative effectiveness research based government decision-making will undermine innovation.”
Kishore Jethanandani ( writes from San Francisco.

Online Resources:“Bending the Productivity Curve: Why America Leads the World in Medical Innovation,” Cato Institute:


Dale B. Halling said...

The report is absolutely correct that a socialized medical system will hurt medical innovation. Unfortunately, the article does not mention the negative effects of socializing our inventions, medical and otherwise. The U.S. has weakened its patent laws significantly since 2000 and this is hurting medical innovation and innovation generally in the US.

The key to US innovation, including medical innovation is a thriving entrepreneurial start-up ecosystem. Unfortunately, since 2000 we have passed a number of laws and regulations that are killing innovation in the US. Technology start-up companies are built on intellectual capital, financial capital, and human capital. All three of the pillars have been under attack since 2000. Our patent laws have been weakened reducing the value of intellectual capital. Sarbanes Oxley has made it impossible to go public reducing financial capital for start-ups and the FASB rules on stock options have made it harder to attract human capital to start-ups. My forthcoming book The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation, explains these problems in more detail. For a preview see

muebles en fuenlabrada said...

This cannot work in fact, that is what I consider.