The Latest ObamaCare Assault On Health Care Innovation

The list of health services that ObamaCare requires all insurers to cover without co-pays or deductibles keeps growing. The latest additions include an array of “women’s wellness” services and products: birth control, breast pumps, domestic violence counseling, and more.

Of course, these additional benefits aren’t really “free.” They drive up the cost of health insurance.

ObamaCare’s proponents wave away concerns about rapidly spiraling health costs by citing the law’s mechanisms for extracting savings from the healthcare system, like its Patient-Centered Outcomes Research Institute. This federal body will undertake “comparative-effectiveness” research (CER), ostensibly to determine whether newer, more expensive treatments work as well as their older, cheaper counterparts.

CER’s cheerleaders claim that it will save the health care system billions by ensuring that we don’t waste money on pricey treatments that don’t work.

Those promises are overblown. Not only will CER fail to trim health spending — it will actually slow medical innovation.

President Obama simplistically explained CER by saying, “If there’s a blue pill and a red pill 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?”

That line of thinking is attractive, particularly as our nation’s annual health tab is projected to increase by more than 75% by 2020, to $4.64 trillion — one-fifth of the U.S. economy. Who wouldn’t want to flush waste out of the system?

On its face, CER isn’t a bad thing. It’s a useful tool that can help doctors and patients make more informed health decisions.

But when applied from on high by government bureaucrats, CER can yield dangerous results.

A new study from my Pacific Research Institute colleague Dr. Ben Zycher indicates that the government-led CER process will depress investment in pharmaceutical and medical device research and development by 10% to 12% — about $10 billion per year.

Less investment in R&D means fewer revolutionary medical advances that can improve or extend our lives.

Previous published research suggests that historically, every $2,000 or so invested in pharmaceutical R&D produces an additional expected life-year in the United States. Drawing on this historical data, Zycher estimates that the CER-fueled loss of investment into medical research and development will deprive us of an expected five million life-years annually.

Those 5 million life-years represent, conservatively, some $500 billion in terms of the value of lost years.

Zycher pinpoints four reasons for the decline in investment — and thus in innovation. First, government-run CER will force producers to conduct CER trials of their own to evaluate whether it’s even worth submitting their drugs or technologies for government review. All those additional tests will increase R&D costs.

Second, the government has a strong incentive to “discover” that newer, more expensive treatments are not much better than older, cheaper ones. After all, the government pays for about half of all medical care. In an era of scarce resources, officials will face strong political pressures to avoid paying for expensive medical technologies — particularly if that money can be spent on programs that could benefit a wider swath of individuals. This raises the risk of nonapproval or limited approval, both for federal coverage programs, and generally.

Further, elected officials operate on different time horizons than do patients. Today’s research may not yield a cure for a decade or more — at great upfront expense. Future patients who may be the beneficiaries of that research don’t vote today — and so their interests may be sacrificed to deliver budget savings or other goodies to those who do currently vote.

Finally, CER will lengthen the amount of time required for a drug or medical technology to achieve regulatory approval. Each additional day a new treatment spends in limbo is a day it can’t try to recapture its R&D costs through patent-protected exclusive sales.

According to researchers at the Tufts Center for the Study of Drug Development, the average drug takes $1.3 billion and about a decade to develop. About 30% of that cost comes during the clinical trial phase, when CER would have the greatest impact.

Already, only three out of ten new medicines earn back their research and development costs. If CER further hamstrings the approval process for new medical technologies and minimizes the ability of firms to recoup their research and development costs, we’ll all be worse off in the long run — even if the government reaps some savings in the short term.

The Obama Administration has high hopes for CER as a cost-cutting tool. But by slowing medical innovation, comparative-effectiveness research will consign those hoping for new cures today to continued suffering — and deprive future generations of medical miracles we can only imagine.

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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