Mixed Signals: Public Policy And The Future Of Health Care R&D

PROLOGUE: The United States leads the world both in demand for health care advances and in the research and development (R&D) that produces these advances. As Peter Neumann and Eileen Sandberg discussed recently (Health Affairs, November/December 1998), spending on health R&D reached 35. 8 billion in fiscal year 1995. Most experts believe that “technology” is the driving force behind the long-term rise of health care spending. Indeed, in a survey conducted by Victor Fuchs of fifty leading health economists in 1995, 81 percent agreed with the statement: “The primary reason for the increase in the health sector's share of GDP over the past 30 years is technological change in medicine” (Health Affairs, January/February 1999). Now, though, the incentives driving costs and their tighter control are changing because of the pressures applied by managed care companies. These changes are adding new uncertainties to the processes by which innovator companies bring new products to the market. In this paper Burton Weisbrod and Craig LaMay explore these conflicting tensions. Weisbrod is John Evans Professor of Economics at Northwestern University in Evanston, Illinois, and a faculty fellow of Northwestern's Institute for Policy Research. He holds a doctorate in economics from Northwestern. LaMay is a clinical assistant professor at Northwestern's Medill School of Journalism, an adjunct professor at Northwestern's Law School, and a faculty member of NMC, a media management program of Medill and the Kellogg Graduate School of Management. He is former editor of Columbia University's Media Studies Journal and a former newspaper reporter, and has a master's degree in journalism from the University of North Carolina at Chapel Hill. ABSTRACT: The incentives facing health care research and development (R&D) are influenced by the ambiguous signals sent by private and public insurance decisions affecting the use of, and payments for, existing technologies. Increasingly, that uncertainty is exacerbated by confusion over technologies’ impact on health care costs, how costs are to be measured, and the social difficulty of determining medical “need” for purposes of insurance coverage. R&D executives appear to believe that “major” advances are more likely to win such coverage and thus to be profitable. The products that result, therefore, may make the current policy dilemma of cost containment versus service restriction more acute rather than less so. If the aim of policy is to cut costs, innovative remedies are necessary.