The Money Pit


One of the arguments people often give for not curbing America’s health care spending, which is way out of line with the rest of the industrialized world, is the innovation argument.  That is, Americans pay a lot more for their health care, sure, but that money goes to research and invention of new surgeries, devices, medications, and so on; America leads the world in that area, and somebody’s gotta pay for it:

more money = more innovation

Therefore, if we find a way to curb spending, medical innovation will wither and we’ll all suffer as a result.  It’s a solid free-markets-solve-everything argument.  (Links to several discussions of it can be found here.)

I see only one problem with it:

more money ≠ more innovation

Free markets don’t solve everything.  The relevant point in this context is that they are not always efficient.  Putting more and more money into a market sector doesn’t produce more and more output, out to infinity.

It’s possible to flood a market with more money than it can efficiently process.  In fact, it’s possible to flood a market with so much money that it actually produces less output than it would if it had less money to work with.  For those of us old enough to remember carburetors, it’s like flooding your engine.  Maybe the analogy for the kidz is getting so many text messages so fast that your phone shuts down.

It looks to me like that’s what’s happening in our health care industry.

We’re throwing so much money at the pharmaceutical and medical device companies, we’re exceeding their capacity to innovate.  The result is that the price per innovation is much higher than it should be, and the number and quality of innovations is lower than it should be.

It’s too easy to make a buck in our health care system.  Too much money sloshing around.  If we redirect some of it elsewhere (like back into people’s pockets), I suspect we won’t see any decrease in innovation at all, and quite possibly an increase both in quality and quantity.


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3 Responses to “The Money Pit”

  1. jazzbumpa Says:

    I’m not a luddite, but I have a very jaundiced view of medical innovation, in a broad-brush way. Do we need more boner pills? Eyelash enhancement?
    Plus, we have a magic-bullet view of medicine that is quite counterproductive.

    Here’s an anecdote. I overheard a young lady telling her friends that her mother gives her brother with ADD a cup of coffee every morning and he’s fine. You see, Caffeine kinda sorta does the same thing as ritilin. and even if you go for a more expensive version -say, Mountain Dew – it’s still a hell of a lot cheaper.

    What we do need is more MRI machines and other things that do useful work. A few more Drs. might not hurt either.

  2. urbino Says:

    Yup. More PCPs and NPs, fewer specialists, and fewer lifestyle drugs. That’s Dr. Urbino’s prescription.*

    * Dr. Urbino is not a licensed physician. Void where prohibited by law.

  3. jazzbumpa Says:

    Merde. I’m not even a Dr. But I do have a Master’s Degree – in SCIENCE. Plus an MBA. Which taught me to have a hell of a lot of contempt for MBA’s.

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