Writing in today's Wall Street Journal, the American Enterprise Institute's John Calfee warns that an increased government role in health care may have "devastating effects" on research and development of new medical technology. "Competitive markets have generated the prices and the profits necessary to induce a steady flow of medical innovation in this country. A public plan option would tend to dismantle that system," he writes.
It's one of the strongest arguments to be made, but fully developing it requires dealing with some questions that Mr. Calfee does not tackle. Is a researcher working on finding a cure for cancer really motivated primarily by profit, or more by a desire to become famous, win the respect of peer scientists, or help people who are sick? If profit were the main motive, wouldn't the person had ended up as an investment banker rather than a cancer researcher? (The answer to this may be that what matters is less the motive of the researcher than of the person who supplies the capital to pay the researcher and buy the test-tubes and petri dishes, the shareholder in the drug company, who is seeking a return on the capital.)
Also, if drug prices are reduced by a new government health plan option, why will the money come out of research and development spending rather than out of shareholder profits or marketing spending? Estimates of drug company marketing spending -- including the cost of all those Cialis, Viagra, and Claritin commercials you see on television, and all those attractive drug company salespeople you see dropping off samples at the doctors' offices -- range from $27 billion a year to $57 billion a year.
Also, not all the research funding in the system now comes from private, for-profit sources. This New England Journal of Medicine article has some numbers that put pharmaceutical industry research spending at $51.3 billion in 2005, more than the National Institutes of Health's total budget, which the article says was expected to be $28.6 billion in 2007. Some argue that the government spending is just as effective as the private spending, perhaps even more so. A study by the Joint Economic Committee of Congress in 2000 reported that of the 21 drugs introduced between 1965 and 1982 with the highest therapuetic impact, 15 of them, or 71 percent, had government research funding involved in their development. "Three of them -- captopril (Capoten), fluoxetine (Prozac), and acyclovir (Zovirax) -- had more than $1 billion in sales in 1994 and 1995." In 1998, the Boston Globe looked at 35 top-selling new drugs approved by the Food and Drug Administration in the prior five years and found that 33 of the 35 had gotten money from either the National Institutes of Health or the FDA itself for discovery, development, or testing.
This is not an argument for price controls on miracle drugs or for a greater government role in health care, just a comment to say that framing a convincing argument against expanding the government role in a system in which government already plays a big role will require more than just claiming that an expanded government role will devastate innovation.
