Americans are responsible for the vast majority of all health care innovations

[Voyager]

@athelas

Thiscaught my eye:It is known that many national healthcare systems are able to save money because of their monopsonistic market powers, which by definition bidd down price and reduce the quantity healthcare from what a competitive market would suggest. One consequence of this is less innovation: if you have fewer profits, you have less to reinvest in research and development. Since information diffuses freely, that implies that *the US, through its higher healthcare costs, is subsidizing much of the innovation that the EU benefits from.

If you disagree, how do you account for the differential in innovation between the two areas, when the EU has a greater population and GDP than the United States? If you agree, then the US going to a monopsonistic single-payer system would decrease the rate of global healthcare innovation (companies may raise prices overseas and get some revenue back, but not enough to compensate for the losses.) Where, then, does the utilitarian calculus stand?

First, clinical trials are the checking part of research, not the innovation part. They are kind of like stress testing a new material to see how it stands up to actual use.

Second, besides the other reasons given, the US has economy of scale, and can fund more and larger research projects than any single European country. I don’t know about medical research, but electronics research is most often done by multi-country consortia, unlike the US.

Finally, competition hardly encourages basic research. Compare the research done at Bell Labs during the monopoly period with research done by telecom today - basically zero. Research in computer science today is done by near monopolies like Microsoft and Google. Basic research is the first thing to go when there is a competitive threat. The situation you describe allows venture capitalists to assume the risk, but the greatest research funding is from that old socialist NIH.

I refuted the Nobel Prize glurge the last time it came up. It sounds like that good old American exceptionalism we here so much of - we have the best health care in the world, we have all the Nobel Prize winners. We have plenty of real achievements to be proud of, why make crap up?

[emacknight]

You know, if you really want to talk about the innovations that Americans almost entirely responsible you shouldn’t talk about health care, what you really want to mention is military.

The US has the largest, greatest, most technologically advanced military in world. Planes that can fly half way around the world, at supersonic speeds, undetectable by radar, drop precision guided bombs, then fly home–and soon they’ll do all that without a pilot on board.

So where does the money come from for all that research? Who is responsible?

[Cheesesteak]

@athelas

One consequence of this is less innovation: if you have fewer profits, you have less to reinvest in research and development. Since information diffuses freely, that implies that the US, through its higher healthcare costs, is subsidizing much of the innovation that the EU benefits from.

Even if I granted this fact as basic assumption for the debate, it wouldn’t change my support of US UHC.

I’m not entirely happy with the concept that I get to overpay for medicine so that other perfectly wealthy modern nations get to have the latest and greatest innovations on the cheap. They can pay their fair share, I want to reduce my spending to get closer to their level, then we can ALL discuss where the spending should be so that no one group (such as ME) has to overpay. A bunch of monopsonies working together to put prices at an affordable level that still allows for R&D.

[Dick_Dastardly]

The truth, as anyone knowledgeable within the system will tell you, is that private companies just don’t do basic research. They do productization research, and only for well-known medical conditions that have a lot of commercial value to solve. The government funds nearly everything else, whether it’s done by government scientists or by academic scientists whose work is funded overwhelmingly by government grants.

It’s just simple math: if you have a condition that has a relatively small number of patients, there’s just no market incentive to sink a great deal of time and money into researching it. This is why you’ll usually find that 100% — not a majority, the entirety — of the research into a cure is done either via taxpayer-funded grants to academic researchers or, more frequently, it’s entirely found on the NIH campus.

Organ transplantation? Just about 100% is funded by NIH. Low prevalence cancers, or cancers with low survival rates? Just about 100% of all three phases is funded by NIH. You start to understand how this works.

“The innovation argument McArdle makes is silly because it presupposes that the government actually controls the research direction,” says my NIH friend. “The overwhelming majority of our money is devoted to RO1 research. A scientist in a lab has an idea he wants to pursue and writes a grant application. A few times a year the various institutes at NIH convene panels of academic researchers to evaluate the ideas and rank order them. We then issue grants based on the rank order.”

This is one of the many reasons that, when it comes to real innovation, most of it originates in the academic labs, funded by the taxpayers. It’s also one of the reasons that the boards of biotech start up companies are heavily populated with top NIH funded researchers. The bright line between public and private efforts on the research front exists only as a very dim separation in some areas, if at all.
http://www.newledger.com/2009/07/how-medical-breakthroughs-happen-a-response-to-megan-mcardle/

[gonzomax]

Hernia operations in the states required over a month of downtime back in the 70s. Across the river from us .the Canadians were doing the operation and putting people back to work in days. That is when I had mine.
Eye surgery to improve vision was being performed in Windsor with better results and superior technology for a decade or so before Detroit suburbs got into it. Many Americans still go to Windsor to have their eyes done. From the days of RK to Laser they have been ahead of us. They are also a lot cheaper.

[Cornelius_Tuggerson]

@sleeping

Except that I’ve never heard of a pharm company spending more than 15% of its budget on R&D. And most of the basic research is done at NIH; the private companies mostly take care of the marketing, which is the biggest portion of their budgets (and why they charge so much for their products–all those ads can get expensive).

You’re wrong. The pharma companies take NIH/research findings and turn them into products suitable for use in humans. They spend immense amounts of money on early stage and FDA trials, they assume all the financial risk for drugs and treatments that fail and do not get approved. The government does not want to do that because it can not afford to. The ads you see are mostly for things that are already approved, they use them to maximize their profits from risky investments as any good business does.

[Voyager]

@Cornelius_Tuggerson

You’re wrong. The pharma companies take NIH/research findings and turn them into products suitable for use in humans. They spend immense amounts of money on early stage and FDA trials, they assume all the financial risk for drugs and treatments that fail and do not get approved. The government does not want to do that because it can not afford to. The ads you see are mostly for things that are already approved, they use them to maximize their profits from risky investments as any good business does.

When you accuse someone of being wrong, a cite might be nice. You are in fact wrong, and here is mine.

ScienceDaily (Jan. 7, 2008) — A new study by two York University researchers estimates the U.S. pharmaceutical industry spends almost twice as much on promotion as it does on research and development, contrary to the industry’s claim.

The researchers’ estimate is based on the systematic collection of data directly from the industry and doctors during 2004, which shows the U.S. pharmaceutical industry spent 24.4% of the sales dollar on promotion, versus 13.4% for research and development, as a percentage of US domestic sales of US$235.4 billion.

Marketing expenses count for a lot more than advertising. Drug companies send around sales reps to doctors pushing samples on them. They do not directly sell to doctors, just try to encourage them to prescribe their drug. I seem to recall a Times story saying former cheerleaders are very good at this job.

Government doesn’t do the trial not because they can’t afford to, but because developing products has not been considered to be the role of government, which suits me fine. There is a lot of innovation in product development, but the big stuff that gets Nobel Prizes is pretty much mostly done in universities, under government grants.

[athelas]

A blog postagainst the idea that 15% is irrelevant for innovation:

This makes about as much sense as saying that Dr. Jerry Avorn cannot be that smart because his brain only weighs about three pounds. Presumably, you can't be really smart--really innovative--unless your brain is at least 30 percent of your body weight!

This is obviously ludicrous--so why would Dr. Avorn say it about an R&D department? Like your brain, the R&D department is part of a complex system that does a lot of important stuff. You can argue that the R&D department is the most important part of a company, not least because it couldn't survive long without it. I think the same thing about my brain--but I'd still be just as dead without my liver. You certainly can't prove anything about my effectiveness as a journalist by pointing out that [my brain] weighs less than my bones. So how big should a "brain" be? Hard to say. But let's look at some companies that are generally recognized as pretty innovative, and their R&D as a percentage of revenue:

Apple:  three cents out of every dollar

Google:  ten cents out of every dollar

Intel:  fifteen cents out of every dollar

Genzyme (innovative biotech startup!):  sixteen cents of every dollar

US Government:  three cents out of every dollar

I can assure Dr. Avorn that any venture capitalist would be happy to invest in these hidebound laggards who haven't had a new idea in centuries. The first few, anyway.

[emacknight]

@athelas

A blog postagainst the idea that 15% is irrelevant for innovation:

I’m not sure I understand what your point was with those stats. They show research as ranging from 3% to 16% of revenue. Any idea what that would be in terms of their budget, which would relate to Sleeper’s point?

Can you also point out why you think revenue will fall if the US switches to some form of UHC?

[emacknight]

To answer a bit of my own question:

In 2008 Merck had a total revenue of $23.8 billion, they spent $4.8billion on RnD and $7.377billion on selling related expenses. So about 20% of total revenue spent on RnD.

For the same year, their gross profit was $18.2billion, with operating expenses of $14billion, and a net after tax income of just under $8billion.

So they spend 20% of their revenue on RnD, or 34% of their operating budget.

[Voyager]

@athelas

A blog postagainst the idea that 15% is irrelevant for innovation:

You and your cite are mixing R & D. 13 years ago I was part of that 15% for Intel, and I can testify I did 0 research. It was all development - implementation of a new processor. Intel does have research, but it is fairly small relative to the size of the company. For Microsoft guys hacking out new Office code are in R&D, but the innovation (except innovative new bugs) is a bit in question.
When I was in Bell Labs my group was usually about 50% R and 50% D. The D people were working on immediate issues, the R people were looking 3 years out. Bell Labs Research (Area 11) looked 5 years out. They were more researchy than I was.

And of course, startups with no marketing expenses are going to be putting a lot more into R&D than established companies - and it will be closer to the R side.