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European Affairs
Industry and Technology
Atlantic Partners Must Share the Costs of Medical Innovation
By James C. Greenwood
One of the difficulties in formulating health policy is that the options are constrained by an iron rectangle of four, often-conflicting policy objectives, which seem virtually impossible to achieve at the same time.We want human beings to have universal access to health care; we want that care to be of the highest possible quality; we want it to be affordable; and we want constant innovation to ensure that our health care systems deliver the latest medicines, devices and techniques.
The struggle to achieve these four objectives almost invariably turns out to be a zero sum game. If you expand access, for example, costs go up. If you reduce costs, quality goes down. If you create more incentives for innovation, prices go up. It seems impossible to break out of the iron rectangle.
Nor does it help much to try to learn from how others are tackling these problems. Americans and Europeans seem unable to get beyond seeing caricature versions of each other's systems. Europeans often regard the U.S. system as capitalism and free enterprise run amuck. They find it barbaric that 40 million Americans have no access to health care. Meanwhile, big pharmaceutical companies are depicted as gouging prices and raising costs so high that health care becomes increasingly unaffordable, reducing access to it still further.
Americans, on the other hand, believe that the universal care provided by government-run programs in Europe and Canada is of mediocre quality and has to be rationed. Government pricesetting not only reduces standards, but also discourages innovation by removing the profit incentive to develop new medicines. Neither system is quite as bad as these superficial impressions imply. But the caricatures at least correctly depict Europeans as having excelled in access and cost, while Americans have succeeded spectacularly in quality and innovation.
None of us has figured out how to achieve all four objectives, although we are trying to do so by reforming our systems. The U.S. Congress has taken a step toward the European approach, at gigantic cost, by enacting a new prescription drug benefit program for all Medicare recipients, covering everyone who is over 65 or disabled.While this represents an increasing socialization of our system, we did it in a Republican sort of way – the benefits will be managed by private companies, not by the government. But we have moved in the right direction.
The issue is not just about whether the U.S. or the European/Canadian system is better, but how they interact. This is particularly relevant now because of the heated U.S. political debate over whether Americans should have access to cheaper medicines from Canada – an issue that is posing an enormous challenge for health care policy makers in the United States. Canadian medicines are much cheaper than American because the government sets the prices. The Canadian government can remove a company's intellectual property rights to a product if the company refuses to sell it at the price set by the Canadian Drug Control Board.
Many people in the United States, particularly the elderly, have figured out how to take advantage of the price difference, and there are websites galore on which Americans can order from what they hope is a real Canadian drugstore and have the product shipped to them. Alternatively, they can take a bus to Canada and bring the product back with them. These developments have created great tension in the U.S. system.
Populists, mostly Democrats but some conservative Republicans as well, argue that free enterprise means that anyone should be able to buy a product anywhere, and that the U.S. government should not bar its citizens from buying cheaper drugs from Canada. On the other hand, President George W. Bush, together with most Republican members of Congress and some Democrats, say that approach will not work. The arbitrarily low Canadian prices are intended to make drugs as cheap as possible for the government-funded health system, and no effort is made to ensure that prices cover the costs of innovation.
"Out of every 5,000 molecules examined for treating diseases, only one results in a marketable product"
In the United States, it costs $800 million on average to develop a pharmaceutical product, and it takes ten to 15 years when biotech research is involved. Out of every 5,000 molecules examined or tested for treating diseases, only one results in a marketable product. It is clear that if cheap Canadian drugs could be freely imported into the United States, both the Canadians and the people buying the medicines would benefit in the short term. There would be nice profits for some businesses.
Eventually, however, all the innovation costs would be squeezed out of the drug prices and innovation would suffer, with enormously harmful consequences. It is no accident that 75 percent of new pharmaceutical products patented in the last year or so are American, and that many European biotech companies involved in innovative research are moving to the United States.
We should approach this as a trade issue. Americans, Canadians and Europeans have to face up to the fact that we cannot allow a pricing system to take hold that would destroy innovation. The human genome project has been able to identify the derivation of a number of diseases on a chromosome-by-chromosome, gene-by-gene basis.
There is a disease, for example, that results in paralysis and severe mental depression. We know that it is caused by a specific gene that is supposed to have a certain number of repetitions of a fouramino acid set.We know now that if that happens 37 times, you are healthy. If it happens 43 times, you will get the disease when you are about 75. If it happens 52 times, you will get it at 65. This is an example of the extraordinary information that we are going to get from the human genome project, and that we are about to put into application.
Someone will discover a molecule that prevents the malfunctioning of the gene, so no one has to go through this hell of paralysis and depression. But it will happen only if investors are prepared to listen to men and women in lab coats who say they think they can do it if they have the necessary capital. That capital, however, will not be available if the pricing of the resulting product does not ensure a proper return on the initial investment.
We need to agree, as a global community, that we have to share the cost of innovation and adopt pricing policies in all our countries that build in a reasonable amount for innovation. This iron rectangle of price, access, quality and innovation appears inexorable. It seems that you cannot achieve all four objectives, because to make progress on one means sacrificing one of the others.
I believe that innovation will ultimately resolve these issues.With extraordinary potential for innovation in biotech, pharmaceuticals, devices and procedures, we shall be able to reduce the cost of health care dramatically, thereby expanding access and enhancing quality. It can only be done, however, if the United States, Canada and Europe cooperate to share the cost of innovation.
James C. Greenwood is president of the Biotechnology Industry Organization (BIO), which represents more than 1,000 member organizations across three major areas of research and development: healthcare, food and agriculture, and industrial and environmental biotechnology. Until December 2004, he was the Republican Congressman for Pennsylvania's Eighth District in the House of Representatives. While in Congress, he served as Chairman of the Subcommittee on Oversight and Investigation of the Energy and Commerce Committee (2001 - 2004).