The Cost Curve and the Cure Curve: Part Two of Two

In part one, we noted that Steven Brill’s muckraking cover story in Time magazine has generated enormous buzz. And yet at the same time, we observed that the Brill piece is likely to be remembered as just another installment in a long line of healthcare jeremiads—to be heard, even admired, but not acted upon.

The problem with the Brill piece, and others like it, is this: Yes, the problems that he identifies—or, if one prefers, the scandals—are serious. And yet the solutions he puts forth—more price-regulations on the healthcare sector, along with higher taxes and salary caps on hospital executives—are not particularly popular.

Admittedly, in some immediate torchlight parade of passion, plenty of Americans, perhaps even a majority, would instinctively support a populist overhaul of the system.  Yet in the cooler light of a legislative morning, myriad interest groups and their lobbyists, operating from motives both high and low, would pick apart any such populist overhaul. They always have.

The basic message to the public of status quo defenders, in response to Brill, would be: Do you really trust these reformers to make things better? Can you really be sure that the do-gooders, perhaps pursuing some unknown exotic agenda, won’t simply end up taking something away from you?

Indeed, in the case of Brill-ish reformers, coming at the healthcare issue from the left, it’s almost impossible to separate their message from another message on the left that is, in fact, scary. And what idea is that? It’s the idea that we are spending too much on the sick and the elderly, that we should move toward a “rationalized” system that would measure “Quality Adjusted Life Years” (QALY)—as a prelude, we might note, to some polite form of euthanasia.

We should realize that these aren’t Palinesque fantasies; we should remember that Dr. Ezekiel Emanuel, one of the White House architects of the Affordable Care Act, outlined his views on QALY–and also DALY, for Disability Adjusted Life Years–in a 2009 article in The Lancet. And thus it’s easy to see how Sarah Palin’s son Trig, born with Down’s Syndrome, would fare under such a system. Moreover, the rest of us are on notice as well: As Emanuel’s chart on page 428 of the article shows, the very young and the very old will have to prove themselves–that is, prove themselves worthy of our care.

So is Brill in favor of such elaborate rationing schemes? Who knows. But we do know this much: Many of the same healthcare experts who are lionizing Brill today were lionizing Emanuel in the past—and maybe will also do so in the future.

The common threads uniting the Brill-ish muckrakers and the Emanuel-esque rationers are the feelings that the current system is a) corrupt, b) inefficient, c) too costly. The first two points are hard to argue with—stipulating, of course, that everything in a pluralistic society can be made to look corrupt and inefficient upon close inspection. A talented and motivated reporter can blow the whistle on just about anything.

Yet the third point made by the critics, that the system is too costly, is a bit harder to prove convincingly, because it rests on an essentially aesthetic judgment—that is, the judgment that we are spending too much on health, as opposed to, say, something else. Well, who gets to decide? Who can make the a priori judgment that 17 percent of GDP for healthcare is too much? Who says that we should spend less on health so that we can spend more on … what? The poor? Organic farms? New smart phones? Foreign wars?

We might note that healthcare is an example of what economists call a “superior good.”  That is, as income rises, people want more of it. As noted in the previous installment, by a more than 4:1 margin, the American people want more healthcare, not less.

That’s why, in this affluent country—and in all affluent countries—healthcare expenses are rising faster than GDP. Plenty of affluent foreigners, for example, come here for treatment; it’s a big business for the US. And that foreign influx makes our healthcare “spend” look larger, and the “spend” of other countries look smaller. So now who is made better off? The answer: We are, here in the US, thanks to our bulging healthcare system.  The American healthcare system is a big source of jobs and income, precisely because it is such a big industry.

Yet the bigness—some would say grossness—of the American economy, and its many consumerist and sectors, is offensive to many in the mandarin chattering classes. And so when our $2.7 trillion healthcare system comes into focus, well, the mandarin chatterers rush to take offense at that, too. Enter Brill, and also Emanuel.

Strictly speaking, it would be quite possible to separate the desire, on the one hand, to root out waste and fraud in the healthcare system from the desire, on the other hand, to ration care. It would be possible, yes, to make that separation, but, in reality, the Brills and the Emanuels seem to enjoy the intellectual linkage, and that linkage, in turn, is soldered into an ever stronger bond by liberal-leaning think-tanks and schools of public health.

In other words, this Brill-Emanuel fusion will forever be adored by journalists and “public intellectuals”—and yet the public doesn’t much like it at all.

Indeed, it’s hard to shake the feeling that the Brill-Emanuel Establishment is just another incarnation of the most ancient of political sentiments—the belief among the well-off that the less-well-off are getting too much. To be sure, these new Establishmentarians count themselves as good progressives, and so they don’t think that the masses should get too little—just not too much. Just the right amount is needed, and the elites, of course, will decide that.

Another constant of Brill-Emanuel thinking is a preoccupation with costs, as opposed to benefits. Healthcare costs are important, but actual health outcomes—whether people get better or not—are even more important.

Indeed, with all their emphasis on bending the cost curve, the Brill-Emanuel school ignores the other curve—the cure curve.

How do we know this to be true about these healthcare critics and reformers? Consider: In his Time piece, Brill outlines many suggested changes, most of them involving new regulations and new taxes. Yet another of his remedies would be even more consequential; as he writes, “We should amend patent laws so that makers of wonder drugs would be limited in how they can exploit the monopoly our patent laws give them.”  And so, the argument goes, we get cheaper drugs.

Without a doubt, the further shortening of the patent protection for existing drugs—thus allowing for even more competition from generics—would lower drug costs. That is, for existing drugs. But isn’t it obvious that such an erosion of patent protections would diminish the supply of future drugs? Wouldn’t crimps on profitability have a predictably negative effect on output?

And those future drugs are vital. Of all the ways that a healthcare provider can help a patient, surely prescribing a pill or a shot is among the least expensive ways. According to a 2009 paper for the National Bureau of Economic Research, written by Eric C. Sun and five co-authors, the total societal value of greater cancer survival in the US, just from the years 1988 to 2000, amounted to $1.9 trillion. That is, the $1.9 trillion summed up the total value of all the lives lengthened and saved during those dozen years.

And crucially, of that twelve-digit total, only barely a fifth of that $1.9 trillion was captured by the drug companies and the healthcare system. The other four-fifths of that $1.9 trillion accrued to individuals, to their families, and to the nation as a whole. Quite a bargain.

We might observe that $1.9 trillion is a big number, and one would think that budgeteers on both the right and the left would be all over it, looking for ways to enlarge such numbers, applying the same abundance strategy to other diseases. That is, one would think that budgeteers would be eager to increase the wealth of the country by increasing the supply of valuable medicines.

Yet strangely, that’s not the case. The calculations of Eric Sun and his colleagues are relegated to the far fringes of the debate; the real numbers for the budget debate, the ones used in Washington DC, come from the Congressional Budget Office and the Office of Management and Budget—and both of those institutions, as a matter of policy, practice “static scoring.” That is, they make no provision for the idea that an investment in a new drug—or a new anything—could yield up a huge fiscal and economic dividend down the road somewhere. Such “dynamic scoring” is simply not a part of the CBO/OMB worldview.

Under the reign, then, of static scoring, every federal expenditure, of any kind, is simply a cost—and nothing more. And so by this static reckoning, of course, the only way to reduce costs is  simply to plan to spend less. The idea of productivity increases—to say nothing of quantum breakthroughs—is just not a part of the DC policy mindset. Our response to this mindset: If our fiscal “experts” ignore the value of future investment, it’s hard to see how we can make a better future.

Indeed, in no small part because of this not-so-benign policy neglect, the “pipeline” of new drugs, devices, and investment is drying up. And that can’t be good for America’s health–nor for America’s wealth.

One example of this drying up is the supply of new antibiotics, the production of which has fallen by 80 percent over the last three decades. So it’s little wonder that bacterial “superbugs” now afflict Americans in 42 states. How much will those infections and deaths cost in direct outlays? How much will they cost in larger terms. A future muckraker might chronicle the inefficiencies and ripoffs involved in hospitalizing patients with deadly infections—but the stories about such costs will never be as devastating as the stories about preventable deaths.

In other words, the issue of cost reduction pales in comparison to the issue of new-drug production. According to Forbes’ Matthew Herper, a new drug costs anywhere from $1 billion to $11 billion to get to the market, the average being around $4 billion. So of course, some sort of plan for rewarding those who make drugs is needed.

So what to do? It’s possible to imagine new ways to incentivize drug creation, just as it’s possible to imagine new ways to reduce the huge present-day disincentives to drug creation, notably the burdens of regulation and litigation.

To his credit, Brill decries the excessive cost of malpractice litigation, and endorses strong reforms, but he makes no mention of the even bigger issue of product liability. In our current tort system, if a shark of a trial lawyer can convince a random jury that a drug is dangerous for anyone at all, that drug is effectively off the market—for everyone. Yet it is increasingly possible to implement a “big data” system that identifies those individuals who might suffer a bad reaction to a drug, thus filtering them out, while leaving the drug available to everyone else.

In addition, it’s possible to create a simple compensation system—based, in fact, on the workmen’s compensation model—that takes care of those harmed, while cutting out the piratical entrepreneurialism of the trial lawyers.

Brill doesn’t get into any such ideas—his piece being long enough as it is.

Yet the case of the late Steven D., cited by Brill, reminds us that the ultimate issue in healthcare isn’t finance, it’s life and death. If the treatment—very often, an effective new drug—exists, then the patient lives. If the treatment doesn’t exist, it’s likely that the patient will suffer, or even die.

Indeed, over the long run, good health, if available, is likely the best bargain of all. And yet a long-term vision of better health for all—that is, better health through medicine—requires patience, and perhaps some higher upfront costs.

This is the lesson too often lost in discussions of the health industry. Affordable healthcare is important, but available health is even more important.

So now we come to an exciting story about a genuine cure, thanks to some good doctoring, as well as a lot of drugs.

On March 3, it was reported that doctors at the University of Mississippi had eliminated the Human Immunodeficiency Virus, or the AIDS virus, in a newborn baby girl. The doctors achieved by this miracle by rushing in with expensive anti-viral treatment on the baby, born to a mother carrying the virus. This aggressive antiretroviral treatment went against the more familiar procedure, which had been to wait a month or more to be sure that a baby born to an HIV+ mother does, in fact, carry the virus; not all do so.

But in this case, doctors tested immediately and then took action. They administered aggressive treatment within 31 hours of the infant’s birth, and that treatment seems to have prevented the formation of “viral reservoirs” in the baby’s body. In other words, it appears that the baby is cured of HIV/AIDS. “This is a very important proof of concept,” declared Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases.

Now of course, if doctors get in the habit of treating more newborns with aggressive retroviral therapies, costs in the short run will go up—because such treatment is expensive. Yet over time, the treatment will become less expensive, as economies of scale are realized and newer techniques discovered. And, as with cancer, over the long run, the benefits to the US economy of more effective AIDS treatment—to say nothing of finding a vaccine or a cure—can be measured in the tens of trillions of dollars worldwide.

So how do we break out of this stalemate? How do we develop a strategy for cures?  Evidently, we are in an intellectual slough, in which the presumed best minds in healthcare can think only of cuts, when what’s really needed, to be sure, are increases—increases in the supply of life-saving drugs and treatments.

Indeed, the situation in US healthcare today can be compared to the situation of the US economy back in the “stagflation” days of the 1970s. Back then, our whole economy suffered from a trough of production, as supply was constricted by too much taxation and regulation. And in that constricted economic environment, even the familiar prescriptions of big deficits and loose fiscal policy failed to stimulate employment and growth.

The solution to that stagflation, of course, was the new idea of “supply-side economics,” ushered in by Jack Kemp and then Ronald Reagan. Supply-side economics was a new term for an old concept: When production is constricted, we must un-constrict it.

One of the leading champions of supply-side back then was George Gilder, author of the 1981 best-seller, Wealth and Poverty. Last summer, Gilder, ever the visionary, urged the Romney-Ryan ticket to adopt a supply-side approach to medicine and cures.

As he explained, the Republican duo could not simply run on a platform of budget cuts.  Instead, Gilder urged, Romney and Ryan should grasp the wisdom of the late business sage Peter Drucker: “Instead of solving problems, pursue opportunities.” That is, instead of expending political capital on voucherizing Medicare, expend that same political capital on curing, say, Alzheimer’s.

As Gilder said of the economic potential of healthier senior citizens:

With their skills, experience and improving health, seniors could remain in the workforce as assets rather than becoming liabilities for their diminishing numbers of grandchildren. Saving Social Security and Medicare is an opportunity for keeping seniors healthy and in the workforce rather than driving them out by punitive tax rates on their earnings and halting innovation in government-directed health care.

Gilder was arguing for a whole different way of thinking about healthcare policy–and about politics.  That is, don’t lead with “cuts first”; that’s leading with the bad news.  Instead, lead with the good news: “cure first.” Romney and Ryan didn’t do any of that, of course, and they lost.

Still, over the long run, if we as a people are going to avoid being washed away in a “silver tsunami” of costly eldercare, we are going to have to reconsider Gilder’s point: We are going to have to rethink the healthcare system in a profound way, and that way will be making healthcare cheaper by first making people healthier.

America needs this change of thinking, and so, as a matter of fact, does the whole world.  Michael Hodin, writing for The Fiscal Times, made the same point recently, discussing the economic and political value of reducing or eliminating Alzheimer’s Disease:

Ultimately, our goal must be to de-link Alzheimer’s from aging. We have done this for a number of other health conditions that were once inextricably age-related—like vision loss, cardiovascular disease, and diabetes, for example. This would be revolutionary progress, to be sure, but we can’t be intimidated by the complexity of the challenge. As Americans, Europeans and Japanese make their own national commitments for basic research, we still need is a global commitment and a global fund to find better ways to prevent and treat Alzheimer’s.

Such a goal will require political cooperation beyond Democrats and Republicans, but the across-the-aisle partnership we’ve seen on Alzheimer’s provides a good start. In our 21st century marked by aging populations, good science policy is the basis of great economic policy.

That’s a true supply-side vision for healthcare, and, more to the point, for health. It’s also a winning political message, because, as we have seen, people—aka voters—value their personal health more than they value some distant abstraction, such as the optimum share of GDP to be consumed by the healthcare sector.

So yes, let’s have the muckrakers, because there’s always money to be saved. But let’s also have the healers—including healing technology—because there are always lives to be saved.

Clearly, the cost curve is important, but the cure curve is even more important. And the life curve is the most important of all.

James P. Pinkerton is a contributor to the Fox News Channel and a TAC contributing editor. Follow him on Twitter.