The Mackinac Center for Public Policy
(MCPP is a nonpartisan research and educational organization devoted to improving the quality of life for all Michigan citizens by promoting sound solutions to state and local policy questions through the objective analysis of Michigan issues. MCPP seeks to broaden the policy past the belief that government intervention should be the standard solution for various issues. MCPP offers an integrated and comprehensive approach encompassing the role of voluntary associations, business, community and family, as well as government.)
MIDLAND, Mich. -- Evaluating New Drugs: Remember the Bigger Picture
by Lawrence W. Reed
"Don't be penny-wise and pound-foolish" is an old adage that cautions us about false savings. Sometimes spending a little more now makes the best sense if it maximizes our savings in the long run. Failure to understand this lesson is at the root of many misjudgments and bad policies regarding the cost of prescription drugs these days.
Critics of high-priced pharmaceutical products cite heavily promoted, expensive new drugs as "the 800-pound gorilla" in our nation's costly health-care system. Lawmakers are debating ways to address the issue -- including price controls and mandating more use of generics.
Are we getting good value for our drug dollars? A new body of research offers a compelling contradiction to the notion that we need a "cure" for high-priced drugs. It turns out that these "expensive" new drugs might just be the best weapon we have against rising health-care costs.
Columbia University economist Frank Lichtenberg has looked at newer drugs versus older drugs and found that people who are using newer ones may indeed be paying more for their medicines. But in a recent article for the journal Health Affairs, Lichtenberg also points out these same people have lower overall health costs, due in part to reduced hospitalizations. In addition, they live longer and have fewer lost workdays.
In other words, we're spending more time at the pharmacy, but less time in the hospital or on the surgical table. This means we are managing our conditions better and spending less on more expensive types of care. That's good news for consumers and patients, as well as for employers and for our health-care system as a whole.
A study by Lichtenberg for the National Bureau of Economic Research last fall demonstrated that replacing 1,000 old drug prescriptions with 1,000 newer and more expensive drug prescriptions would increase drug costs by $18,000 but would also cut hospitalization costs by $44,469.
Innovations in drug treatment are helping us deal with many conditions -- often with far better results -- that required far more expensive medical procedures. For example, stomach cancer used to be an ailment that was treated primarily by invasive surgery and long hospital stays. But today, drugs are more commonly utilized. The newest drugs, though they seem "expensive" up front, are making the use of far more expensive surgery less and less necessary.
This is the "big picture" that often gets lost in the rush to save a few bucks. As Lichtenberg writes, "Drug costs (and changes in drug costs) are visible to the naked eye; identification of drug benefits requires careful analysis of good data." Sound policy requires that we take into account "the full range of effects, not just the costs, of newer drugs."
For this reason, the case for generics -- older drugs for which the patents have expired -- is vastly overstated. And the advertising that pharmaceutical companies sponsor for new drugs, contrary to the claims of those who champion generics, serves a useful economic purpose: It informs patients and encourages them to ask about the newest innovations.
Nevertheless, Michigan has begun to implement a sweeping prescription drug cost-control program. A state-appointed panel authorizes only certain discounted medications for the 1.6 million Michigan citizens who rely on state programs like Medicaid. To the extent that this program shifts people to older drugs, the state may end up spending more for health care while patients suffer through longer recoveries.
Profits aren't the problem, either. Throughout the pharmaceutical industry, they've been steady over time and comparable to the profits in other industrial sectors. Moreover, a study by Harvard professor and economist F.M. Scherer proved there is a close correlation between pharmaceutical profits and research and development. The more companies make, the more they pour into finding the next cure or treatment for what ails us. Profits fuel innovation, while regulations add millions to the cost and long lag times before a drug can be marketed.
American pharmaceutical companies have produced a constant stream of new, improved drugs for your doctor's toolbox when you get sick. Common sense dictates that we consider all costs and all benefits, long- and short-term, lest we become "penny-wise and pound-foolish."
(Lawrence W. Reed is president of the Mackinac Center for Public Policy.)
The Reason Foundation
Turkey Lurkeys Wanted
by Jeremy Lott
Following in the grand apocalyptic tradition of Paul Ehrlich, William Butler Yeats, and Chicken Little, the World Wildlife Fund is set to release a report on the state of the planet tomorrow. The prognosis, warns the London Guardian, is not good. Countless species will perish, global warming will intensify, and most vital resources will be exhausted by the year 2050. A ridiculous link from the article reads, "Earth to expire? Talk about it online."
The next few weeks will see environmental writers right, left, and faux center argue over the data, the methodology, and, most importantly, each other's motives. Lefties will denounce skeptics as shills for industry. Skeptics will fire back that they don't call it the World Wildlife Fund for nothing.
Meanwhile, us environmental ignoramuses will continue to muddle about with vague intuitions about the extent of The Problem or what is to be done about it -- diagnoses largely informed by our politics. Those to the left of center tend to magnify the problem and favor government solutions. Conservatives try to "put things in perspective" and argue that spilled oil can actually make quite the balanced diet for otters, penguins, and baby seals.
One problem is that two sides are talking past, rather than with each other. Most environmentalists aren't able to understand how changes quite apart from the government, such as energy saving devices and cloning, can reduce pollution and rescue species. Conservatives, for their part, are unable to interpret the apocalyptic milieu from which such dire warnings as this current report spring. From a religious perspective, the absolute accuracy of apocalyptic pronunciations (see Revelation) is not nearly as important as the overall sentiment, in this case that we ought to be concerned about how we affect nature.
What this melodrama needs is a Turkey Lurkey to sternly remind everyone that the sky is not falling and that we can muddle through.
(Jeremy Lott is Reason's 2002 Burton C. Gray Memorial intern.)
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