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Health Innovation More Valuable Than Previously Thought

Innovation is frequently underemphasized in the economics literature because it is qualitative by nature, and qualitative changes are hard to measure. A new NBER paper by three economists, Lakdawalla, Reif, and Malani, makes some progress toward a better measure of innovation, specifically innovation in health care. They show that by ignoring the way medical innovations help reduce risk, previous studies have tended to underestimate the true value of medical innovations—by as much as 30-80%.

To arrive at their estimates the authors use a new way of valuing risk. Our health is inherently risky, which is why we have health insurance for smoothing expenses out over time and between people. Innovation is also risky, which is why investors in startups often expect high returns and we often look to the government to fund basic research. But Lakdawalla, Reif, and Malani show that risks don’t always add up—sometimes they cancel out. Risks taken to innovate and create new health products and treatments can reduce health risks for people, because new innovations help keep us safer and healthier.

When risks taken in health innovation pay off, the reward they bring isn’t just the

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Let’s Clear a Few Things Up: On the Subject of Compulsory Licensing in TRIPS

(Also available on Inside US Trade for those with a subscription) 

Recently, it seems like no trade topic inspires as much tension, confusion and passion as the subject of compulsory licensing in the World Trade Organization’s (WTO) Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS). Everyone has an opinion, whether it’s based on deep loyalty to the pharmaceutical research and development process, a strong desire to eradicate infectious diseases in less developed parts of the globe or merely the belief that multinational organizations like the WTO have the international community’s best interests at heart. Unfortunately, many of these opinions are based on a gross misunderstanding of the compulsory license (CL) process as well as an inability to acknowledge the deficiencies inherent therein.

So what exactly is a CL? Essentially, a CL is when a government allows someone else to produce a patented product or process without the consent of the patent owner.  This most often, but not exclusively, applies to pharmaceutical products. The original idea behind the concept of CLs was to enable governments to produce a generic drug for its domestic market, and not for export. Those

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A Healthy Dose of Skepticism on NY’s Pharmacy Bill

A bill waiting for Gov. Cuomo’s signature in New York would restrict insurers from mandating or incentivizing participants to use a mail-order pharmacy. The “Anti-Mandatory Mail Order Pharmacy Bill” (Assembly Bill 5502-B) is being pushed as a measure to enable consumer choice. In fact, it will raise health care costs and ultimately hurt consumers. The legislation requires that insurers allow individuals to fill a prescription at any mail-order or retail pharmacy as long as the retail pharmacy accepts a “price that is comparable to that of the mail-order pharmacy.”

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Human Genome Illustration

Investing in Innovation Pays Off: New Study Shows 14,000 Percent Return on Human Genome Project

Two new reports released last week provide some of the most compelling evidence yet for the importance of federal investments in science and technology innovation. Amid the bitter and protracted negotiations over this fiscal year’s federal budget, U.S. investments in science and innovation were largely spared from the deepest cuts some federal programs faced. But they may not be safe for long as Congress considers making further spending cuts in the fiscal year 2012 budget beginning in October against the backdrop of debate this summer over raising the national debt ceiling.

That’s why it is critically important that members of Congress on both sides of the aisle distinguish between federal “spending” and “investments.” What many fiscally conservative lawmakers omit in their zeal to slash spending is that many federal programs actually have positive rates of return, meaning they bring in more revenue—to the government, economy, or both—than they cost the taxpayer. To put it another way, some federal investments are profitable to the public balance sheet and save the taxpayers money in the long run.

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Do Not Track for Doctors vs. Do Not Track for Consumers

Last Tuesday the U.S. Supreme Court heard oral arguments in IMS Health v. Sorrell. This case centers on a Vermont law that prohibits the use of prescriber-identifiable data for marketing purposes unless the prescriber of the drug gives consent. This case is not about patient privacy or the use of patient-identifiable data which is protected under federal law. Other states, notably Maine and New Hampshire, have passed similar legislation that prohibits the commercial use of prescriber-identifiable data. Opponents have challenged the Constitutionality of the law on the basis that the law restricts speech protected under the First Amendment. Supporters argue that the law is only restricting conduct, not speech, and thus should be allowed.

Pharmaceutical companies routinely use prescriber-identifiable data to target advertising to doctors. For example, a drug company may provide information to an allergist about the benefits of a new allergy medication for patients that have fewer side effects. The previously-mentioned states passed legislation to prevent this, ostensibly to protect doctor privacy, but also with the clear intent of controlling health care costs. As Chief Justice Roberts succinctly put it when addressing Vermont’s Assistant Attorney General, “You

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Hospital Billing: Out of the Middle Ages

No one who reads this blog needs to be reminded that the healthcare business cries out for innovation.  Hopefully the chaotic and strident forces pulling at the industry now will — in the magic Adam Smithian manner — somehow produce net positive forward change.  But not all the change is technological.

I recently went through elective surgery and was blown away by the — I can’t think of any other word for it — Medieval-ness — of the billing process.  I got one bill from the hospital for essentially my stay, one bill for each department in the hospital that had done a procedure, one bill from each of the professionals (above a certain level) who had done the procedures.  Each bill came with no indication that it was a part of the one procedure, the one hospitalization.  They came at different times.  And they dribbled in over the course of maybe 12 weeks (unless there are some I haven’t seen yet; of course there’s no “summary” or notion of an overall master account).

What other industry on Earth works this way?  Try to imagine buying a car like this:

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Industry Should Help Certify Online Health Records

recent article in The Washington Post has called into question the role of the private sector in setting standards for electronic health record (EHR) systems. Specifically, the article questions the appropriateness of allowing a group that originally pushed for stimulus funds to now have an oversight role in how those funds are spent.

This thinking is misguided. While government should continue to set the broad principles in defining “meaningful use” of EHR systems, it should also welcome the opportunity to partner with the private sector in defining certification requirements.

At issue are the efforts of the Healthcare Information and Management Systems Society (HIMSS), an association of healthcare technology vendors and medical providers, to convince the U.S. Department of Health and Human Services to require that EHR systems receiving stimulus funds be certified by the Certification Commission for Healthcare Information Technology (CCHIT).

As documented by the Post, CCHIT includes “several board members that work for technology vendors,” and the current president is a former HIMSS executive.

HIMSS also helped educate Congress on the benefits of using stimulus funds for health IT, which resulted in the final stimulus legislation including billions for EHR systems

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