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


  1. Thank you, Professor.

    May we quote you?


  2. Always, dear Suzan.

    - Badtux the Gracious Penguin

  3. You reality-based people are all alike.


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

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

  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

  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

  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

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

  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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