But there’s a dilemma: policymakers want to foster cost-saving competition without killing the financial incentives that have put the U.S. biotechnology industry at the vanguard of medical science and without stifling the development of even more drugs that could save lives and eliminate suffering. Finding that equilibrium goes to the question of how long biotech firms should be guaranteed exclusivity, outside the protection of their patents, before copycats can begin using the data they have developed.

This is a somewhat misleading way of framing the dynamic. On the one hand, yes – patents guarantee profits, which spurs companies to innovate. But their innovations are not necessarily a net benefit to social welfare. Take the example of Remicade, J&J’s blockbuster biologic for Crohn’s, RA, psoriasis, etc. It made billions of dollars for the company, and led other companies to innovate new drugs, eg. Humira, Enbrel, Cimzia. Even though the new drugs are technically new, they all use the same basic mechanism; they’re all anti-TNF-α antibodies, which means they all work about the same and have about the same risks.

Biomedicine is so complex that each company can create a drug just different enough from the others to be awarded a patent, which protects them from generics and guarantees their ability to demand high prices. Then they market the drug to patients and doctors as if it’s the latest and the greatest. So the drugs all have patents, they are all expensive, and they all do pretty much the same thing: how is this situation better for consumers than were generics made legal? It’s not, as far as I can tell.

Moreover, the same companies ignored or abandoned promising research in other biologic and non-biologic therapies, and focused on the guaranteed profits from anti-TNF-α. If you can’t get TSO or J695 or LDN for your Crohn’s, it’s because there’s sure money in anti-TNF-α. Other drugs are slightly more risky from a financial perspective, even if they might ultimately be better for patients. There’s every reason to think that if we guarantee profits in biologics, that’s what we’re going to get. There’s no reason to think we’ve exhausted the possibilities of conventional therapies for most diseases, and biologics bring a whole new profile of side effects and risks that we are still learning about.

Second, there’s this bit:

That means it can be hard to find a truly independent viewpoint, though it often requires deep digging into the finances of advocacy groups to discover their ties. In July, one calling itself the National Health Council wrote letters to members of Congress “on behalf of 133 million Americans” asking for a minimum of 10 years of data exclusivity. The group boasts a membership that includes 50 of the nation’s largest patient-advocacy groups, including the American Cancer Society, Easter Seals and the National Kidney Foundation. But its board of directors reads like a Who’s Who of top pharmaceutical executives from Amgen, Pfizer, Novartis and Bristol Myers Squibb. Its 2007 tax filings show that almost half its $2.3 million budget came from PhRMA and drug companies.

This also means that when the ACS, Easter Seals, and Kidney Foundation talk about health reform – if ever – they do it with influence from the pharmaceutical industry. (Along the same lines, you might re-read this post about the National Patient Advocacy Foundation.) Which is to say, we can’t really trust advocacy organizations to speak solely for our interests of patients. Virtually all of them get money from pharmaceutical companies, and for many that is the largest source of funding. Many of them include pharmaceutical executives on their boards or advisory councils.

It is entirely likely that you will more for your medicine – a lot more – because your organizations were unable to stand up to Pharma. This is why it’s so important that patients speak up, make themselves heard, and don’t wait for their disease’s organizations to do it for them. They won’t. They can’t.

One of the ideas that comes up in the search for explanations of high healthcare costs is the so-called “Moral Hazard”—the idea that insured patients are more likely to agree to unnecessary procedures because they don’t pay for them directly. Not everyone thinks it is real [...] Recently, I’ve become convinced that the Moral Hazard does exist. I’ve seen it with my own eyes.

You should know that moral hazard only comes up in ideologically-driven explanations of high healthcare costs; the phrase serves mostly as an appeal to economics to justify forcing sick people to pay more for their care. In a post titled, The Myth of Moral Hazard, I argued against such explanations.

AMS provides as an example of moral hazard an anecdote from a geneticist’s practice, where a patient gets a test that does nothing but confirm a diagnosis. AMS argues that because certainty isn’t medically necessary, this test was ultimately a waste of money – an example of moral hazard. The problem is that AMS doesn’t offer any evidence that the patient wouldn’t otherwise pay for the test herself. And I would bet dollars to doughnuts he would.

Here’s why: Crohn’s disease has a strong genetic component, but nobody else in my family has it. I am the ‘lucky’ one. And the fact that I was switched at birth may have something to do with that.

As the story goes, I was only switched briefly. While still in the hospital, my mother was handed the wrong baby. She soon realized the mistake, and shouted “Wrong-g-g-g-g Bay-y-y-y-be-e-e-e-e” at the top of her lungs. The nurses moved like the place was on fire, and brought her the right baby. I don’t know how they knew which baby was which, apart from the name bracelets, but it has occured to me that the bracelets might have been on the wrong babies.

My mom says she knows I was the right baby, too, and I accept that. But still: there is a chance that I am the wrong baby. It’s a very, very slim chance – one in a thousand, maybe – but enough to make me uncertain about my family medical history. Maybe Crohn’s is more rampant in my family than I think. And that uncertainty bothers me – not a lot, but enough that I would pay to resolve it. If I could get my mother’s consent without upsetting her, I would easily pay $300 just to find out for sure, and maybe as much as $500. I would pay a lot more if I were planning on having kids of my own – even though it has no bearing on whether they will get the disease. I would pay, just to be certain. And I would bet the same was true of AMS’s patient.

Even if I am wrong – if the patient would not have paid for the test – AMS presents a very weak argument for moral hazard being a problem in the system. By the same logic, I could argue that not putting lead aprons on x-ray subjects is a serious problem in health care, simply because it happened to me one time. I’ve seen it with my own eyes. The myth of moral hazard isn’t that it never happens; AMS will likely run into many more equally trivial examples in his career. Rather, the myth is that ‘fixing’ moral hazard – i.e. making sick people pay more for their care – will fix the health care system.

And for those wondering: the wrong baby’s last name was Cross. If your last name really is Cross, and you were born in Sarasota, and you’re the only one in your family without Crohn’s disease: please email me right now.

Among his pet notions is the health-care savings account – HSA – as a way to give “consumers” more direct responsibility for paying for their healthcare. It’s one of those ideas that sounds great in the abstract, but runs into trouble when confronted with reality.

So you might understand how Goodman would latch onto any evidence that even hints at HSAs working in practice, and that’s exactly what he does here:

UnitedHealthcare is now using HSAs and health reimbursement arrangements (HRAs) to do something that almost never happens: aligning health incentives with economic incentives.

He explains that United is offering a program that tracks and monitors chronically ill people closely, then offers financial rewards if they comply with their treatment regimen. There’s one problem with his take: the program has nothing to do with HSAs. You can read the story Goodman’s cribbing from, but it’s pretty clear that HSAs aren’t part of the program. Goodman is either fudging – or illiterate.

Still, this is an interesting idea: pay patients to take better care of themselves, so that they don’t generate additional costs for the rest of the pool. Goodman is sorta right – the economic incentives and health incentives in our society are not well aligned – but he’s mostly wrong. The problem and the solution isn’t in how patients pay for their care, it’s in the care itself. Even a fully insured patient faces significant costs in our medical system – in the form of co-pays, deductibles, lost time, pain and discomfort, frustration, risk of serious injury, and so on.

That is to say, there are many, deep structural disincentives to staying healthy, and United’s plan won’t really solve those. (Neither will HSAs.) Reimbursement might help some folks stay healthier in the short run – and that would be a good thing – but in the long run, we really do need to fix the system.

Goozner makes clear that Postrel is wrong wrong wrong on the science, but she’s also wrong on the economics. Postrel implies that the incentive structure of the U.S. health-care system creates a unique market for “complex new drugs” – which, presumably, are more effective than simple old drugs. But the U.S. market is only unique in that it creates very expensive drugs. The drug companies don’t have any incentive (much less a requirement) to produce drugs that work better than older cheaper medicines, so they make drugs that cost a lot more with only marginal benefits. Goozner gets at this in his discussion of the studies behind Herceptin: there’s only an 8.4% improvement from the new drug over the old ones, at an additional cost of $60,000. This is a major flaw in our system: we’re spending a lot more money but not getting much more benefit. This is a manifestly unsustainable system, yet Postrel celebrates it because it “cured” her cancer.

The worst part of this article – even more than the shoddy science and economics – is Postrel’s appalling self-absorption. For all her talk about difficult “trade-offs” she yet ignores the fact that the system that makes her over-priced cancer drug available comes at the cost of tens of millions of people who can’t afford health care at all. The reason trade-offs “get harder” in public systems is that those decisions are foreordained in our system: rich people get health care, poor people don’t, and sick people get squeezed for every penny they can afford. The difference in publicly-financed systems is that these trade-offs are subject to public debate. Postrel might not like her chances in that system, but for the rest of us it’s more or less the definition of “democracy”.

The drug and medical-device industries are mobilizing to gut a provision in the stimulus bill that would spend $1.1 billion on research comparing medical treatments, portraying it as the first step to government rationing.

[...]The administration hopes to expand coverage while limiting use of treatments that don’t work well, but any efforts that might reduce coverage are politically sensitive.

One of the most insidious secrets in medicine is that new drugs are often less effective than old drugs at treating diseases, while having worse or unknown long-term side effects. So when your doctor writes for something “stronger”, he might just mean “more dangerous”.

As an example, I burned out on mesalamine – a fairly safe, well-established drug for treatment of IBD – and was prescribed something “stronger”: infliximab. I thought this meant infliximab would be better at treating my disease than mesalamine, which kept me in remission for a long time. But it didn’t: infliximab did a worse job of keeping me healthy, with much worse side effects. It nearly killed me. It was only until I read through this slideshow that I understood my mistake: infliximab is no better than mesalamine for Crohn’s (and much worse for UC). I’m not sure most gastroenterologists know that.

So it would be really helpful to sick people and their doctors if there were reliable data comparing new treatments to old treatments. Currently, the FDA doesn’t require such studies – only that new drugs be better than a placebo. The provision in the stimulus bill would address that problem, but it would mean a lot of newer, profitable drugs would be shown to be less effective than older, cheaper drugs. Of course, the pharmaceutical industry is fighting the proposal, so they can continue driving sick people into bankruptcy for their meds.

Krugman is right: “This is truly vile.”

Any student of Econ 101 knows that economists measure costs by opportunity costs, meaning everything that is given up to get something else. Time spent interacting with the medical system could be used for other activities, such as work and leisure. Moreover, spending time getting medical care is not fun. This time should be counted as part of the cost of health care. [...]

Patient time is an important input in the health care system. Failing to take account of patient time leads us to exaggerate the productivity of the health care sector, and to understate the cost of health care.

The time that patients spend seeking, receiving and paying for health care services is just as real as the dollars they spend for medical services. Health care providers and insurers should be mindful of the opportunity cost of patients’ time.

What makes this study different from those I’ve criticized is that the author begins from the patient’s point-of-view. Obviously, I am more sympathetic to this approach. In particular, this study offers a pretty clear refutation of the claim that most patients don’t bear a substantial cost for their health care. They do – in the form of lost time.

For example, Kevin links to an op-ed by a “free-market advocate” physician named Paul Hsieh. The op-ed is little more than a list of anecdotes from elsewhere, with scare quotes thrown in here and there – “reeducation” – to make it sound more ominous. But this post isn’t really about the op-ed.

Hsieh is the founder of Freedom and Individual Rights in Medicine. From their website:

Freedom and Individual Rights in Medicine (FIRM) promotes the philosophy of individual rights, personal responsibility, and free market economics in health care… Federal and state regulations and entitlements, we maintain, are the two most important factors in driving up medical costs. They have created the crisis we face today.

In Dr. Hsieh’s home state of Colorado, one of the key state regulations driving up medical costs is called Section 12-36-107; it sets the standards for physician licensure. Economics will tell you that the reason physicians cost so much is that they are relatively scarce. Colorado helps enforce the scarcity of physicians through licensure; requirements include “proof of graduation from medical school” and “passage of nationally recognized exams”. Who decides what counts as an accredited medical school? Other physicians. Who writes the exams? Other physicians. Section 12-36-107 in effect gives current physicians the ability to restrict the supply of competitors, thus ensuring higher salaries for themselves. (The fact that other actors – med schools, insurers, hospitals – have gotten their hooks into these salaries is a somewhat different issue.)

In a truly free market, the government wouldn’t require licenses of physicians (or, for that matter, require prescriptions for drugs). People could choose whether they wanted a doctor that finished med school, or passed their exams, or had sufficient experience, et cetera. Most people would want a physician with those qualifications, but some people would not be able to afford such care. Those people would settle for less-qualified physicians and the consequent risk of bad medicine, reasoning that something is better than nothing. But in Dr. Hsieh’s vision of free-market medicine, such people would have no access to care at all; they would be completely cut off from medical care because they can’t afford it.

We, the patients, generally think it’s okay to require government licensure of physicians, because it protects us from potential harm. But this is exactly the logic that Hsieh decries as “nanny-statism” when it comes to regulations that he thinks are keeping him from earning more money. If he doesn’t think people should use government to protect themselves from real harm, he can’t argue that government should protect his income. It takes zero principle and more than a little ignorance to argue for the “free-market” if you think that “the market” will earn you more money. In fact, truly free-market competition for medical services would likely drive down the costs – and incomes – for all providers. I, for one, would like to reclaim my “right” to buy medicine without interference, but instead the government says I have to pay my doctor for a prescription.

If Dr. Hsieh wants to dismantle the nanny-state, he should start where he has the most clout: physician licensure. But you won’t hear him arguing against licensure, because he’s only against government where he thinks it’s making him poorer. He’s all for dismantling regulations that protect patients, even if those changes make his patients sicker. Judge for yourself what sort of physician that makes him – but he’s certainly no economist.

I agree with his critics that this piece is mostly a failure, but a lot of the problems he describes in primary care are problems that I’ve actually experienced as a patient – especially the appointment lag. So I actually agree with Glauser’s argument “that many of the failures of our health care system are exactly the failures of and by the primary care system”. Where he and I differ is that I think the system needs to be reorganized, expanded, and better funded. I think the medical home model offers the best plan to do all of this. Glauser doesn’t really have an alternative.

That said, I think there’s a right and a wrong way to criticize posts like Glausers. Most of the above are reasonable critiques. Peter’s critique at Medical Pastiche – using game theory – is a pretty silly way to do it. I don’t know that much about the internal hierarchy of the medical profession; I had to go here to learn about the RUC(pdf). I do, however, know a fair bit about game theory – especially its uses and abuses on public policy issues.

The problem with Peter’s use of Prisoner’s Dilemma is that it’s utterly trivial; you can frame just about any coordination problem as PD, if you strip away the messy details that make real life problems interesting and difficult. Furthermore, his solution is wrong: if doctors are really in a (single iteration of) PD, their only rational strategy is “betray”.  Either you’re in PD, in which case “betray”, or you’re not; Peter’s wrong both ways.

Worst of all, in his use of PD to argue that doctors ought to be looking out for one another, Peter ignores the fundamental question Glauser is raising – about how doctors, and medicine more generally, can best look out for their patients.

Whatever Glauser’s failings as a columnist, he has this over Peter: he evinces a sincere desire to help the people he serves.

NB: Whatever Peter’s failings as an social scientist, I should point out that he has recently been to Afghanistan doing medical work (charity?), and that is an entirely noble and worthy activity for which I applaud him.