THE Dutch health minister, Ab Klink, is considering a recommendation to offer
free health insurance for life to anyone who donates a kidney for transplant.
The award would be quite valuable, worth about $1500 a year or $24,000 in present discounted value (30 yrs, 5% discount rate, no increase in health care costs). Becker and Elias predict a large increase in organ supply at $15,000 so the Dutch are in the ballpark for a good test. More here.
Thanks to Dave Undis of LifeSharers for the pointer.
Bariatric surgery is often the most effective treatment for the morbidly obese,
and with a mortality rate of around one percent, it isn’t terribly risky…
Not terribly risky!!! I consider a 1% chance of death to be very risky, perhaps worthwhile for some morbidly obese people but when 1 in every 100 patients doesn’t make it off the table that is not good odds.
What I find most interesting, however, is that I don’t think that any drug, even one with net benefits, could pass FDA trials with a mortality risk of 1%. Recall that Rezulin was pulled from the market when 63 out of 750,000 people developed liver problems (the actual number may have been higher of course but the numbers aren’t even close.)
It doesn’t make sense to regulate one source of risk at much higher rates than another source, given equal benefits. It’s quite possible, for example, that patients denied risky weight loss drugs turn to even riskier bariatric surgery. (I am not arguing this point here, I am explaining why efficiency requires that equal risks be regulated equally).
So if it doesn’t make sense to regulate one source of risk at much higher rates than another source, should surgery be regulated more or drugs less?
Technological innovations, especially the use of laparoscopic
procedures [for stomach surgery], have made for considerable gains in safety and efficacy.
While the operation is still dangerous in some circumstances – one
study found that for a surgeon’s first 19 bariatric operations,
patients were nearly five times as likely to die than patients that the
surgeon later operated on – the overall mortality rate is now in the
neighborhood of 1 percent.
Many people find the idea of selling human organs for transplant to be repugnant which is why Roth argues that we should focus more on improving efficiency through kidney swaps. I’m all in favor of swaps and have also suggested that one argument in favor of no-give, no-take rules is that they are ethically acceptable to more people than organ sales.
Nevertheless, I think Roth assumes too quickly that repugnance is a constraint to be respected rather than an outrage to be denounced and quashed. People’s repugnance at inter-racial dating or homosexual sex is no reason to prevent free exchange – the same is true for organ donations. Repugnance itself can be repugnant.
Is it not repugnant that some people are willing to let others die so that their stomachs won’t become queasy at the thought that someone, somewhere is selling a kidney?
What people think repugnant can change rather quickly with changes in the status-quo. Adam Smith said that in his time there were "some very agreeable and
beautiful talents of which the possession commands a certain sort of
admiration; but of which the exercise for the sake of gain is
considered, whether from reason or prejudice, as a sort of public
prostitution." What were these talents that people in Smith’s time thought akin to prostitution? Acting, opera singing and dancing. How primitive, how peculiar.
In the not to distance future I think people will look back
on the present and think us
primitive and peculiar. Letting thousands of people die while organs that could have saved their lives were buried and
burned. So much unnecessary pain; all for fear of a little exchange. How primitive, how peculiar. How repugnant.
The great breakthroughs in the history of medicine, from the development of the polio vaccine to the identification of cancer-killing agents, did not take place because a for-profit company saw an opportunity and invested heavily in research. They happened because of scientists toiling in academic settings. "The nice thing about people like me in universities is that the great majority are not motivated by profit," says Cynthia Kenyon, a renowned cancer researcher at the University of California at San Francisco. "If we were, we wouldn’t be here." And, while the United States may be the world leader in this sort of research, that’s probably not–as critics of universal coverage frequently claim–because of our private insurance system. If anything, it’s because of the federal government.
The single biggest source of medical research funding, not just in the United States but in the entire world, is the National Institutes of Health (NIH): Last year, it spent more than $28 billion on research, accounting for about one-third of the total dollars spent on medical research and development in this country (and half the money spent at universities).
A few points should be made:
1. The strength of American medical innovation stems from the combination between the NIH, private philanthropy, and commercial incentives. Cohn has lots of (just) praise for the NIH, as basic research is often a public good. But he doesn’t say enough about philanthropy, and he confuses pro-NIH evidence with showing the superfluity of commercial incentives.
2. Send some flowers to Cynthia Kenyon, whom I could not personally quote in this manner with a straight face. You would never know that universities are profiting from drugs, and patenting them, at an unprecedented rate. Universities are also forming partnerships with drug companies at an unprecedented rate.
3. Companies must work very hard to translate basic research into usable applied form and the U.S. is a clear world leader in this regard. A drug idea is not the same as a drug. Cohn at times admits this, but is he really denying that the supply curve here slopes upward with regard to expected profits? You can cite all kind of "mixed" factors about commercial incentives but at the end of the day that is the basic question.
4. Statins, Prozac, and anti-AIDS drugs are notable examples of #1. Or try this list of Merck products. Merck and Pfizer are much more than simply marketing or doctor bribery machines, although admittedly they are that too.
5. The standard arguments against commercial "me-too" drugs are considerably overrated.
6. FDA restrictions are at least partly responsible for the costly, overly concentrated, and blockbuster-oriented nature of U.S. and other pharmaceutical companies. Tight regulations discriminate against the small company and the small idea. Even if you think tight regulations are a good idea, don’t blame these tendencies on the big bad corporations.
7. It is odd for Cohn to cite me as his libertarian foil, since the referenced piece very clearly cites the NIH as a critical factor behind American medical innovation. This odd citation again represents the desire to replace "anti-commercial" arguments with an easier-to-make "pro-NIH" case.
9. The NIH works as well as it does because the money is mostly protected from Congress. It is not a success which can easily be replicated. The more money is at stake, the more Congress wants to influence allocation. We should guard this feature of the system jealously and try to learn from it. If we can.
The bottom line: Arguments for the NIH are not arguments against the importance of commercial incentives for medical innovation.
Addendum: Read Clive Crook too.
The Wall Street Journal has a front-page article and a debate between Julio Elias and Alvin Roth on alleviating the shortage of transplant organs. This interactive graphic was good at explaining the idea of kidney swaps. Elias and Roth should have discussed no-give, no-take rules and Lifesharers.
I will be speaking to Congressional and agency staff about the organ shortage this Thursday at noon (this event is not open to the public.)
Addendum: Transplant surgeon Arthur Matas, mentioned in the WSJ article, is no
libertarian but argues for live kidney sales in a new Cato Policy
I just had my flu shot. Please send your checks to my George Mason address.
People who have the flu spread the virus so getting a flu shot not only reduces the probability that I will get the flu it reduces the probability that you will get the flu. In the language of economics the flu shot creates an external benefit, a benefit to other people not captured by the person who paid the costs of getting the shot. The external benefits of a flu shot can be quite large. Under some conditions each person who is vaccinated reduces the expected number of other people who get the flu by 1.5.
Since a large fraction of the benefits of the flu shot, perhaps even a majority of the benefits, go to other people and not to the person paying the costs, the number of people who get a flu shot in the United States is well below the efficient level. I only got the shot because, as you well know, I’m altruistic. I care about you. But do send your checks, that will help.
In lieu of a check I’m thinking of having some buttons made up to encourage people to get their shot. Here are some possible slogans:
- Kiss me, I’m vaccinated.
- Take one for the herd!
- Get a flu shot. The life you save may not be your own.
Madison Avenue here I come!
Of course, we know from the Coase Theorem that there is an alternative approach. We could charge people who do not get their flu shots. (Thus, if you haven’t had a shot you must still must send me a check.) Or to reduce transaction costs we could fine people who get the flu. I kind of like that last one. (But what to do about the 36,000 a year who die from the flu – charge their estates?)
What do you think? Leave your suggestions/slogans for how to encourage getting a flu shot in the comments.
We measure uncompensated care as the net amount that physicians lose by
lower payments from the uninsured than from the insured. Our best
estimate is that physicians provide negative uncompensated care to the
uninsured, earning more on uninsured patients than on insured patients
with comparable treatments. Even our most conservative estimates
suggest that uncompensated care amounts to only 0.8% of revenues, or at
most $3.2 billion nationally.
Can any of you find an ungated copy of this paper?
Looks and height matter for economic outcomes, so why not teeth?
Healthy teeth are a vital and visible component of general well-being, but there is little systematic evidence to demonstrate any impact on the labor market. In this paper, we examine the effect of oral health on labor market outcomes by exploiting variation in access to fluoridated water during childhood. The politics surrounding the adoption of water fluoridation by local water districts suggests exposure to fluoride during childhood is exogenous to other factors affecting earnings. We find that children who grew up in communities with fluoridated water earn approximately 3% more as adults than children who did not. The effect is larger for women than men, and is almost exclusively concentrated amongst those from families of low socioeconomic status. Of the channels explored, we find that occupational sorting explains 14-23% of the effect, suggesting consumer and employer discrimination are the likely driving factors.
That is by Sherry Glied and Matthew Neidell; here is the paper on-line, note their findings are preliminary not final. Teeth seem to matter less for rich people because they have later chances to cover up — using money of course — for bad childhood teeth. The poor apparently remain stuck with their teeth problems. You might think that childhood exposure to fluoride is just proxying for quality of county and thus county human capital in some way, but the fluoride/earnings correlation seems to hold up even when variables are used to adjust for county quality. Can you dissent from a paper that writes:
…the anecdotes described above suggest that people who lack teeth may have trouble finding jobs.
I thank a loyal MR reader for the pointer.
Addendum: Here is Caplan (and Blinder) on the economics of teeth.
Kevin, a soon-to-be loyal MR reader, asks:
What single intervention would do the
most to improve the health of people living on less than $1 a
Experts answer here. The first guy asked says give them cash. One woman, whom I believe is a practitioner of living on a dollar a day, responds: "Improve the house, which is small and untidy."
What I found noteworthy is how many plausible but quite distinct answers there were. While I disagree with Jeff Sachs on many issues, I think he is right to stress just how many different problems have to be overcome for sustainable development to occur.
Senator Bernie Sanders, the first self-described socialist ever to be elected to the Senate, has introduced a bill that I might actually sign on to, The Medical Innovation Prize Fund Act of 2007. In essence, the prize fund would pay pharmaceutical companies to release their patent rights to the public domain.
The level of funding for medical innovation prizes would start at
$80 billion per year, and increase with the growth in GDP….
Under the Sanders
proposal, the patent system would still be used, but the patent owners
would no longer be given monopoly rights to control the manufacturing
and sale of products. Instead, patents would be used to establish who
"owns" the right to the cash rewards given for new inventions. Drugs
developed without patents would also be eligible for the prizes.
I like that the funding amounts are serious and would be available to non-patented products (innovations without property rights are underfunded). I worry about corruption and funding directed according to political pressure. I would be reassured if the system were clearly voluntary – that is, pharmaceutical manufacturers should have the option of the patent or the prize. Clearly an option will increase profits for the pharmaceutical firms but medical innovation has many beneficial returns not captured by the pharmaceutical companies so I am not worried about bigger transfers.
Most importantly, a prize fund would make clear the tradeoff between pharmaceutical revenues and R&D and it would reduce the pressure for price controls which I think are a serious threat to future medical innovation.
Thanks to Ben Krohmal for the pointer.
…[compared to the United States] income plays a larger role in buffering children’s health from the
effects of chronic conditions in England. We find no evidence that the
British National Health Service, with its focus on free services and
equal access, prevents the association between health and income from
becoming more pronounced as children grow older.
Here is the paper. Of course equity is not the only argument for single payer systems. Here is part I of the series, concerning Canada and the (possible) continuation of the health-income gradient there. Many of you were skeptical about the reported result, but here is further evidence. Most of all, the determinants of health are not well understood; that is itself a sobering fact no matter what your policy point of view.
No, not Ayn Rand, the RAND experiment on health care. The RAND experiment randomly assigned people to different health plans and one of the big findings was that cost sharing reduced use of health care but had little effect on health outcomes. My colleague, Robin Hanson, likes to use this as a club to argue that we should cut medical spending in half.
Even randomized experiments have problems, however, and it turns out that there was a lot of attrition in the RAND experiment. A Healthy Blog quotes from a new paper in the October 2007 issue of the Journal of Health Politics, Policy
and Law, by Dr. John Nyman of the University of Minnesota (alas not online).
Of the various responses to cost sharing that were observed in the
participants of the RAND HIE, by far the strongest and most dramatic was in the
relative number of RAND participants who voluntarily dropped out of the study
over the course of the experiment. Of the 1,294 adult participants who were
randomly assigned to the free plan, 5 participants (0.4 percent) left the
experiment voluntarily during the observation period, while of the 2,664 who
were assigned to any of the cost-sharing plans, 179 participants (6.7 percent)
voluntarily left the experiment. This represented a greater than sixteenfold
increase in the percentage of dropouts, a difference that was highly significant
and a magnitude of response that was nowhere else duplicated in the experiment.
What explains this? The explanation that makes the most sense is that the
dropouts were participants who had just been diagnosed with an illness that
would require a costly hospital procedure. … If they dropped out, their coverage
would automatically revert to their original insurance policies, which were
likely to cover major medical expenses (such as hospitalizations) with no
copayments … As a result of dropping out, these participants’ inpatient stays
(and associated health care spending) did not register in the experiment, and it
appeared as if participants in the cost-sharing group had a lower rate of
inpatient use. … the cost-sharing participants who remained exhibited a lower
rate of inpatient use than free FFS participants, not because they were
responding to the higher coinsurance rate by forgoing frivolous hospital care
but instead because they did not need as much hospital care, since many of those
who became ill and needed hospital care had already dropped out of the
experiment before their hospitalization occurred. …
Hat tip to The HealthCare Economist.
The Medicare prescription drug benefit was, from the beginning, flawed in the details of its execution. But in general terms it is turning out to be one of the best health care investments our government is making:
Rewarding inventors with inefficient monopoly power has long been
regarded as the price of encouraging innovation. Public prescription
drug insurance escapes that trade-off and achieves an elusive goal:
lowering static deadweight loss, while simultaneously encouraging
dynamic investments in innovation. As a result of this feature, the
public provision of drug insurance can be welfare-improving, even for
risk-neutral and purely self-interested consumers. In spite of its
relatively low benefit levels, the Medicare Part D benefit generate
$3.5 billion of annual static deadweight loss reduction, and at least
$2.8 billion of annual value from extra innovation. These two
components alone cover 87% of the social cost of publicly financing the
benefit. The analysis of static and dynamic efficiency also has
implications for policies complementary to a drug benefit: in the
context of public monopsony power, some degree of price-negotiation by
the government is always strictly welfare-improving, but this should
often be coupled with extensions in patent length.
In other words, the optimal ex post incentive scheme involves some market power for drug makers. To some extent the subsidy counteracts the deadweight loss resulting from that monopoly by lowering real prices to consumers.
Here is my previous post on the topic, also indicating that the Medicare prescription drug benefit is not nearly as costly as has been charged. Of course subsidizing the pharmaceutical companies does not always sit so well with the left, so I am curious whether progressives will accept this result. And I am curious whether they envision single-payer programs as continuing this subsidy, or confiscating pharmaceutical company rents instead.
As a side remark, Martin Feldstein was the one who saw, way back when, that health care economics would become such a major field; kudos to him.
Addendum: Sorry for the omission, here is the paper itself.
According to a study that even the New Republic’s Jon Cohn admitted he
thought was probably exaggerated, being uninsured killed 18,000 people
a year this decade. Methicillin-resistant Staphylococcus aureus, on the
other hand, apparently kills 19,000 a year.
That’s from Megan McArdle, who continues:
Non libertarians can, of course, go along wishing that we would have
national health care and a War on Infection. But it’s worth asking
yourself: in a world of scarce resources, where you could only have
one, which would you choose? And by what principle?
The fact that I have read very few sentences today does not diminish the stellar quality of these thoughts.