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As Obamacare Implementation Continues, Medical Innovation Stagnates

by | Oct 9, 2014


By Jennifer Popik, J.D., Powell Center for Medical Ethics at the National Right to Life Committee

Pro-abortion President Barack Obama

Pro-abortion President Barack Obama

In an October 10, 2014 Wall Street Journal opinion piece , “ObamaCare’s Anti-Innovation Effect”, Dr. Scott Atlas writes,

The overwhelming majority of the world’s health-care innovation occurs in the U.S. This includes ground-breaking drug treatments, surgical procedures, medical devices, patents, diagnostics and much more. Most of the funding for that innovation—about 71% of U.S. R&D investment—comes from private industry. A recent R&D Magazine survey of industry leaders in 63 countries ranked the U.S. No. 1 in the world for health-care innovation.

But that environment is changing. According to R&D Magazine and the research firm Battelle, growth of R&D spending in the U.S. from 2012 to 2014 averaged just 2.1%, down from an average of 6% over the previous 15 years. In that same 15-year period, Malaysia, Thailand, Singapore, South Korea, India and the European Union saw faster R&D spending growth than the U.S. China’s grew on average 22% per year.

As a result, small and large U.S. health-care technology companies are moving R&D centers and jobs overseas. The CEO of one of the largest health-care companies in America recently told me that the device tax his company paid last year [imposed by Obamacare] exceeded his company’s entire R&D budget. Already a long list of companies—including Boston Scientific , Stryker and Cook Medical—have announced job cuts and plans to open new centers for R&D, manufacturing and clinical trials overseas.

This worrisome trend is thanks in part to a provision of the health care law relating to limits on the state exchanges.

As we have regularly documented, as millions of Americans have begun relying on their Obamacare exchange health insurance plans, stories about denial of access to providers and top hospital centers keep piling up. Moreover, many top prescription drugs have become difficult or impossible to obtain. You can read more on this here.

The culprit is the Obamacare provision under which exchange bureaucrats must exclude insurers who offer policies deemed to allow “excessive or unjustified” health care spending by their policyholders. To avoid exclusions from the exchanges, health insurance plans are cutting down on access to innovative prescription drugs as well as the newest procedures and medical devices – because cutting-edge medicine starts off as more costly, even if it will eventually drop in cost as economies of scale, fine-tuning, and the movement of drugs from patent-protected to generic all gradually come into play.

When health insurance won’t pay for the products of medical innovation, investors cut back funding for such innovation, rightly judging that their chances for a positive return on their investment are diminishing.

Offering a partial solution, Dr. Atlas writes,

First, strip back the heavy tax burdens that currently inhibit innovation, starting with repealing the Affordable Care Act’s $29 billion medical-device excise tax and the $80 billion tax on brand-name drugs. Change the tax code to add incentives for investment in early-stage medical technology and life-science companies, as well as for philanthropic gifts to academic institutions that promote tech entrepreneurs.

However, tax changes alone will not address the heart of the problem – Obamacare’s insistence on drastically limiting growth in health care spending. The heavy-handed suppression of adequately funded health insurance associated with the exchanges is only one of a series of the health care law’s provisions designed to prevent Americans from spending “too much” of their own money to save the lives and preserve the health of their families. (See documentation here.)

The basic point is that health care spending is crucial to innovation and quality treatments. Now and for years to come, Obamacare, if not repealed, will work through regulation and pressure on insurers to hold down spending and will stifle both innovation and quality care.

It is notable that innovation and access are already suffering even though at present only a small percent of Americans are enrolled in the state exchanges (primarily those who could not get insurance at their job or worked for small companies). Many experts predict that when the exchanges are opened to employees of all businesses in 2017, many employers will end their present coverage and force their workers into the constricted exchange plans.

Just as most businesses have gradually moved away from “defined benefit” pension plans under which retirees were guaranteed a certain income, replacing them with “defined contribution” programs under which employees must instead rely on their own contributions to their 401(k) retirement plans while receiving some matching contributions from employers, experts predict most businesses will stop offering their employees health insurance directly, instead providing them a lump sum they can use toward the cost of exchange health plans.

Savvy investors try to predict the future. Recognizing that the market for medical advances – at least any that have appreciable costs – will soon shrink far more dramatically, they are shifting their capital out of domestic health care. We can only hope that it will go to firms abroad focused on medical innovation, rather than be shifted to other types of profit-making enterprises that have nothing to do with advancing the ability to save lives.

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Categories: ObamaCare
Tags: ObamaCare