November 19, 2004
Scientific Advances Are The Solution To High Medical Costs

Last night Charlie Rose conducted a group interview of Robert Klein, campaign chair for the Calfornian Proposition 71 embryonic stem cell funding initiative, Brook Byers, partner at venture capital firm Kleiner Perkins Caufield Byers, and Susan Desmond-Hellman, president of product development for Genentech. The general area of discussion was about biotechnology and medicine. These three interviewees all agreed on one very important point: only innovation can solve the problems caused by high and rising health care costs. It was gratifying to see these figures make an argument that is familar to readers of my blogs. Scientific and technological advances will be the ultimate solutions to the rapidly rising costs of medical care.

The view that innovation is the solution to our health care cost problems is not a new one. The late Lewis Thomas M.D., who was director of the Memorial Sloan-Kettering Cancer Center and the author of many essays on biology, was making that argument decades ago. Later in his life in 1992 Thomas repeated the argument that only scientific advances can produce the treatments that will make the major diseases of our time cheap to treat.

To be sure, we do have some spectacular surgical achievements in the headlines--the transplantation of hearts, kidneys, livers, and the like--but these are what I have called halfway technologies, brought in to shore things up after the still- unexplained diseases of these organs have run their course. And these measures, plus the new advances in diagnostic precision, account for a large part of the escalating costs of health care today. It seems obvious, to me anyway, that the only practical policy for bringing down those costs will be by more and more basic research in biomedical science, in the hope and expectation that we can then begin to understand, at a deep level, the underlying events in human disease. Sooner or later I am confident that this will be accomplished, and I hope for the sooner.

In one of his Lives Of A Cell books (this is an old memory, forget which one, probably Lives Of A Cell: Notes Of A Biology Watcher) published some time in the 1970s Thomas noted that before the advent of effective treatments of tuberculosis the many tuberculosis sanitariums were very expensive to operate. But he pointed out that once effective drugs against TB were developed the vast bulk of the sanitariums were quickly shut down as their patients were quickly and cheaply cured of TB. Thomas contended that expensive treatments are expensive because they fail to fix the underlying causes of diseases and that just about any really effective treatment is going to be pretty cheap. I agreed with him then and decades later I've grown only more confident that he correctly saw the fundamental problem (far more important than tort law, regulations, tax law, government entitlements programs, or market failures) that is the root of high medical costs.

Thomas noted how the ability to cure and even to prevent many infectious diseases caused them to become insignificant problems.

"In my own early professional life when I was an intern on the wards of Boston City Hospital the major threats to human life were tuberculosis, tetanus, syphilis, rheumatic fever, pneumonia, meningitis, polio, septicemia of all sorts. These things worried us then the way cancer, heart disease, and stroke worry us today. The big problems of the 1930s and 1940s have literally vanished."

A few of those diseases have made a come-back of sorts. But all are still problems of much lower orders of magnitude than they were a century ago. But what is most important to note is that when effective treatments were found for them the costs of preventing and treating them became a small fraction of the costs that those diseases previously inflicted on their victims, families of victims, and the rest of society.

Aside: One surprise in the Charlie Rose show discussion came from the venture capitalist Brook Byers. Byers says there are multiple groups in the United States and England that are working on nanoscale-level devices for very rapidly and cheaply sequence whole human genomes. Byers expects this problem to be solved in a few years.

The solution to the problem of cheap DNA testing will lead to much lower costs for drug development. How? Well, one way is that during clinical trials it will be possible to use smaller sets of trial participants to check out which genetic patterns each drug works best and worst with. Also, many drugs are held off of the market because they are too harmful to some subsets of society who have particular genetic sequences. Clinical trial participants who have adverse reactions to new drugs will be able to have their DNA sequences checked to see if genetic causes for the adverse reactions can be identified. Then drugs that would otherwise never be sold to the public can be approved for use with subsets of the population who are genetically compatible with those drugs. We will each have drugs that we can't use due to some genetic variations we each have. But more drugs will be able to make it onto the market than can be approved today.

The ability to quickly identify which genetic sequences make some people have adverse reactions to a given drug or to have much higher responsiveness to a drug (e.g. because their liver doesn't break it down as quickly) will also allow drug developers to more quickly and easily puzzle out the mechanisms by which the drugs vary in how they interact with different people. The knowledge of the genetic variations involved in drug response differences will allow drug developers to build animal models of genetic variations that cause different reactions to drugs and to design drugs that eitehr work with a larger set of genetic variations or to design different drugs for different genetic variations.

Share |      Randall Parker, 2004 November 19 02:28 AM  Policy Medical


Comments
Brock said at November 19, 2004 4:04 PM:

The cost of healthcare will not go down until we can literally cure everything and live forever.

Until then everyone's always going to want the latest, bestest, most expensive stuff.

But curing cancer and heart disease would be pretty cool.

Engineer-Poet said at November 19, 2004 5:03 PM:

Brock, I don't think your claim is borne out by history.  Health care used to be relatively cheap because there wasn't much that could be done for many diseases; people either recovered on their own, managed with the few treatments available or died.  Today we have many ways to manage diseases as chronic conditions, and may interventions for others.  All of this costs money.

Cutting the cost of health care means preventing the chronic conditions which drive expenses up, and finding cheaper treatments for those which appear.  If the course of a degenerative disease is changed from a long, expensive decline to relatively cheap prevention or management for most of it and a short, acute phase at the end, the total bill will be cut.  I don't see anything else that will do the job.

Brock said at November 20, 2004 7:58 PM:

Pardon, but my claim IS borne out by history. The better the medical science becomes, the more people demand it. If a given disease has a 50% mortality rate and new treatments reduces that to (anything less than 50%), people don't price shop or do pareto optimality comparisons - they buy the best they can afford.

"Cutting the cost of health care means preventing the chronic conditions which drive expenses up."

Chronic conditions don't drive up prices, medical R&D + Doctor's salaries do. We may reduce the cost of curing a given disease (say, pancreatic cancer) through a technological breakthrough, but the cost of health care generally will only increase for the foreseeable future. Like manufacturing was in the 18th & 19th centuries, pharma is currently a "frontier" industry. Frontier industries are different from mature ones. Manufacturing and Agricultre are two examples of "mature" industries where we have more supply potential than demand, and efficiency in each is still growing. Manufacturing and Agriculture products are becoming cheaper faster than rising demand causes them to become costlier. This is not the case for Pharma.

So to recap, until Pharma supplies (cures) exceed demand (sickness, ill health), prices will rise. It won't be until all diseases have been cured and SENS is 110% functional will we see prices fall. Then Pharma will be a mature industry.

Randall Parker said at November 20, 2004 8:39 PM:

Brock,

Going from a position where nothing can be done to a stage where treatments work poorly and frequently do not work at all typically does raise costs. But that is a transitional stage. Going the rest of the way to a stage where highly effective therapies cure diseases quickly will lower costs.

Chronic conditions drive up total costs. Suppose one comes down with rheumatoid arthritis. Initially when the immune system first starts attacking the joints the disease will not have caused much damage. But as the disease progresses the total amount of damage increases and the costs in terms of drugs to treat it and in terms of incapacitation rise.

This brings up another point: Even expensive treatments are cost-effective in some cases. Suppose one has to get a new hip joint. I knew a guy who had to get one in his 30s. Well, if that hip replacement hadn't been available he would have been greatly constrained in his ability to work. For working age people especially expensive treatments can be a net benefit to the economy as a whole.

Patrick said at November 22, 2004 12:04 AM:

I agree with Brock.

Healthcare will remain really expensive, because you can always have more. And if you can get someone else to pay for it, then you'll get more (at least if you are that sort of person)

Look at food. In the year 1500 an average persons food supply consisted of enough grain to keep them alive, with some "greens" picked from the side of the road, and maybe a rabbit once a month. Current wholesale market price, about $50/year.

At the time it was close to 100% of the basic wage. Once people got beyond the abject poverty stage, the food bill fell and reached about 30% of the household expenditure in the early 1800s.

It's still there. Quoting from P.J. O'Roarkes "Parliment of whores" the food bill is still 30% of household expenditure (as of 1990), and it doesn't matter whether you spend $100/week, or $1000/week. You still spend 30% on food and that seems to be a comfortable psychological level for people.

Obviously the $1000/week households will have more fine restaurants and less tinned beans, but the ratio remains pretty constant.

(This ratio may depend on the culture, I am quoting US figures.)

So too, healthcare will remain a big chunk of spending. Once a simple nanobot injection solves the heart problem then more will be spend on cushy luxury hospital suites and long term psychological counselling.

As an example, watch how people compare the health systems of different states. The usual complaint is that X spends $1000 per capita, but Y only spends $900. No-one ever complains that X people die at an early average age or some other objective OUTCOME based measure, it's the INPUT that people are jealous of.

This last point applies to school systems too.

Scienter said at November 23, 2004 4:21 PM:

There are three fundamental problems with U.S. healthcare.

1) Most of the cost is for liability insurance. Insurance policies are a nest egg for lawyers, who generally collect 30% in contingency fees on malpractice actions, and the bulk of the remaining money goes to legal expenses. Your health insurance is a tax. When you buy medical services using insurance, the money paid to physicians is in turn used to buy malpractice insurance. When somebody gets hurt, the money gets paid to lawyers. You are taxed multiple times, from the product liability insurance built into the cost of your vehicle to the product liability insurance built into the cost of your gasoline. In the end, most insurance exists simply to feed lawyers and keep health costs as high as possible. Just consider John Edwards. Did he earn his millions by improving health care? If he did improve healthcare, was his contribution worth the millions earned?

2) There is no free market dynamic in U.S. healthcare. Insurance has removed market forces and removed consumer decision making from health care consumption. Every consumer has an incentive to spend the limit. U.S. health care has become dangerously like communism.

3) There is a monopoly of health care providers. The costs of state licensing procedures limit the supply of doctors, and burdensome Federal regulations limit the supply of hospitals, ensuring that supply will never meet demand, and prices remain high.

Most of the money we pay for medical service has nothing to do with the real cost. Technology needs to fix the problems in the legal and political systems before it can seriously impact medical costs.

Randall Parker said at November 23, 2004 5:32 PM:

Scienter,

I do not believe your contention that liability insurance is "most" of the cost of medical care. Even adding in the costs of defensive medicine I still think the costs are nowhere near half.

As for lack of market forces being a problem: I agree. However, there are some areas of medical care where market forces are at work and prices more affordable. One is plastic surgery. A lot of it is paid out-of-pocket and it is a very competitive part of health care with lots of innovation and price competition.

Another area where there is a lot of competition is in eye care. See, for example, this link on the substantially declining costs for laser eye surgery.

I expect the spread of medical savings accounts to increase the amount of competition in US health care.

Scienter said at November 24, 2004 9:09 PM:

It would be helpful to understand exactly how much of the cost of health care is legal tax. Just about every product that you buy, related to healthcare, has been insured at many levels. There is also the administrative costs of managing liability. This is especially true for drugs. A 50% cost would not surprise me at all.

I wonder if a medical savings account will accomplish anything. As long as most people continue to have insurance and medicare, the demand remains, so it would seem that prices will only move higher.


Tj Green said at November 27, 2004 3:27 PM:

Aspirin thins the blood,and reduces clotting.Statins reduce cholesterol.folic acid increases oxygen in the blood,improving circulation.A thiazide,a beta blocker,and an ace inhibitor,lowers blood pressure.This is the "pollypill",which would cut strokes,and heart attacks,by a third.Artemisinin based combination therapies,bed nets,and D.D.T. (for use indoors) could eradicate malaria.The spread of democracy,to eradicate war.More finance for the production of influenza vaccines.These measures would improve the health,and wealth,of the global economy,so that more money was available for research.I agree that research will bring down medical costs,but we could save a lot of money,and suffering right now,with very little money and effort.

Scott Williams said at September 21, 2005 4:27 PM:

I don't agree that the liability/malpractice issue is affecting healthcare in the USA anywhere near the level that Scienter suggests. The actual cost of awards and payments are between 1-1.5% of healthcare expenditures. Of course, liability issues do result in defensive medicine being practiced, and therefore more tests, scans, and procedures are performed. The fact is that 100,000 people or more a year are being killed in our hospitals every year through medical errors that could be prevented. This is a figure that the HOSPITAL industry generally agrees upon. There has to be some price, some impetus to change this.

The answer to this problem (excessive medical error, which actually is driving the liability costs, and unnecessarily killing and hurting people) is not to remove the incentive for hospitals to reduce medical error. Rather, the answer is for the industry to improve their systems with electronic prescribing, electronic patient records, adequate nursing staffing, etc. I know that our healthcare system is undertaking a heroic effort to do just this, and many other healthcare systems are also engaged addressing the issues of medical error in an honest and forthright way.

By the way...it seems that the free market espousers often think that corporations have rights, and individuals don't. Why should anyone's rights to seek redress of wrongs be curtailed. What price a life or disfigurement? Limit the potential award to $250K, and no lawyer would be able to cover costs to represent a plaintiff against a large healthcare system. Costs will be reduced somewhat, because suffering people will not see justice. They underlying problems will not be addressed either.

Lengo said at October 28, 2005 11:26 AM:

Scienter is correct in his observation that there is no free market dynamic. Doctors are getting paid what they want because insurance companies grant them this privilege. Without insurance, doctors would have be paid what people can actually afford. Insurance is what has destroyed the market dynamic.

Another thing that nobody has mentioned is greed. Just plain greed! For some reason, doctors feel they deserve salaries that are as inflated as their egos. The mean salary for an MD is $300,000 per year. That is only the average salary. Specialists demand even more. Experienced doctors command even higher salaries. Medical groups can still make a profit while paying these high salaries. A medical groups primary job is to satisfy thier investors, not their patients.

These high salaries contribute more to medical costs and medical errors than anything else. Studies have shown that malpractice premiums only account for 1% of medical costs. Medical errors occur because the doctors are too comfortable to care. They've got everything they need, and have no ambition left. Striving to satisfy their patients with quality service means little to them. There's plenty of patients to keep them in business, no matter how low the quality of care they provide.

Most often, the reason cited for these high salaries is a shortage of doctors. It matters little to a doctor to lose a customer if the customerr is disattisfied. He has plenty of patients left to keep him in his BMW and million dollar plus home. But why is there a shortage? That shortage exists because there are too few training hospitals for training new doctors.

The real problem with medical costs and lack of good treatment, stems mainly from this problem. Doctors command too much salary. They are too comfortable. They don't need to care anymore, 'cause there's plenty of patients to keep them in business. They don't have to worry about satisfying their customers, because the insurance companies pay them even if the patient tells the insurer not to pay. The reason there is too few doctors, is because the AMA has failed to provide facilities to train adequate numbers of doctors. Wioth such high salaries, arrogance manifests it's ugly head. With arrogance, comes medical error.

And there is one other major reason, that is totally overlooked....

People don't care enough. They often say "that's just the way it is". They haven't come together to put an end to this corruption. For the most part, they don't consider the reasons for 1. the lack of doctors, 2. that lack of market forces, 3. the comfort index that doctors enjoy, and 4. their responsibility to get the problem corrected. Yet, get people individually, and they will complain about their medical care. Nine out of ten will complain about inadequate care and the high price of care. But try to get them to act on it, and it's somebody else's job. They believe that they can't fight the system.

Partly, this is the media's fault. You hear about labor contract disputes, and most often, the news coverage asks who is to blame, labor or management? They're fighting over who is going to pick up the medical insurance premiums. And time after time, the media focuses on either labor or management, not the real culprit -- the doctors and medical groups, hospitals and pharmaceuticals. Nobody gets to the real root of the problem. And why would the media do this? they rely on income from pharmaceutical companies, and investments from medical companies.

But the real reason that medical costs are so high is you! You alone have the power to correct this. You alone are the ones with the power to just say no. It's not the government's job (and they too have their pockets lined by medical providers). It's not the insurers' job (they still make a profit after paying incredibly high prices to doctors and medical groups). It's your job. You need to stand up and point the finger at the corruption and greed that gives America the "best" health care in the world that nobody can afford.


Lengo said at October 28, 2005 11:52 AM:

More science and more technology isn't going to help us. We're often told that the reason for the high cost of drugs is the cost of the research. New technologies to do the research costs more and more. Better technology isn't going to do a thing about the cost of health care. Such assumptionss are in total vain, and completely lack insight into human nature and the cause of the cost of health care. New technology only inflates the cost! Citing bnetter technology as a solution is naive at best, and just plain stupid in general. Show me one instance where new technology in medicine has lowered the cost of health care! I can counter that instance with five others that have driven the cost up. Technologyu is not improving the cost of health care. It is only increasing demand.

This is pure nonsense! Those who would have you believe that new technology is the answer are swindlers and hoaxters, if not total fools in the first place. Don't believe in such nonsense.

Randall Parker said at October 28, 2005 11:52 AM:

Lengo,

In areas where HMOs came in many specialists experienced a halving of their income.

What is your source for $300k for the average MD in America? I do not believe it.

Randall Parker said at October 28, 2005 11:54 AM:

Lengo,

In the short run advances medical technology increase costs by increasing the number of treatments available. In the long run technological advances will certainly lower costs because truly effective treatments (most notably rejuvenation treatments) will reduce the incidence of disease.

Lengo said at October 28, 2005 3:21 PM:

Randall, I found this source (300K mean salary) on the Net. I'll have to look for it to post the URL. Will do this soon.

"... truly effective treatments (most notably rejuvenation treatments) will reduce the incidence of disease"

Unlikely. What rejuvenation treatments do you speak of? Sleep aids are rejuvenators. One week's worth of Ambien costs over $100! Diet and exercise are available, yet many do not participate in these healthy habits. Even with good habits, people are still susceptible to disease, esp. stress, virus, and bacteria. Further, any discoveries of new "rejuvenation" treatments won't come cheap. The medical industry is a business, and they realize the profit potential of such "fountains of youth", and will charge dearly for them.

Lengo said at October 28, 2005 3:57 PM:

Randall, I can't find that source. The numbers I've found hover around $130,000 per year. Perhaps I've been duped. Still these salaries are awfully high.

One place to look is http://jobstar.org/tools/salary/salhelth.cfm (copy and paste). There are numerous surveys regarding salaries. One of particular interest is one for annual earnings history of nurse practitioners. See this: http://www.nurse.net/cgi-bin/start.cgi/salary/index.html This shows that earnings for nurse practitioners has risen nearly 17% from 1999 to 2004.

Another source for information is http://www.consumerhealthjournal.com/articles/regulated-doctor-shortage.html This shows shortages of medical professionals over history (the last few years). It is prudent to ask yourself why these shortages exist.

Seek and ye shall find. There's a wealth of information on the net regarding this subject, some of it conflicting with others.

Randall Parker said at October 28, 2005 4:05 PM:

Lengo,

Ambien does not reverse aging. I'm talking about future therapies such as stem cell therapies and gene therapies that replace and repair old worn out body parts. Suggest you read my Aging Reversal archives to see what I'm talking about.

As for the importance of physician wages: The United States has about 800,000 physicians and we spend about 15.4% (as of 2004) of GDP on medicine. Well per $100,000 of yearly income of physicians costs us about $80 billion per year. Even if your $300,000 figure was right (and I think it is high) that would be only $240 billion per year. But again, I think your figure is high. I'm expecting a number down below $200 billion for total physician income.

Yet with a US national medical cost of 15.4% of total GDP and total GDP of about $11.75 trillion we are looking at a total yearly medical cost of $1,809 billion. Doctors represent less than a seventh of total medical costs. Probably only an 8th or a 9th.

resolvent said at April 26, 2008 1:11 PM:

Let W(i,j) = the amount of energy that person, P(i), expends in their activities, towards person P(j).
Energy and work have the same units: Mass*Length^2/time^2. This is true even at the molecular level,
where work must be done by a doctor to re-arrange my atoms from a chaotic state (say, cancerous) to a more
ordered (cancer-free) state.
Work can be partitioned into 2 categories: work that P(i) against P(j) - i.e. competition,
and work that P(i) does for P(j), i.e. cooperation

Example P(1)= general attorney of US
P(2) = patient in need of treatment
P(3) = medical doctor

I am unable to draw a table in a textbox like this, but bear with me.
E1 = event 1 = P(2) can choose to pay P(3) $300,000/ year for a service.
Or
E2 = event 2 = P(2) can choose to mix up their own drugs and perform surgery on themselves.
Free, "libertarian" choices made by P(2) and P(3)
or
E3 = event 3 = P(3) can choose self-surgery, but now P(1) chooses to interfere and punish P(1)
for practicing medicine without a license.
P(1) did not HAVE to take the job of attorney general. P(1) had a choice.

In this model I am ASSUMING only 2 choices for P(2), and 2 choices for P(1). In reality, humans are far more clever
(not necessarily intelligent) to come up with more choices. But, the basic principles here are the same.

E1: the positive to P(2) is the physical benefit from the work W(3,2)
the negative to P(2) is -W(2,3) = -$300,000. The net effect to P(2) is W(3,2)-W(2,3)
The net effect to P(3), the doctor, is W(2,3)-W(3,2)

E2: the net effect to P(2) is W(2,2) - W(2,2) (the work P(2) minus the medical benefit gained).
Obviously, if W(2,2) is intended to represent a numerical value, rather than a more abstract value,
then W(2,2)-W(2,2)=0. In essence, one can arbtirarily DEFINED E2 to have a net effect of 0 to P(2).
But, once one sets 0 to event E2 for P(2), then the values of the OTHER events, E1 and E3, HAVE to be
evaluated CONSISTENTLY with the arbitrary setting of E2 to 0 for its effect upon P(2).

E3: the net effect to P(2) is W(2,2) - W(2,2) - W(1,2), where now P(2) and P(1) are in competition.
Lawyer P(1) demands to be paid (by the government) for her/his efforts at making other people's lives
needlessly difficult. The effect to P(1) is -W(1,2). Adding in the government means somebody else has to pay.
Within the system of 3 players, we have a NEGATIVE SUM game - negative to both P(2) and P(1).
If you make the system the entire world, then still, we will have a negative sum game (for some subset of players).

If I were player P(2), I would choose to kill the US attorney. Make P(1) die for P(1)'s stupid cause,
rather than me die and suffer for MY cause (the right to a healthy body).

Anyway, if one wants to get off the extremist free-market obsession of using only MONEY as an "objective" form of evaluating the value of WORK, and measure value of work - and entropy - in terms of physical absolutes,
then one has to do this difficult, abstract, game-theoretic modelling. Free-market extremists refuse to do this modelling because it is "messy", abstract, and mentally difficult. It takes no skill and effort to track some relatively meaningless numbers on the stock market.

In summary: Money is a measure of ONLY CONSENUAL AGREEMENTS. It does NOT objectively nor accurately measure
COMPETITIVE, NEGATIVE-SUM, ANTI-LIBERTARIAN human interactions.
The physical reality of the world is that we STILL suffer from the effects of past, non-libertarian
injustices, wars, battles - both physical and legal. In an idealistic, perfect world, we would all be libertarian.
The great clock of history would be reset to 0, and from that point onwards, all our interactions would be
free-choice ones. (Even THAT would not be physically possible - simple word: humans NEED job specialization -
we can't ALL do ALL things - be a plumber, and a heart surgeon, and build our own homes, and raise our own children,
etc.) But, in practical reality, one must use socialism to reverse past injustices.

Let me add: I agree 90% with the original poster: truly fundamental scientific advances in technology and biotechnology
and genetic engineering will (eventually) bring medical costs down. But, that is NOT the ONLY thing that will.
Eliminating massively wasteful bureaucratic redtape caused by having a billion different insurance companies -
all of whom collude anyway NOT to provide coverage, effectively acting as ONE giant insurance company,
instead doing the idealistic, free-marketer's pipedream of "competing against one another to bring down costs" -
and eliminating corporate welfare - all of THAT is absolutely necessary to bring down medical costs.

WEL said at September 7, 2008 1:06 PM:

MAXIDEX WARNING

I had eye surgery and in the post-op pack was MAXIDEX(dexamethasone) drops by ALCON LABS

Two days later I was BLND

Use Google and enter EPOCRATES MAXIDEX to verify

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