The Doom that Fell Upon Medical Progress in the US

Competition is only thing that keeps human beings striving for improvement: businessmen striving to please their customers, funds flowing to research and development. The fear of your lunch eaten by the competition and your customers deserting you is what drives people onward to build better products, and what leads to good customer service. In a competitive market, everyone operates in a constant state of anticipating the next improvement - and investors, researchers, and business owners toil to try to ensure that they themselves are the ones offering that improvement.

This is true in every market, be it shoes, computers, or medical technology. The shoe marketplace is free, cutthroat, and churning with innovation, for example - the arms race of earnest competition provides wide choice and good prices for customers. The market for medical technology is, sadly, a very different story. This is a critical time in the evolution of biotechnology and medical science. Enormous advances are possible in the years ahead, including significant extension of the healthy human life span, yet this marketplace is not open and competitive. Everywhere is the hand of government, suppressing competition, forbidding all that is not expressly permitted, and dragging the potential for progress down into the gutter.

A recent Ludwig von Mises Institute daily article consisely and clearly explains some of the more important aspects of the way in which governmental power is dooming the prospects for rapid progress in applied biotechnology. Research and development is a long connected chain of ventures, stretching from the lab to the clinic. If any part of that chain is oppressed, or has costs imposed upon it, then all the links suffer:

The problems of the American healthcare system are caused entirely by the fact that the government subjects the system to massive interventions ... by the early 1990s only about 10% of all American hospitals were private, for-profit enterprises. Socialism characterizes at least 90% of all hospitals.


The effect of this vast government takeover of the hospital industry, Friedman documented, is what any student of the economics of bureaucracy should expect: the more that is spent on hospital care, the worse the quality and quantity of care become, thanks to the effects of governmental bureaucratization. According to Friedman, as governments took over an ever-larger share of the hospital industry (being exempt from antitrust laws), hospital personnel per occupied hospital bed quintupled, as cost per bed rose tenfold.


Friedman also once suggested a syllogism to explain the bizarre spectacle on display today of responding to problems caused by healthcare socialism with even more healthcare socialism.

The syllogism goes as follows:

1. Socialism has been a failure everywhere it has been tried;
2. Everyone knows this; and
3. Therefore, we need more socialism.


Physicians have long enjoyed a degree of monopoly power derived from state legislatures that delegate to the American Medical Association (the doctors' union) the "right" to limit entry into medical schools through accreditation. Only graduates of accredited (by the AMA) medical schools are licensed to practice medicine. The AMA has used these state-granted privileges to limit both the number of medical schools and the number of medical-school graduates. The reduced supply of doctors drives up the price of medical care and the income of AMA members. Hundreds of other health professions limit entry with the help of occupational licensing regulation, the primary effect of which is to create monopoly profits, not to ensure quality of care.


Government regulation of pharmaceuticals and medical devices, primarily by the Food and Drug Administration (FDA), increases healthcare costs, denies the benefits of myriad helpful drugs and devices, and creates monopoly power. ... FDA bureaucrats are extremely risk averse: On the one hand, it costs them nothing personally to delay a life-saving drug for years, if not decades, by demanding test after test. On the other hand, if they permit a drug to enter the marketplace that turns out to be dangerous, it is a public-relations disaster for the agency, which it does not want to be associated with. Consequently, the entrance of new drugs and medical devices onto the market is often delayed by years, costing many lives and inflicting much needless pain on those already suffering, while driving up prices.

The damage done to the rate of progress in applied biotechnology is enormous - we look at what is going on in the labs under present circumstances and are impressed by progress. What we don't see is what might have been in the absence of overwhelming regulation and FDA roadblocks. If there is little or no prospect for profit at the end of the day, vast swathes of privately funded research simply don't take place. If competition is suppressed, then bad products, poor customer service, and little effort put towards improvement become the order of the day.

Think of the damage done to our prospects for longer, healthier lives; this too is considerable. I think we all see the direction the wind is blowing these days - towards worse rather than better. More controls, more regulation, less freedom, less competition, less progress. I suspect that the future of medicine will be based upon what can be salvaged - in terms of knowledge and infrastructure - from today's Western research communities and carried away to less restrictive regions for commercial development.


Blaming the government and nothing but the government is a very simplistic and one dimensional argument. I hope that's not really all you have to offer on this topic and your over-focus on the issue is just a consequence of passionate hate for everything government.
It's not like everything will be magically and immediately better for us in a society free of much gov intervention.
Aubrey summed up the argument so much better in Fighting Aging as a 'triangular logjam'.

The people and scientists are also to blame, really.

Posted by: Kismet at October 24th, 2009 12:11 PM

You should probably read "government" as shorthand for "everyone involved in making government do what it does." Which is politicians, appointed government employees, lobbyists, leaders and important employees of corporations involved in regulatory capture schemes, and so forth.

If you can look at the incentives facing individuals and observe the difference between highly regulated industries and less regulated industries - e.g. medicine and shoes - and yet not conclude that less government intervention would be a great boon, then there is little we can usefully discuss on this topic.

Posted by: Reason at October 24th, 2009 12:15 PM

Aubrey de Grey made it clear in his book that he viewed the Bush administration's restrictions on stem-cell research funding, and the even greater threats against research being pushed by Christian Right fanatics like Sam Brownback, as the biggest obstacles to progress at that time. Scientists were leaving the US for places like Britain where they could get funding. Things are started to recover now, but if we ever get another right-wing government here, the focus of progress will have to shift overseas once again. That, not socialism, is the main threat.

Posted by: Infidel753 at October 27th, 2009 5:25 AM

Since the advances in induced pluripotency have rendered the embryonic stem cell research ban (more correctly the ban on federal funding of embryonic stem cell research) essentially moot, Aubrey's argument in Ending Aging is no longer relevant. The destruction of profit motive in regenerative medicine is and always will be a far more immediate and lethal threat.

Posted by: leoncaruthers at October 27th, 2009 11:00 AM

Anyone who says the AMA controls medical school admissions or the number of doctors doesn't know anything about medicine and the rest of what they say should be dismissed. Try to get your facts right first. Medical school admissions were doubled by government intervention in the 70s and have doubled again in the past 20 years. The AMA has about 18% of doctors as members. Other than those facts, you are right on.

Idiots !

Posted by: Mike K at October 30th, 2009 10:00 AM

Being in the middle of an FDA clusterf*ck with the company that I partly own, I can attest to their imcompetence. They are accountable to no one and have no penalties for screwing up massively. There should be repurcussions for poor management, poor work performance and unnecessary delays. In short, they suck along with all their over paid, over educated and underperforming employees.

Posted by: Greg at October 30th, 2009 10:08 AM

I can personally attest that the FDA bureaucracy raises the costs of drugs, access to cheaper care, and reduces patient life. Cancer drugs are a perfect example. The more we learn about cancer, the more we realize that "cancer" is really a generic term for thousands of different cellular problems, and that a one-drug cure-all is a fantasy. However, the bureaucratic-regulatory cost of progressing a drug though the clinical trial stage to FDA's satisfaction runs around 50 million dollars per drug, fixed costs no matter what. Assume you have a 1 in 10 shot of making it to market (given all that can potentially go wrong). That means you need to expect a billion dollar rate of return on your drug. That ain't gonna happen if your drug is fantastic at targeting a quirky cancer that affects 0.01% of patients a year, who will not have the ability to pony up 250K per dose. Now, say you can enter the market as an experimental drug after doing animal tox studies (maybe around a million or two)? Now you have a viable product...
I also have a client who spent $10 million to run three extra clinical trials to make FDA happy that their drug formulation really, really was effective just like another drug product. The problem? FDA approved the actual drug and dose amount in it over 20 years ago. It is used in another (expensive) drug formulaton in the same dose amount on the market. The only thing the client changed was putting the drug in a capsule with different inert ingredients instead of having the drug in a tablet. Really, FDA? Really? You needed years of clinical trials to make sure a drug can be released from a gelatin capsule? How much has that delay cost the consumer? Since the hopeful competitor drug product rakes in 400 mill a year, and that price will likely be halved if the competitor gets to market, quite a lot...

Posted by: Dee G at October 30th, 2009 10:34 AM

"The reduced supply of doctors drives up the price of medical care and the income of AMA members."

A very astute statement - except that facts don't bear this out. Doctors' real incomes have been falling over the past 30 years. They work longer hours for less pay than 30 years ago.

The fact is that government approved fees and insurance company power have forced doctors to accept reductions in real pay.

To the point that many physicians actively counsel their children to avoid medicine.

If this process is allowed to continue, the next 20 years will see a significant decline in the quality of physicians.

Posted by: Physicians Spouse at October 30th, 2009 11:27 AM

"That, not socialism, is the main threat."

No, they are BOTH threats. Even under Bush, it was socialism in the form of the Medicare drug benefit that was his greatest intervention in medicine. Today, the threat from the theocrats has waned, but the socialist threat has greatly increased. If Obamacare destroys any hope of profit from new drug or medical device development, what do you think will happen to the scientists working on those problems?

(But the author of the von Mises Institute article really does need to drop the myth that the AMA controls school admissions and accreditation.)

Posted by: Dana H. at October 30th, 2009 12:13 PM

To Mike's point - it's the AAMC that controls medical schools. AAMC's authority is propped up by the government primarily via regulations and policies covering funding, and so it's closely tied to the government. Ironically, the AAMC too shares Reason's concerns over the regulatory burden as stated in a letter to the OMB on March 16, 2009:

"The AAMC is highly concerned about the cumulative effect, both in terms of cost and in
terms of administrative burden, of federal regulations on academic medicine, and in
particular biomedical research."

Posted by: Frank at October 30th, 2009 12:17 PM

The real barrier to more doctors is the tuition of medical schools. The school where I teach costs $40,000 per year now. It cost $1200 per year when I graduated 43 years ago. Depreciating the dollar, that isn't as big a difference as it looks but the prospects for repaying those loans are far worse. I have a niece with two degrees from major universities who declined a slam dunk application because she didn't want the debt. She is now an RN making about 75% of the income she would make as a new MD. She has lots of free time, enough to do pretty well with her rock band, and she has no student loans.

The number of nurse practitioners and physician assistants has exploded. In fact, we are now seeing inflation in the qualifications for PA school. They are not doing it at the behest of the AMA or the AAMC or any other agency. They are doing it because the demand allows them to do what they want. I know orthopedic PAs who make $240,000 a year. Not many but some.

Medical students will be 75% women by 2019. They work about 60% of the hours that male graduates of my generation worked and male graduates today have similar work habits. Applications for surgery residencies are collapsing. Emergency Medicine is flooded because it is shift work and perceived to be well paid. That won't last. Anesthesia went through a similar boom 20 years ago and a couple of years ago, anesthesia grads of good programs were having trouble finding jobs. Ditto for male OBs.

Many, many primary care docs have dropped out of Medicare and are now in cash practices, also called "retainer practice." I also know some specialists, like orthopedic surgeons, who have done the same thing. Obama care will cause a rush for the exits.

Posted by: Mike K at October 30th, 2009 12:41 PM

Only 17% of physicians belong to the AMA. Not exactly a "powerful union."

Posted by: Ex AMA member at October 30th, 2009 1:52 PM

Won't more of the innovation simply happen overseas, and then get marketed to us anyway?

Sure, America loses money, but America deserves that and it is their own doing.

Posted by: GK at October 30th, 2009 2:27 PM

One of the largest and most successful health care sector funds in America, the one run by Vanguard, said it bluntly in their annual report. (paraphrasing) "Since the FDA has become unreasonably cautious with new medications, this fund will no longer invest in smaller pharma and biotech companies whose survival may depend on only one or two drugs."
I would suggest this is bad for us, overall.
A second note: The overhyped Bush "ban" on embyronic stem cell research had little effect. It was a ban on the US government developing new stem cell lines. The existing government lines remained available, as did all private lines. If doctors truly fled the US because of these "draconian" restrictions, we're probably better off without them, because they could not have been very bright.

Posted by: Flubber at October 30th, 2009 3:25 PM
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