Celebrating Innovation


One of the untold stories of the Bush presidency is the progress that has been made over the last eight years in creating a climate friendly to innovation in the health sector.

Instead of offering promises of a sweeping, centralized overhaul of our health sector, President Bush took an approach organized around his belief in individual freedom, free markets, competition, and choice. While many other domestic and foreign policy issues have grabbed the headlines and while many problems remain in our health sector, the administration and the Republican Congress have made notable progress.

Market-friendly changes in public policy and countless innovations from the private sector have helped to moderate the rise in health insurance cost, create new models for care delivery and financing, and support the movement toward patient-centered health care.

We have just produced a major paper detailing some of these changes that have been responsible for keeping the increase in U.S. health spending at 6.1 percent in 2007, according to the latest survey in Health Affairs. Leading-edge employers who were early adopters of consumer-directed plans have seen their premiums increasing at an even lower rate — 2.6 percent in a 2006 survey.

Our study is detailed, but still we could barely scratch the surface in describing the important changes that have taken place. Health Savings Accounts and the competitive Medicare drug benefit are the headline issues, but innovations in care delivery, creative benefit offerings by health plans and employers, reduced prescription drug spending, and innovations in other public programs are all part of the story.

During the last eight years, there has been a climate largely favorable to market-based policies based upon a belief in the value of competition and market pricing in health care and supporting innovation.

But we are at a crossroads in the policy debate in this country where most of the proposals being offered now by political leaders would exert much more government control over our health sector, forcing the private health sector to operate under the same rule-driven, price-fixed, benefit-restricted dictates as the public sector.

Before we embark on that course, it would be wise to review what innovation has brought us and to assess whether we are ready to cast that aside to put much more control in the hands of public officials.

No one in Washington, no matter how brilliant he or she may be, can possibly be smart enough to devise a centrally-controlled system to meet the health care needs of 300 million Americans. While many problems await the Obama administration and many changes still must be made in public policy, it is vital to respect the genius of a market in responding to the demands of consumers for better quality care at more affordable prices through efficiency and innovation.

As our new paper demonstrates, the marketplace is proving that competition works, even in health care.



SCHIP up next

The Congress is preparing for a quick vote on legislation reauthorizing the State Children's Health Insurance Program, possibly as early as next week. The leadership wants a bill to put on Barack Obama's desk soon after he is sworn in as president that fulfills a key campaign promise, and SCHIP is first in line.

Democratic leaders say the bill will be similar to the ones the House and Senate twice approved in 2007 and which were vetoed by President Bush.

The arguments against expansion of this program are as relevant today as in 2007 when President Bush's veto was sustained, as I describe in another new paper.

  • Congress should make sure that poorer children already eligible for SCHIP and Medicaid are covered first.
  • Expanding SCHIP to cover children in higher-income families will crowd-out the private coverage many already have.
  • Putting more children on public programs will lead to greater problems in access to care.
  • Expanding SCHIP means that politicians and regulators will have more say over the health care of children than parents.

Transition thoughts

Amy Menefee and I took the Obama challenge and offered the Transition Team our thoughts about health reform, submitting a letter on the December 31 deadline. We thought we would share it with you as well.

It will not surprise you to see that we pointed out the dangers of a new government health insurance plan, creating an authoritative new Federal Health Board, imposing health insurance mandates — a new kind of tax — especially in a recession, and expanding expensive and antiquated public programs.

Instead, we encouraged the new administration to focus on reforms that would put patients first by giving them more options of more affordable, portable coverage with fairer subsidies and new purchasing options for all.

Happy New Year!

Grace-Marie Turner

Recent News Articles and Studies

Putting a Dollar Sign on Patients' Lives
What Medicaid Tells Us About Government Health Care
Don't Follow Our Example, Either
Key Questions for Senator Tom Daschle, Nominee for Secretary of Health and Human Services
The GOP Should Fight Health-Care Rationing
Health Fears Grow as Fake Drugs Flood into Britain
Pharmaceutical Price Regulation: Public Perceptions, Economic Realities, and Empirical Evidence
National Health Spending in 2007: Slower Drug Spending Contributes to Lowest Rate of Overall Growth Since 1998
Health Care Entrepreneurs: The Changing Nature of Providers


Putting a Dollar Sign on Patients' Lives
Grace-Marie Turner
San Diego Union-Tribune, 12/22/08

Comparative effectiveness programs essentially replace the experience, wisdom and knowledge of physicians with a large, faceless bureaucracy that reduces everything to formulas, wri
tes Turner. Professor Michael Schlander, a well-respected German physician, medical researcher and economist, has spent years studying comparative effectiveness systems in Europe and points out the difficulties Britain's National Institute for Health and Clinical Excellence (NICE) faces in determining the comparative value of different medical treatments. While it is simple to say how much a drug costs, it's much more difficult to place a monetary value on the months or years that a drug can add to a patient's life. Schlander also found NICE decisions alone actually led to higher spending on pharmaceuticals, driving up health spending by an additional one percent a year.


What Medicaid Tells Us About Government Health Care
Scott Gottlieb, American Enterprise Institute
The Wall Street Journal, 01/08/09

The troubling evidence about the quality of services for Medicaid patients is a cautionary tale for President-elect Obama as he sets about to administer more of our health care inside government agencies, writes Gottlieb. Studies show that Medicaid recipients' poor health outcomes aren't just a function of their underlying medical problems, but a more direct consequence of the program's shortcomings. Mr. Obama would give Medicaid tens of billions more in federal dollars as part of the fiscal stimulus bill, with no obligation that the program does anything to reverse its decline. Turning Medicaid around should be the least we demand before turning over more of our private health care market to similar government mismanagement.


Don't Follow Our Example, Either
Thomas P. Miller and Aparna Mathur, American Enterprise Institute
Health Affairs, January/February 2009

The two Health Affairs papers on the regulation and financing of health care in India and China are adequately descriptive but prematurely prescriptive, write Miller and Mathur. A striking feature of these economies, particularly India, is their very low level of insurance coverage in the face of high medical costs (nearly 80% of all health care spending is out of pocket). Are people unaware of the existence of private health insurance or unwilling to buy it when poor quality, low-cost, government-organized health care remains widely available and crowds it out, they ask? The image of Indian health care portrayed in these papers also is at odds with its goal of being seen as an attractive health care destination, they write. Growing numbers of foreign patients opt to undergo surgery in India for reasons such as long waiting times in the U.K. and high costs or lack of insurance coverage in the U.S. A natural outcome has been growing demand for global accreditation and an improvement in medical standards, including hospital documentation standards. Indeed, more vigorous market competition for self-paying consumers in this realm yet may lead to more effective self-regulation and better health care options, conclude Miller and Mathur.

Today, many foreign hospitals and physicians offer a world-class service for a fraction of the cost in the U.S., write AEI's Jagdish Bhagwati and Sandip Madan, founder of Global Healthnet. "Exporting patients" and "importing doctors" are now essential if comprehensive coverage of health care is to become a reality rather than simply an ineffective reform seriously undermined by shortages and high costs.

Key Questions for Senator Tom Daschle, Nominee for Secretary of Health and Human Services
Robert E. Moffit, Ph.D.
The Heritage Foundation, 01/07/09

Moffit offers some questions for Senator Tom Daschle, President-elect Obama's nominee for Secretary of Health and Human Services, focusing on broad policy initiatives endorsed by both Daschle and Obama, including a new public plan to compete with private health insurance in a new national pool and a new federal agency with broad authority to determine the value and effectiveness of medical treatments and procedures. Moffit argues that reform should not deny Americans the ability to maintain private health insurance; the benefits, medical treatments, and procedures they want; or the relationship with the physician that they value. Meanwhile, government officials should not be in the business of driving out private health insurance while pretending to champion individual choice and market competition.

Under a new public health insurance plan, particularly one combined with incentives for employers to drop coverage, anywhere from 10 million to 118 million Americans would be pushed out of private coverage, Moffit writes in a separate paper. Those Americans who remained in private coverage would see additional increases in their costs and doctors, and hospitals would lose billions of dollars annually in revenues, especially if the new public health plan adopts Medicare payment rates.

The GOP Should Fight Health-Care Rationing
Rep. Tom Price
The Wall Street Journal, 01/07/09

Rep. Price, a physician and congressman, warns of the risks of health reform proposals recommended by Mr. Daschle in his book on health reform. He says most private insurers would be quickly eradicated if they were forced to accept rigid Washington rules and unsustainable financing mechanisms that Mr. Daschle envisions. If we fail to recognize the scope and scale of Democratic ambition on this issue, Dr. Price says, we will find ourselves with a permanent Washington bureaucracy prescribing patient care. Instead, we must advocate for a positive approach to health-care reform that does not sacrifice patient care to achieve its goals. This patient-centered approach must be built upon two pillars: access to coverage for all Americans and coverage that is truly owned by patients.


Health Fears Grow as Fake Drugs Flood into Britain
Mark Townsend
The Observer, 01/04/09

Evidence is mounting that sophisticated counterfeiting syndicates are increasingly targeting Britain's network of high-street chemists, hospitals and GP surgeries, reports The Observer. Figures collated for the first time reveal that British border officials seized more than half a million counterfeit pills destined for the NHS and high-street chemists last year, an amount equal to the quantity of counterfeit drugs found in the whole of Europe in 2005. Latest government intelligence indicates that criminal gangs operating largely out of China have shifted away from selling fake "lifestyle" drugs such as Viagra on the internet and are now concentrating on supplying counterfeit "life-saving" medicines to the NHS. More than £3m of fake life-saving medicines for ailments such as heart disease and cancer were intercepted by customs officials and the Home Office border agency in the first 10 months of 2008. Forensic examinations of fake treatments have
revealed toxic impurities such as anti-freeze and tiny amounts, if any, of the actual medicine.

Pharmaceutical Price Regulation: Public Perceptions, Economic Realities, and Empirical Evidence
John A. Vernon and Joseph H. Golec
American Enterprise Institute, 01/09

Breakthrough drugs have saved millions of lives and improved the health of countless people around the world. Unfortunately, they are also expensive, leading many political leaders to call for price controls, importation, or other procedures to reduce their cost. In this new book, Vernon and Golec argue that price controls and other cost-limiting measures will starve pharmaceutical companies of the R&D money required to develop new drugs. A drug can cost $1 billion or more before it ever appears in the marketplace — and only three out of ten new drugs ever recoup their development costs. This book demonstrates empirically how the free-market system of drug pricing is vital to the development of new breakthrough drugs.


National Health Spending in 2007: Slower Drug Spending Contributes to Lowest Rate of Overall Growth Since 1998
Micah Hartman, Anne Martin, Patricia McDonnell, Aaron Catlin, and the National Health Expenditure Accounts Team
Health Affairs, January/February 2009

In 2007, U.S. health care spending growth slowed to its lowest rate since 1998, increasing 6.1% to $2.2 trillion, or $7,421 per person, according to this annual study published in Health Affairs. The slower growth was attributed partly to reduced prescription drug spending, which grew by only 4.9%, the slowest rate of growth since 1963. With the exception of prescription drugs, most other health care services grew at about the same rate as or faster than in 2006. Medicare spending increased 7.2%, to $431.2 billion, and Medicaid spending grew 6.4% to $329.4 billion. Private spending on health care increased by only 5.9% between 2004 and 2007.


Health Care Entrepreneurs: The Changing Nature of Providers
Devon M. Herrick, Ph.D.
National Center for Policy Analysis, 12/08

The market for medical care does not work like other markets, writes Herrick. Because health care costs are usually paid for by a third party, patients are not price-sensitive and providers don't feel the need to compete for their business, resulting in a highly artificial market plagued by the problem of high costs, inconsistent quality and poor access. But entrepreneurs can solve many of the health care problems that critics condemn. Examples include:

  • Telephone-based practices: TelaDoc provides telephone consultations to two million customers. It allows patients access to a doctor any time of day from any location and also uses electronic prescribing to reduce errors.
  • Walk-in clinics in shopping malls and drug stores compete by offering low money costs and low time costs, and electronic prescribing improves quality using error-reducing software.
  • Laser eye surgery: Competition is holding prices in check and improving quality in vision correction surgery, including accurate correction, faster healing, fewer side effects and an expanded range of conditions that can be treated.

Upcoming Events

Our Next Exigency: How Ought Health Care be Reformed
Acton Institute Event
Thursday, January 15, 2009, 12:00 p.m. – 1:30 p.m.
Grand Rapids, MI

Memo to the President: Reform Health Care
The Brookings Institution Event
Friday, January 16, 2009, 10:00 a.m. – 11:30 a.m.
Washington, DC