This is the fourth in a series of posts that explain economic reasons for opposing single-payer healthcare.
Chris Conover, Duke economist, has given us three reasons thus far including:
- Hidden costs of $1.1 Trillion in deadweight losses in 2017 alone – (Part I)
- More than half a Trillion dollars of added waste to our system – (Part II)
- Rationing of care costs ranging from $152 to $194 Billion in 2017 alone – (Part III)
Medical Innovation Adverse Effects
The fourth reason to oppose single-payer healthcare systems is the adverse effects it will have on medical innovation. Conover says the U.S. is by far the world’s leader in medical innovation. George Mason University economist Tyler Cowen put it this way over a decade ago: “The American health care system, high expenditures and all, is driving innovation for the entire world.”
The U.S. leadership in biomedical innovation is indisputable. According to Thomas Boehm, Medical Director at Jerini AG, the availability of funding “is the single most important factor explaining the dominant role of the U.S. in innovative research.”
- From 1988 – 2003, the U.S. invested more than 5 times as much as the EU in private biotechnology companies. (see graphic below)
- As of 2012, U.S. biomedical R&D spending amounted to 0.76% of GDP, compared to only 0.46% in Europe and 0.35% in Canada. Single-payer Canada devotes less than half as much of its economy to biomedical R&D as the U.S. does. (see graphic below)
- Although the U.S. economy accounts for only 16.2% of world GDP (2012), the U.S. accounted for 44.4% of biomedical R&D in the world.
- Private industry R&D accounts for 59% of total U.S. spending.
Pharmaceutical R&D Spending
The U.S. dominance in pharmaceutical spending is even greater than in biomedical research. The major reason for this is the U.S. is the lone major industrialized country not to impose pharmaceutical price controls. Profits in the U.S. pharmaceutical industry are approximately four times higher than in other countries. These increased profits are directly linked to pharmaceutical R&D spending.
How much would pharmaceutical innovation be reduced under a single-payer healthcare system such as “Medicare For All?”
Economist John Vernon has done simulations that show that if pharmaceutical prices in the U.S. were regulated (controlled) as other countries do, this would lead to a decline in industry R&D between 23.4 and 32.7percent.
The current social benefit economists calculate for the consumers of pharmaceuticals is about $1.4 Trillion per year. New drugs are estimated to amount to $100 Billion of this benefit in 2017. If there were a decline in industry R&D between 23% and 33%, the expected loss of social benefit would be about $23 Billion to $33 Billion under a Canadian-style system with price controls.
Increased Life Expectancy
There is another adverse effect of single-payer healthcare on pharmaceutical innovation. Columbia University professor Frank Lichtenberg has calculated the impact on life expectancy as a result of “New Molecular Entities” (NMEs) – new drugs approved. He estimates every NME increases life expectancy an average of 0.17 years every year.
Thus far in 2017, the FDA has approved 34 NMEs; in 2016 it approved 22 NMEs. Using the 2016 data, if single-payer price controls resulted in this number being reduced by 23 to 33%, it would imply the annual loss of 5 to 7 NMEs a year – which would reduce life expectancy by 1.5 to 2.0 months. Since there are nearly 4 million births a year in the U.S. that implies a loss of 482,000 to 692,000 years of life that might other wise been gained had innovation remained at current levels. If each life year is assumed to be worth $100,000, that represents a loss of $48 to $69 Billion.
How much would other medical innovation be reduced under Medicare For All?
Pharmaceutical R&D constitutes less than half (45.5%) of all U.S. medical research spending. If the cost-effectiveness of the other 54.5% were identical to pharmaceuticals, the aggregate social cost of lost innovation would range from a low of $50 Billion to a high of $152 Billion.
This other medical innovation actually exceeds pharmaceuticals in importance. Of the six most important innovations of the last 25 years, only two – ACE inhibitors for control of high blood pressure and statins to lower cholesterol levels – have been drugs. The others include MRI scans, CT scans, Balloon angioplasty and coronary artery bypass grafts. Imagine if these life-changing innovations had never happened as a result of adopting a single-payer healthcare system.