Big Government = Less Medical Innovation
April 12, 2010
|
Posted by Michael S. Langston
Over @ HBR Blogs, Jeff Goldsmith asks the following question: Has the U.S. Health Technology Sector Run Out of Gas?. Looking historically, he notes the amazing progress since the 1970s, but a decline in that growth since 2000:
…Technological innovation — in pharmaceuticals, biotechnology, medical devices including imaging, and enterprise IT — exploded in the thirty year period 1970 to 2000…
…Then about a decade ago, the US medical technology sector entered a prolonged innovation drought. In pharmaceuticals, new drug introductions declined by almost two thirds, while drugs patented in the latter part of the boom period lost protection, this despite a near tripling in R+D outlays. (New drug introductions rebounded modestly in 2008 and 2009, but still haven’t regained their 2004 levels)….
He goes further to note that this dip in activity wasn’t just about new drugs:
…The drought wasn’t confined to pharmaceuticals and biotechnology. Imaging, a dazzling success story for three decades, has seemingly run out of gas. Imaging equipment sales collapsed precipitously in the US, by roughly 40%…
…Enterprise clinical information technology seems to have hit a similar flat spot. The major commercial IT platforms for hospitals and health systems are more than a decade old.
& all of that makes complete sense based upon what we know about the last couple of decades.
Since the mid-1990s (well really, since the 1960′s), we have increased regulation on the medical industry on a constant basis. From minor changes in who qualifies, to new regulations such as HIPA, to very large new regulatory pressures such as the Medicare Prescription Drug Benefit, resulting in an explosive growth in government expenditures of health care:
There have also been additional pressures. Increases in financial and IT regulations through SOX and other legislation have increased companies’ weariness to put themselves at risk and increased costs of doing business.
These pressures in increasing the costs of doing business, combined with the federal government expenditures crowding out private spending, has resulted in higher costs for businesses and therefore consumers as well. The new heath care and financial overhaul bills will continue this pressure.
The big cost however is what the author notes: the lack on innovation. When the government seeks to consistently erect new and more costly barriers to entry, competition will naturally decline. The correlation to that behavior is that costs will grow more rapidly as we know competition in the long-term generates downward pressure on prices.
As we see now – prices are increasing, availability is decreasing, as the government decreases the availability of future competition in industries the government tightly controls such as health care. Conversely with those industries with fewer barriers to entry have downward pressure on prices, such as cell phone or internet providers.
While I consider this failure of centralized control as a major factor, Mr. Goldsmith posits three contributing factors, risk aversion from management, size and increasing bureaucracy, and the fact that we are losing out globally for scientific talent:
- Firms that used to be run by scientists and engineers are now run by attorneys and marketing executives….
- Their ability to foster innovation has succumbed to a bureaucratic management culture….
- Bright young foreign science and technology graduates are returning to India or China instead of staying here and creating new products or companies….
While I agree with all of these things, I think reasons 1 & 3 can be combined easily to a more basic point about government interference and centralized control. Indeed they are symptoms of the problem and not necessarily the disease.
Having said that, I think it’s also important to note that reason number 2 exists due to the same thinking reasons 1 & 3 do – the belief that centralized control is a nominal good (DA post on business trends here).
The author seems remiss in not making the connection, even if he did eloquently, maybe unwittingly, stumble across it when writing about global competition:
…If they have more freedom to innovate in their home countries, that’s where they’ll go….
For as long as we continue to discuss symptoms and not the actual disease, we will continue to miss the point.
Categories: Business, Free Market Principles, Legislation, Political Philosophy, Regulation/Deregulation
| 
Tags: Barriers to Entry, Competition, Decentralization, Deregulation, Financial Regulations, Free Market Principles, Freedom, government spending, HBR, Health Care Reform, Innovation, Regulations, Risk
|
1 Comment
