Healthcare and Innovation

HEALTHCARE AND INNOVATION….Andrew Sullivan is unhappy at the prospect that someday the federal government may be allowed to negotiate prices with drug manufacturers. This strikes me as nothing more than the way free enterprise normally works ? i.e., both buyer and seller negotiating prices rather than one side dictating to the other ? but Andrew predicts doomsday:

We’ll soon shift to a system of fantastically expensive free drugs of all kinds for all seniors and a crippling of the pharmaceutical industry’s research and development arm. The trade-off will be complete: a collapse in research in return for free drugs for the most pampered senior generation in history.

That’s an odd argument, isn’t it? Are these drugs going to be fantastically expensive, or are they going to be so cheap they cripple the pharmaceutical industry’s R&D efforts? I’m confused.

At any rate, big customers in the private sector routinely negotiate low prices with their suppliers, and it’s not clear to me why things would be much different in this case. In fact, I can’t think of any good reason to believe that the notoriously inefficient federal government should prove to be a steelier negotiator than, say, Blue Cross, which also buys in enormous volumes and has the added advantage of being a private company with plenty of incentive to negotiate the lowest prices possible. Ezra Klein has further arguments along this line here.

In the meantime, it occurs to me that there must be some natural experiments that could provide us with some data on this very legitimate question: does centralized control of healthcare spending reduce innovation? In the United States, Medicare funds healthcare for everyone over 65, so if single-payer healthcare really does stifle innovation, we should expect less innovation (and slower adoption of innovative technology) for new procedures and new drugs that are useful predominantly for older patients.

Surely someone has found some clever way to test this? I’ll take a look around and see if I can find anything. Comments are open if you know of any relevant data.