Critical Condition

Tomorrow’s Crop of Medical Innovations Is in Jeopardy


Seed corn is the best of the corn you keep in reserve to grow next year’s crop. Obviously, if you sell or eat everything you’ve got this year, you’ll have nothing to grow next year.

This is exactly the direction that we’re headed in with regards to medical innovation. Obamacare is the leading culprit at the moment, with massive new taxes on medical devices and pharmaceuticals. Medicare’s new Independent Payment Advisory Board (IPAB) is also slated to focus its cuts on just a fraction of Medicare spending — including payment rates for Medicare Part D and Medicare Advantage plans. The cuts will be extraordinarily difficult to overturn, and (because they have to be met year by year) will have to be very deep to meet spending targets. 

Any innovative (and thus expensive) new drug or device that comes to market for cancer or Alzheimer’s will, as former CBO director Douglas Holtz-Eakin and I discuss in a recent op-ed, come with an IPAB bullseye on its back, crippling incentives for companies to bring life-saving new medicines to market. The focus on reimbursement cuts continues Medicare’s perverse fee-for-service payment structure, and ignores the potential for bundling services – or using more innovative and effective treatments – to result in cost savings and improved health for seniors. (For another great overview of IPAB’s unintended consequences and options for reform, see Grace Marie-Turner’s analysis here.)

Current debt-reduction discussions appear to be going in the same kill-the-golden-goose direction, including implementing price controls for the Medicare Part D, or forcing Medicaid rebates on drugs used by dual eligibles (seniors who qualify for both Medicare and Medicaid coverage). Slashing the prices for today’s medicines will only ensure that we have fewer innovative treatments available tomorrow. 

It’s also ironic that while President Obama calls for a renewed focus on American innovation and competitiveness, he supports measures that will hamstring one of the few industries where the U.S. is the unquestioned global leader, and that provides hundreds of thousands of high-paying U.S. jobs

Health-care spending, particularly through entitlements like Medicare and Medicaid, needs to be brought under control. But it has to be done in a way that incentivizes both higher quality care and innovations that keep Americans healthier, longer. Slashing prices for medicines today won’t do anything to change the tsunami of health-care costs on the horizon from Alzheimer’s, cancer, and diabetes due to a rapidly aging population that is also, in many ways, unhealthy (e.g., overweight or obese). 

Debate about medical innovation was almost completely absent from the debate over Obamacare, and is nearly non-existent today. This is not only short sighted from a fiscal standpoint, but risks abdicating U.S. leadership of a vital global industry. Someone needs to think about ensuring biomedical innovation today – or it might be gone tomorrow


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