A new study shows health care regulations will pose a "clear and present threat to social welfare."
A major segment of ObamaCare will force cuts in drug and medical device research that “will kill more people than it will help,” according to an astonishing study quoted in Reason Magazine May 24. The government medical program was sold as better health at lower cost. But estimated economic cost will total $1.7 trillion, resulting in 32 million lost years of life.
The administration’s program is called federal Comparative Effectiveness Research (CER). The American Recovery and Reinvestment Act (ARRA) of 2009 provided $1.1 billion for research and development in CER. This was to create an inventory of CER therapies to give patients, clinicians, and other decision-makers help in identifying medical alternatives. It is coordinated by the Federal Coordinating Council, run from the excessively bureaucratized Department of Health and Human Services.
President Obama obfuscated its role at the time of CER’s creation: “If there’s a red pill and a blue pill,” he said; “and the blue pill is half the price of the red pill and works just as well, why not pay half price for the thing that’s going to make you well?” Wrong supposition, Barack.
CER is research that compares how different treatments and tests have worked on others, but are not necessarily successful on any specific patient.
From the get-go, critics worried that CER was the first step toward rationing health care based on costs determined by bureaucrats. Worry accelerated when Centers for Medicare and Medicaid Services Administrator Donald Berwick responded to the issue of when the best therapy may not be cost-effective. Berwick said, “At some point we might say nationally, regionally, or locally that we wish we could afford it, but we can’t.”
The Reason article was based on a new econometric study by University of North Carolina health care economist John Vernon and Robert Goldberg, president of the non-profit Center for Medicine in the Public Interest.
The great harm of CER is how it would affect drug and medical device research and development. Vernon and Goldberg maintain that pharmaceutical and medical device R&D would have to respond to dictates of CER by increasing the size and costs of clinical trials. So, CER would necessarily delay the availability of new treatments and slow the arrival of technology clinicians could use.
As costs stand today, according to research at the American Enterprise Institute, the typical expense of bringing a new drug to market after clinical trials and regulatory approval is $1 billion.
Vernon and Goldberg wrote that the clinical trials stage makes up 30 percent of the cost of developing a new drug. They calculate that, conservatively, the CER would raise R&D costs by 50 percent. They figure the amount needed to be spent for R&D would be reduced by CER by about $32 billion over ten years. Earlier research, they report, indicates that every $1,345 invested in drug research creates an added life-year in the U.S. They wrote that reducing R&D by about $32 billion would result in roughly 34 million lost years of additional life. That would amount to a national total of $1.7 trillion in economic losses. Less conservative estimates, they say, push the losses up to $4 trillion.
In their scholarly paper, Vernon and Goldberg map the range of CER-induced reductions in R&D spending into their “opportunity costs as measured by: (i) forgone life years, (ii) quality-of-life improvements, and (iii) dollars.” They make two critical points: 1. The productivity of investment in pharmaceutical R&D is remarkably high—perhaps one of the most productive uses of capital in the economy, and 2. Firm incentives to invest in pharmaceutical R&D will likely be quite sensitive to the cost of conducting CER prior to and a condition of reimbursement. As a result, incentives will be adversely affected. “Taken together...the economic cost of new CER regulations will have a deleterious effect on social welfare, doing far greater harm than good.”
Those favored CER assume that many new drugs, devices, and technologies greatly boost healthcare costs and that all healthcare spending in the country could be cut if the lowest spending in the county could be adopted nationwide. Yet evidence shows “the extraordinary economic value attributable to medical and pharmaceutical innovation...and that medical innovation has yielded significant increases in life expectancy” and “actually increases in the efficiency and diffusion of medical innovations...have allowed humans to work less while producing more and therefore living longer” often with less cost.
“We believe that public policy affecting drug development investment incentives consistently fails to capture the value of this well-documented—and increasing—contribution of medical innovation to human progress....CR is at odds with empirical evidence that medical innovation—not regulation—increases life expectancy and reduces the cost of services needed to obtain such gains,” the study said.
“CER can delay time to market and reduce the rate and extent of technological diffusion....The impact of CER found the process delayed use by over two years. CER use, the study authors said, as part of reimbursement decisions in cancer was associated with 60 percent fewer medications being made available than when such reviews were not used.
“Most importantly,” the authors said, “CER will be used by [state] health exchanges [under ObamaCare] and the government in determining what health services and products will be covered under the new health care law." The evidence can lead to “only one conclusion,” Vernon and Goldberg wrote: “CER regulations pose a clear and present threat to social welfare...a very costly one indeed.”
In addition, the authors added, government policies or regulations that impede medical innovation threaten the future solvency of such financially shaky programs such as Social Security and Medicare.