Piping Up: Medical Innovation Critical To Bringing Down Health Care Costs

By the end of this decade, national health care spending is projected to amount to one-fifth of the country’s GDP. That’s more than four times military expenditures–and five times the amount spent each year on education.

And that’s a conservative estimate. In a recent study, consulting firm Deloitte revealed that the U.S. spent $363 billion more on health care in 2009 than the Centers for Medicare & Medicaid Services (CMS) officially stated.

President Barack Obama has promised that his health care reform law will slow the out-of-control growth of health spending. It won’t, as CMS pointed out in a 2010 report. Instead, ObamaCare will increase national health spending by $311 billion over the decade.

But there is hope for averting this bleak fiscal future. Sustained medical innovation can stop the never-ending ascent of health care costs–and improve the quality and length of our lives.

Innovations that minimize doctor visits, specialist referrals, round-the-clock care, trial-and-error surgeries and other expensive services hold the potential to deliver more value for less money in the long term.

The return on past medical innovations has been nothing short of astonishing. For example, at the onset of the baby boom generation, heart disease and stroke were near death sentences. The chances of surviving each today are 60% and 70% greater, respectively, thanks to cutting-edge medicines and surgical techniques.

Even for typically non-fatal conditions, the improvements are staggering. Over the past 60 years, the death rate for a person with Type I diabetes has dropped from 20% within 20 years of diagnosis to just 3.5%.

What’s responsible for this decline? We know more about the science behind diabetes than ever before, thanks to advanced equipment and the development of a non-animal derived insulin.

By keeping people alive longer, medical innovation has also bolstered human productivity. In fact, longevity gains from medical innovations are currently worth $2.8 trillion annually, according to economists Kevin Murphy and Robert Topel of the University of Chicago. Their research found that cumulative gains in life expectancy over the 20th century were worth over $1.2 million per person.

Medical breakthroughs don’t come cheap, though. For every successful drug, there are many, many more left on the lab-room floor–all of which, individually, cost millions or even billions to research and develop.

These scientific breakthroughs never would have happened without a market that encourages and rewards fruitful scientific research.

And while novel treatments may carry hefty initial price tags, they more than pay for themselves. Columbia University professor Frank Lichtenberg has shown that new drugs and treatments ultimately lead to lower health care costs. For every additional dollar in pharmaceutical expenditure, there is a reduction of $3.65 in total hospital care expenditures. For every 100 prescriptions, expensive hospital stays declined by 16.3 days.

Reducing hospital stays is crucial to lowering health care costs, as they account for 42% of all medical spending.

Innovative drugs can do wonders to help in that pursuit. Consider a study of diabetes patients. Those who did not take their medicines as instructed were 2.5 times more likely to be hospitalized as those who adhered to their treatment regimens.

A study of Medicaid beneficiaries with congestive heart failure found that those who took their medicines regularly posted health care costs that were 23% lower than those of non-adherent patients.

These examples aren’t surprising. We intuitively understand that it’s far cheaper to treat conditions like heart disease or diabetes with a daily pill rather than with emergency surgery.

Unfortunately, ObamaCare threatens to bring medical innovation to a screeching halt. Take the measure’s new 2.3% tax on medical-device firms, which is slated to go into effect in 2013, and its excise tax on pharmaceutical companies, which steadily increases through 2019.

The president hopes to expand access to insurance with the revenue from these taxes. But in so doing, he’s ensuring that there will be fewer groundbreaking medical treatments for insurance to cover.

Boston Scientific is projecting an annual hit of $100 million due to the tax. That’s nine figures that can’t be spent on research into the next round of innovative treatments.

Today’s health care cost crisis is one of the most daunting fiscal challenges America has ever faced. But just as revolutionary treatments like vaccines conquered the public-health problems of decades ago, so too will the next generation of medical innovations vanquish its foes. We just have to get out of the way.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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