ZYCHER: Obamacare inhibits medical technology

Top-down health care rationing likely to cost hundreds of billions

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Democracy is the art of wealth redistribution, a hard reality that creates losers as a necessary byproduct of policymaking. Taxing those other guys behind the tree, in brief, arouses their opposition, and as much as bureaucrats and politicians may enjoy bossing people around, the blowback can be intense.

Obamacare is coercion par excellence, a top-down exercise in central planning guaranteed to create vast numbers of enemies. At some point, federal officials face overwhelming incentives to shift authority - that is, the political heat - elsewhere. Witness, for example, the recent announcement that the list of medical services to be covered under Obamacare will be delineated by the individual states rather than the Beltway. Left unexplained is the question of why, if this partial decentralization is good, full decentralization to market forces would not be better.

Never mind. Let us consider instead the far-larger exercise within Obamacare to avoid responsibility: The law establishes a “comparative effectiveness review” (CER) process to “conduct research to provide information about the best available evidence to help patients and their health care providers make more informed decisions.”

Yes, we’re the federal government and we’re here to help you. Since government cannot pay for all medical services demanded, rationing of one sort or another cannot be avoided in a world of finite resources, regardless of all the mindless rhetoric about “covering” the uninsured. Expensive treatments will not be allowed; that is the essence of top-down “cost control.”

The Beltway, though, does not have patients. Instead, it has interest groups engaged in a long twilight struggle over shares of the federal budget pie. Less for one group means more for others, and even modest reductions in the huge federal health care budget are tempting for other constituencies.

In other words, there can be no such thing as unpoliticized science inside the Beltway. It is inevitable that political pressures will lead policymakers to use the findings yielded by CER analyses to influence decisions on coverage, reimbursement or incentives within Medicare, Medicaid and other federal health care programs.

This will be bad enough for patients in the here and now. Instead, consider the effects on future investment in new and improved medical technologies, examples of which are pharmaceuticals and medical devices and equipment. No one can know in advance either how CER analyses of interest will turn out or how the findings will be used. Indeed, the uncertainties are enormous. The findings of statistical analyses are driven in substantial part by the design of the underlying studies. Such studies always will conflict to some degree, introducing considerable subjectivity into the process of deriving “conclusions” from the CER process. Even for a given study, experts inevitably will differ on conclusions to be learned and/or recommendations to be made. More important, later findings can call earlier findings into question, and CER analysis necessarily will find itself “behind the curve” as medical technologies and treatment protocols evolve over time. What is true for a population may not be true for a given subset of patients, a problem for which such top-down approaches as CER are particularly ill-conceived.

Nonetheless, the likelihood that CER studies will be used one way or another is high. This means that private-sector investors in technologies will perceive four new or strengthened parameters. First, there will arise a need to expand private clinical testing to include preliminary CER analysis as a means of acquiring information about future federal findings and government reactions. Second, increased pricing pressures can be expected as a result of CER analyses that are inconclusive or adverse. Third, CER raises the risk of non-approval or limited approval for federally financed programs, perhaps as a tool with which to force ever-greater price reductions. Finally, CER is likely to yield a longer regulatory approval process and thus a shortening of the effective patent period and a delay in expected sales revenues.

Research from the Pacific Research Institute has examined the likely effects of these CER implications for R&D investment in new and improved pharmaceuticals and devices and equipment. Using data from the National Science Foundation and other sources, R&D investment would be reduced by about $10 billion per year over the period 2014 through 2025, or about 10 percent to 12 percent. Based upon the scholarly literature on the benefits of medical innovation, this reduction in the advance of medical technology would impose an expected loss of about 5 million life-years annually, with a conservative economic value of $500 billion, an amount substantially greater than the entire U.S. market for pharmaceuticals and devices and equipment.

This adverse effect would be concentrated on technological advances likely to serve the needs of smaller subgroups within the overall patient population, riskier investments among new treatments and drugs and equipment expected to prove relatively less profitable.

In short, an expanded federal CER effort - a top-down process - is likely to prove unwise as a matter of public policy. A renewed emphasis on a bottom-up approach of experimentation by many millions of practitioners and patients would be a more fruitful vehicle for the acquisition of information about the comparative effectiveness of alternative clinical approaches.

Benjamin Zycher is a senior fellow at the Pacific Research Institute.

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