A recent letter from Congressman Henry Waxman, demanding that a pharmaceutical company justify its pricing of Solvadi, a new drug to cure Hepatitis C, precipitated a selloff in biotech stocks. Waxman’s concern about Solvadi’s price does not appear well-founded when one compares Solvadi to the alternatives. While more expensive per dose than the previous treatments, Solvadi is more effective and requires a shorter course, marking it as a substantial advance for curing this serious illness.
The Congressman’s intervention raises larger questions about the relation of government policy to innovation. Anyone who is getting older—and that is all of us—should see medical innovation as one of the most important measures, if not the most important measure, of a successful health policy. As Eric Topol details in his fine book, The Creative Destruction of Medicine, technological acceleration, including advances in genomics and stem cell research, suggests that we are on the cusp of a golden age of medical innovation. But government-imposed price controls and other policies can reduce the incentives for devising new treatments, resulting in preventable death and illness.
Sadly, our health care debate does not sufficiently focus on innovation. Indeed, the very name of the so-called Affordable Care Act emphasizes the current cost of health care, not its benefits, and certainly not future benefits from innovation. Supporters of the Act have focused on holding down health care costs and limiting their growth. Certainly, we want efficient provision of health care, as we should have efficient delivery of other services. And some of our current policies, like the tax preferences for health insurance, may make health care less efficient by shielding consumers from the costs. Moreover, it is fine to debate the extent to which subsidies should be given to those who cannot afford vital health care services, like Solvadi.
But it is a mistake to cap either the prices of particular drugs or limit health care expenditures as a share of GDP. As a result of innovations in medicine, we should want to spend more money on health care, not less. Even beyond this simple economic point, it should be noted that health care is kind of Aristotelian good—one that is important to a flourishing life. Certainly it is a sin against the human spirit for government policy to retard medical innovations so that people can spend their dollars on ever bigger and flatter TVs.
Even opponents of Obamacare, with their emphasis on death panels, neglect medical dynamism. The concern about death panels focuses on identifiable individuals who could be saved by some available treatment. My far greater fear is that fewer new treatments will be invented as result of government intervention, thereby sending unidentifiable individuals to a premature death. As the great economist Frederic Bastiat noted, the unseen effects of policy may be the most important. The absence of medical innovation is the greatest unseen effect of bad health policy. I should note that I own shares in biotechnology mutual funds as I do in other kinds of funds.