Trickle-down innovation

This is Joseph


I think that this might be the single worst argument in health care today:

The slowdown in pharmaceutical innovation is widely acknowledged, well-documented, and deeply troubling. Most Americans have health insurance. Most Americans are able to get care if they need it. What matters at the point of crisis, then, isn’t just whether someone is covered, but what that coverage can buy. The best insurance in the world won’t save us if our antibiotics fall behind drug-resistant bacteria.

This is particularly pressing for Democrats because the best argument against centralized price setting is that it will slow innovation. So what plans do Democrats have to boost innovation in the health care space? Sanders, for his part, has an interesting idea to use prizes to generate new pathways for pharmaceutical development, but he’s one of the only Democrats with any kind of plan along these lines, and he does

First, even with the current system we are seeing a slow down in innovation.  There is an assumption that that isn't driven by it being easier to rent-seek with current than to come up with new ones.  Or by intrinsic limitations in what low hanging fruit might be left.

Second, the system is actually poorly designed for the example.  Antibiotics are always going to be less profitable than chronic use drugs.  Maybe the slower pace of development is because of the current system that focuses rewards elsewhere?

Third, isn't this the same argument as "trickle down economics"?  If we make health care CEO's rich then others will also seek to become rich and that will drive innovation.  How did that work with economics? 

The US spends twice as much GDP per person as the UK.  The difference between the two systems is about 8% of GDP.  US GDP is around 20,000 billion dollars, so 8% of that would be 1,600 billion.  The NIH budget is around 40 billion.  Let's spend only half of that on research -- I wonder what endless productive NIH could do with a 840 billion dollar budget to drive medical innovation? 

And this is with me not even really trying -- just thinking off of the top of my head.  I think we should be careful with the assumption that innovation by industry is all about improving care.  Some is and there are dedicated people in industry who work hard to help patients.  But some of this is clearly rent-seeking and profit taking.  It's not clear if we could redo the system that we couldn't save money AND be more innovative. 

Just a thought.