Why the Market Will Not Reduce Health Care Costs
I recent found a very interesting Wired article from two months ago, about an extremely cheap and reversible male contraceptive currently under going testing. The story about the lack of commercial backing for developing this treatment is a good demonstration of why it is mistake to believe our current health care market is ever going to start reduce costs through innovations. From Wired:
The procedure is known by the clunky acronym RISUG (for reversible inhibition of sperm under guidance), but it is in fact quite elegant: The substance that Das injected was a nontoxic polymer that forms a coating on the inside of the vas. As sperm flow past, they are chemically incapacitated, rendering them unable to fertilize an egg.
But here’s the thing: RISUG is not the product of some global pharmaceutical company or state-of-the-art government-funded research lab. It’s the brainchild of a maverick Indian scientist named Sujoy Guha, who has spent more than 30 years refining the idea while battling bureaucrats in his own country and skeptics worldwide. He has prevailed because, in study after study, RISUG has been proven to work 100 percent of the time. Among the hundreds of men who have been successfully injected with the compound so far in clinical trials, there has not been a single failure or serious adverse reaction. The procedure is now in late Phase III clinical trials in India, which means approval in that country could come in as little as two years.
If the treatment does pass all human safety and efficiency testing it could result in some real health care savings.
The treatment could serve basically the same main functions of the birth control pill with less side effects and only a small one time cost. America alone spends billions a year on female birth control. If even a fraction of those American women in committed relationships instead choose this cheap and reversible male treatment, the result could be hundreds of millions in reduced health care spending in this country.
Of course the products cheapness and one time use is why no commercial drug company has been interested in developing it.
[Ronald Weiss] looked around for a corporate partner but found no takers. Unlike birth control pills, which must be used daily, sometimes for years, RISUG is a long-lasting, low-cost treatment (the syringe could end up costing more than the material it injects). “Pharmaceutical companies are not interested in one-offs,” Weiss says. “They’re interested in things they can sell repeatedly, like the birth control pill or Viagra.”
You can’t really blame medical companies for currently not having any interest in potential treatments like this. Despite cheap one time health care solutions clearly being in our nation’s best financial interests, they are currently a very bad investment for drug companies.
Unlike most products like TV, toasters, sneakers, car engines, etc… if a company find a much cheaper and slightly better way to do something, they could relatively easily bring it to market and make a profit.
On the other hand medical devices and drugs for obvious reason require a lot of expensive safety testing before they can be sold and many products don’t make it through testing. These high development cost discourages companies from try to develop extremely cheap one time use innovations. It would be very difficult for a company to recoup its investment in such treatments.
Looking at how the incentives in our health care market are currently set up, there is little reason to hope the “market” will magically come up with innovations to reduce our national health care spending. It is no surprise given looking at our structural innovation issues that for decades we have seen health care cost grow so rapidly.
To begin getting a grip on our health care cost we need the government to change the incentive structure for innovation. Moving towards a system that actually encourage the development of cheap health care solutions. Having a government agency, like the NIH, that would fully develop potentially very cheap treatments would a smart move.