Tuesday, July 28, 2009

So what's the deal on healthcare R&D?

So will increasing the efficiency of the U.S. healthcare system cause healthcare R&D to decline? Let's take a look, first of all, at pharmaceuticals R&D, which accounts for roughly half of all healthcare R&D (sorry for the blurry screenshot of an OECD data set, unfortunately it was impossible to save the graph directly, click on it to make it bigger): As you can see, the U.S. may be a huge player because of the sheer size of its economy -- roughly the same size as the entire European Union combined -- but as a percentage of national income (GDP), the United States is an also-ran in pharmaceuticals research.

So now what happens when we add non-pharma healthcare R&D into the picture? The U.S. comes out looking a bit better then:

The blue is government health R&D spending, the white is private R&D spending. Still, even with the better US showing in non-pharma R&D, the picture is clear. The United States does not spend a large percentage of its gross national income on health R&D compared to other OECD nations -- only 0.45%, as vs. 0.68% for Sweden, for example.

So, now let's consider the notion that reducing health care expenditures via increased efficiencies (as vs. rationing) will somehow reduce these R&D expenditures. First, note that over half of these R&D expenditures are government expenditures. The notion that governments will reduce their R&D spending because of removal of waste from the health care system is ludicrous. Secondly, the U.S. currently spends 17% of national income on health care. The notion that the 0.25% of GDP necessary for private R&D to continue cannot be funded at that spending level is ludicrous.

In short: If you look at the sheer scale of health care spending, compared to the much smaller scale of R&D spending, you'll note that private R&D accounts for less than 1.5% of current healthcare spending. The notion that capping expenditures at the current rate and forcing increased efficiencies upon the system will somehow drive private healthcare R&D out of the market is less than compelling given just how small the percentage of healthcare spending devoted to R&D really is.

-- Badtux the Healthcare Economics Penguin

9 comments:

  1. Thank you, Professor.

    May we quote you?

    S

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  2. Always, dear Suzan.

    - Badtux the Gracious Penguin

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  3. You reality-based people are all alike.

    Data->information->knowledge->wisdom

    Unfortunately, each arrow involves some sort of logical thought process.

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  4. You amuse me. Your going to die, get used to the idea.

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  5. Is that a total non-sequitur, or does BBC construct arguments of such subtlety and sophistication that comprehension is beyond my limited capabilities?

    JzB the humble trombonist

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  6. My belief is that BBC is taking diction lessons from Sarah Palin. We need to get William Shatner to give him the Full Ham Shat treatment, I bet it'll be quite entertaining.

    - Badtux the Snarky Penguin

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  7. I have avoided the Palin exit statement. I'm aware that Shatner has dome something to improve it, but don't want to spoin the good thing I have going

    ReplyDelete
  8. Ach. Ignore the typos, and see if you can figure out what I'm trying to say.

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  9. Ah, if you haven't seen the Shatner rendition of the Palin exit speech, it is hilarious. The Shat gives it the full ham overacting treatment -- tasteful jazz music in the background w/congos and upright bass, dramatic pauses in all the wrong places, arch lifts of eyebrows at random spots to give emphasis to random words, he just has a blast treating that drivel like it's fine art. It's so bad it's good, if that makes any sense :).

    - Badtux the Easily Amused Penguin

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