TCS Daily

Heart Burn After the Free Lunch

By William Orzechowski - August 2, 2004 12:00 AM

As the campaign season heats up, expect lots of political one-upmanship on that old standby, health care. The bidding started with last year's Medicare Modernization Act, which for the first time adds a prescription drug plan to Medicare. This plan is expected to add $2.5 trillion in unfunded liabilities over the next ten years to the already ailing Medicare program. The bidding continued when Senator Hillary Clinton called (again) for universal healthcare coverage. Not to be outdone by the former first lady, Democratic presidential candidate John Kerry has his own costly health care coverage plan, which some experts believe could cost as much $1 trillion over the next ten years.

The explosive unfunded costs of these programs will create huge pressures for cost controls in the healthcare arena. As government attempts to push aside the private sector, one of the freest healthcare markets in the world would become even less free. Patients unfortunately would suffer the consequences as cost controls create their own costs -- the cost of lost innovation.

One sure consequence would be the stifling of innovative medical breakthroughs, like new drugs and medical devices that have long been the hallmark of the U.S. healthcare system. The U.S. is the world's largest producer of medical devices and diagnostics, and leads the world in drug innovation -- with only 5% of the world's population, the U.S has produced 45% of the world's blockbuster drugs over the past 25 years. No other country comes close to that share, because no other country fosters entrepreneurship and innovation like the U.S.

But as government takes on an increasing share of the expense of these medical innovations, it threatens to stifle medical advances in the name of cost control. The question is, will the American people recognize the cost of these lost innovations?

It is difficult to calculate the value of lost innovation, but the fate of the former Soviet Union offers a clue as to what happens when "control" overtakes "competition" as the organizing principle of an economy. The cost of control within Soviet society can be measured by the shortfall of innovations that never came to pass in the U.S.S.R., despite the talents and ingenuity of its people.

Yet it is very likely that the majority of Soviet society never felt the impact of lost innovation. Why? Because one cannot miss what one never had in the first place. It was only when mass communications and television enabled citizens to see the fruits of progress enjoyed by free societies that the Soviet people could truly realize the sacrifices they had been forced to endure.

Unlike the Soviet Union, while politicians well know that the price of government control is lost innovation, they sell subsidized medical benefits as a "free lunch" in spite of the "heart burn" it causes down the road.

In the world of government healthcare, large costs are problems to be controlled, and government's tools are that of rationing and coercion. In contrast, free markets see high costs as an opportunity for further innovation. Minimally invasive surgery (MIS), a broad range of surgical procedures using tiny incisions and advanced surgical instruments to reduce patient trauma and speed recuperation, provides a great example of this work.

Because of MIS, many types of surgery are being converted from "open" surgical procedures requiring hospitalization, to outpatient procedures, which reduce hospital costs significantly. Common forms of MIS include gall bladder removal and colonoscopy, but applications are multiplying by the year and include hernia repair, kidney procedure, spinal care, therapies for the lungs and esophagus, cardiac care, cataract removal and brain surgery.

Advances in technology, in particular the endoscope -- an expensive, thin tubular instrument equipped with miniaturized cameras and surgical devices -- drove the MIS revolution. However, the endoscope, which is as old as the Roman Republic, didn't become a force for change until other technological breakthroughs made it possible.

The surgical suite looked a lot different before MIS, and so did the patients. According to an expert with the Centers for Disease Control, "if you went back 25 years patients were cut open from sternum to toes and were hospitalized for months, at great expense and agony. Today, a patient gets the same procedure with an endoscope, you put a Band-Aid on him, and he walks away." In place of the wide openings through which doctors repaired or removed affected body parts, the surgical suite now has a monitor that receives images from a miniaturized camera, allowing internal organs to be seen on the screen. This technological advancement has, not surprisingly, greatly increased the demand for MIS, which has ultimately, increased the demand for endoscopes.

As a result of the overwhelming demand for MIS, many hospitals could not keep up. This was primarily because each endoscope had to be sterilized after each application, a 24-hour process that required a separate room to house the sterilization equipment and the noxious chemicals used to clean the scope. The high cost of endoscopes meant that simply purchasing more scopes was not an attractive option.

Technology came to the rescue again. Now, instead of a sterilization room, most surgical suites use the Steris SYSTEM 1® Sterile Processing System -- a low temperature sterile processing system for delicate, heat-sensitive scopes, cameras, and accessories that can sterilize in only 30 minutes. This technology, invented in the late 1980s, is now commonplace and has served as a driving force behind the MIS revolution.

As the MIS revolution demonstrates, innovation often requires problem solving along the way. At several stages, hurdles are overcome by risk-taking, entrepreneurship, capital, and human ingenuity. The green-eye-shades through which bureaucrats view the world of healthcare has no such room for such vision; it cares first and foremost about costs. For an example of the green-eye-shade vision at work, look no further than Canada, the only industrialized country that does not allow for a private health care system. Adjusting for age, Canada ranks near the bottom of 24 OECD countries in terms of access to high tech medical devices like MRIs, CT scanners, and lithotripters, according to a recent Fraser Institute Study.

Certainly, the U.S. healthcare system is much more free than Canada's. But as politicians continue to expand the government's role in the health care market, cost controls will replace innovation as the hallmark of the U.S. healthcare system. The public needs to know that there is no "free lunch" in healthcare. Subsidized medicine has very real costs. Let's just hope those costs don't include medical innovation.

William Orzechowski is the author of several academic journal articles. He is an Adjunct Scholar with the National Taxpayers Union.


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