Innovation My Ass

There are many bad arguments for why we can't reform our disaster of a health care system. I'd love to mock them all, but the one which seems to be popping up lately in the circles I run in is the question of innovation. Basically the argument goes like this:

The only motivation pharmaceutical companies have to continue researching new drugs is an obscene profit margin. It is a high risk for high reward industry. Any kind of national system will eat into Big Pharm profits and reduce their incentive to innovate. Pretty soon no new discoveries will be being made. Socialized medicine is a short term gain for a long term loss...

This argument fails on at least 2 counts:


#1 Government involvement does not invariably mean less innovation.

Virtually all military technological development through history has been government funded. Who would dispute that the United States has the most technologically advanced army ever assembled and it has all been driven by government spending. The US spends over half of its R&D budget every year on defense. Imagine if an equivalent amount of energy and money were put behind medical research. Doug once pointed out to me that our technology is not evenly spread. We are launching precision missiles from the other side of the planet in terms of weapons tech, but our energy technology hasn't advanced much past the stone age - burn fuel/make heat!

The government is already the biggest source of grant money for all universities and most research laboratories in this country. A good friend of mine was working on synthesizing specialized lipids for the delivery of potent drugs exclusively to cancer cells, protecting the healthy cells nearby. He was doing that research at Purdue University on a government grant. All of his colleagues there were on government grants as well. Once in a while they would hear of someone who got a patent and made some money from a private corporation, but everyone knew that your day-in-day-out funding was government or nothing.


#2 Pharmaceuticals is not a high-risk industry, and it is way too high-reward.

The average R&D spending by pharmaceutical corporations has increased in recent years to about 11% of total revenue. That might sound high, but it is less than 1/3 of what the same companies spend on average on marketing and administration. It is also less than what Computer Technology and Internet companies spend each year (about 15% of total revenue). Meanwhile, Big Pharm sees 17% profits as a percent of total revenue compared to the median of 3.1% for all other fortune 500 companies. In other words, Pharmaceutical companies spend less and earn WAY MORE money than most other big corporations.

The irony is that they often do so with government subsidies supporting their research, government patents protecting their profits, and government health insurance (medicare/medicaid) paying for their drugs on behalf of the consumer.

I'm willing to wager that even if socialized medicine were to cut into pharmaceutical profits there would be more than enough "incentive" to continue or even increase research. Microsoft frequently manages to spend up to 24% of total revenue on R&D without the moral imperative medical research would usually involve. I know lots of kids who want to grow up and find a cure for cancer. I don't know any who want to grow up and make the next version of Excel.

It's pretty disgusting how insurers and Big Pharm are holding us hostage right now claiming that if we see fit to decrease their profit margin by the tiniest bit they will stop all research and medical technology will go into a deep freeze. It reveals an ugly truth about their character that saving lives is only worth it if they can make huge profits while they're at it. If that's who these guys are - we don't need them.