The price of innovation

High healthcare costs in the United States are a large burden on American consumers, but they also allow for innovations in medicine that offer worldwide benefits. As this New York Times piece notes, the United States is a leader in the healthcare industry, with the most clinical trials, the most patents, and the most Nobel laureates in physiology or medicine compared to other countries. We also have a large healthcare market that companies can tap into, directing profits to research and development that could potentially produce the next life-saving drug or other such technologies.

Do these innovations justify higher prices in health care? As the New York Times piece states, in the past, healthcare innovation has led to increased life expectancy for premature newborns and patients with cardiovascular disease, and a bigger potential market for a type of drug leads to the development of more new drugs of that type. However, work by health economists such as Craig Garthwaite suggests that drug makers can charge prices that exceed the value of drug innovations. In such cases, the cost burden on American consumers only increases, perhaps unjustifiably.

Some might consider redesigning the healthcare system a solution to the issue of rising healthcare costs, with many being excited about the prospect of a single-payer system. While alternative systems may contain costs by regulating prices, they do so at the risk of limiting healthcare profits and therefore the amount of investments companies make in research and development. The authors of this New York Times piece propose a more thoughtful approach to spending, with a system that better measures health outcomes and incentivizes meaningful innovation. This strategy calls for more meaningful spending that leads to more tangible health benefits for consumers - benefits that would not only affect Americans, but patients worldwide.