Much like everything else in life, striking a careful balance is the only way to deliver sustainable healthcare to those who need it - which is everyone with a pulse. Nobody is exempt from being a stakeholder of this fundamentally human issue.
We are conceived, born, live, get sick, recover, get old and die. With absolutely no exception, every human life is affected by these conditions, although the sequence of events may slightly differ from person to person (well, the middle part, anyways).
The very essence of healthcare is elevating the quality of this certain cycle. Since there are no exceptions, healthcare is a fundamental need for everyone - a need with the unfortunate feature of being limitless in demand, because biology and the limits of human knowledge.
Because of the equal need across all of humanity, many ascribe healthcare as a right.
Because of its unlimited demand which in turn requires unlimited resources, practically speaking, healthcare cannot be a right but a privilege.
This is the great dilemma. These diametrically opposed views on how healthcare administration should be framed tears at the fabric of every society day after day because it is deeply personal for everyone.
Fortunately, we have accumulated a wide variety of experience in the past few decades in experimenting with different national models to evaluate which parts of their philosophies and approaches work (or don't). It's time we took a dive to see where we're at right now.
0. The Two Camps
To illustrate the contrast between the two fundamentally different approaches in healthcare administration (and if you ever had a drink with me) I always say "if you want to give birth to a child go to a Nordic country, but if you want to survive cancer, the US is your best bet." Let's see if I was right.
(Chart 1 (above): Infant mortality is defined as deaths of children aged less than one year per 1000 live births; Neonatal mortality is defined as deaths of children aged less than 28 days per 1000 live births; Post-neonatal mortality is defined as deaths of children aged between 28 days and 1 year per 1000 live births; 2018 or latest available data; Source: OECD Family Database)
(Chart 2 (above): Deaths from cancer per 100,000 persons (2018 or latest available data); Incidence of cancer per 100,000 persons (2012 data); Ratio of incidence to death as a crude indicator of quality of cancer care (not included in original OECD dataset); Source: OECD Health Status Data)
Simply put, the US system lets more babies die (per capita) than most other OECD member states, while conversely keeping cancer patients alive better than most other healthcare systems. Indeed, the US National Cancer Institute's Annual Report to the Nation 2020: Overall Cancer Statistics reports overall annual decreasing cancer death rates according to the most recently available data. And mind you, cancer is the 2nd leading cause of death in the US and Europe, so this is not a trivial matter.
Just to orient everyone: Europe generally follows a compulsory health insurance model, although there are several flavors ranging from the Switzerland/Netherlands all-private insurance market to Germany's regulated public/private mixed model to the UK's mostly-public (but regionally fragmented) NHS to the very-public French model. There is almost always some degree of private insurance involvement, but price controls - especially for pharmaceuticals - are quite strict.
On the opposite end of the spectrum, there is the US system that depends heavily on private insurance and employer-based membership. Prices controls are few and opaque, leaning on capitalist mechanisms for the market to self-regulate.
(I encourage you to read this excellent overview on International Health Care System Profiles by The Commonwealth Fund for more details on various national healthcare systems)
These divergent approaches have yielded the different healthcare outcomes we see above. But is one necessarily better or worse than another? Does a parent mourning the loss of a child any less heartbreaking than mourning the untimely passing of a loved one from cancer?
I must comment that there is a whole lot of historical, cultural, geographical and political baggage associated with how these systems ended up as they did for each nation, and attempting to present a single "perfect" model for all circumstances is a foolhardy exercise. (Not that I won't try) But it is vitally important to keep in mind the advantages and drawbacks of each philosophy as compulsory (=have a pulse) stakeholders in a debate that will probably rage on as long as humanity exists.
1. The Relationship Between Monies Potential and Innovation
The most obvious (and loudest) point of consideration would be the degree of incentivization for technological advancement and associated (assumed) improvement in health outcomes. It is pretty much established fact that price regulation, especially in the regulated healthcare products domain (i.e. pharmaceuticals, in vitro diagnostics, medical devices etc.) disincentivizes innovation. This working paper by the National Bureau of Economic Research reveals the decline of EU pharmaceutical industry profitability and R&D expenditure over a 19-year period compared to US counterparts.
Naturally, US patients benefitted from significantly more access to new medicines than any other country in the world from 2011 to 2017, according to analysis by the US pharmaceutical trade group, PhRMA. And as can be seen from below US-based companies now indeed lead new drug introductions by a large margin.
(Figure 1 (above) Source: "The Pharmaceutical Industry in Figures, Key Data 2019" published by the European Federation of Pharmaceutical Industries and Associations (EFPIA))
But does this translate to positive outcomes?
We observe that average life expectancy in the US did not increase as much as its European peers in the last 30 years (Figure 2, below). And it is worth noting that South Korea, which adapted a compulsory national health insurance policy from 1963 (and completed enrollment by 1989) experienced a rapid improvement in life expectancy from that point onwards, essentially catching up to its developed-nation OECD peers.
(Here's a good historical overview article of the evolution of the Korean system, in Korean language: Link)
(Figure 2 (above): Life expectancy at birth of select OECD countries; Source: OECD Health Status Data)
This is a rather curious phenomenon, because we have to be frank with ourselves and also consider whether the life expectancy gains of the last few decades in those price-controlled nations would actually be as significant were there not those innovations wrought by US-based firms, afforded by their open-ended market potential. The health of the world just may be riding, at least in part, on the coattails of US healthcare innovation.
Many argue that the innovations coming from US companies were born in laboratories and institutions all over the world including Europe. And yes, the insatiable curiosity of scientists will continue to churn out innovations in healthcare. But remember that it was the underlying profit motive by pharmaceutical companies that really got penicillin and insulin to the masses.
So the logic and data are clear: Monetary incentivization unequivocally spurs innovation, and capping earnings potential caps innovative output.
2. Relationship Between Outcomes and Societal Health
It is obvious but also telling that the World Happiness Report has "healthy life expectancy" as one of the key variables in quantifying happiness. Good health is essential for happiness and a decent quality of life. Additionally, the Sustainable Development Goal (SDG) of "Good Health" is the second most strongly correlated factor to human well-being overall. Although good healthcare is a necessary factor but not sufficient for determining overall happiness (Singapore ranks 31 while South Korea is ranked 61, for example), health is nonetheless an essential feature that materially affects how a given society is perceived by its constituents. Predictably, the Nordic European countries occupy many top spots, while the US is 18th on the list ranking even below its northern neighbor of Canada (at 11).
On the subject of outcomes, we have already examined the trend of life expectancy at birth in Figure 2, but what about quality of health during life? Like, the part that you're actually alive to enjoy.
(Figure 3 (above): Burden of disease of select countries, expressed as DALYs per 100,000 individuals. Higher is worse. Source link)
Depressing, but not surprising. Nations that focus on providing a certain base level of healthcare to all constituents continue to lower DALYs of their population. It's worth noting that the US has now been eclipsed by South Korea and recently by China, the latter which made great strides in the past decade following continuous healthcare system improvements.
A well-functioning healthcare system is not just about treating the sick. The most cost-effective healthcare solution is to prevent people from getting sick in the first place. This is a complex undertaking that requires a combination of diligent public education, regular themed campaigns and above all, a trustworthy administrative body.
This has to be followed by an efficient healthcare administration network to quickly triage and treat the population that do become ill. This requires significant and continuous investment in infrastructure and also would require subsidizing of healthcare systems in low population density areas.
Efforts for prevention and building/maintaining effective treatment administration infrastructure can never be the domain of for-profit enterprise, even in a public-private partnership scheme. It's impossible to imagine a scheme for revenue generation when people don't get sick, therefore creating a negative incentive and return structure. No source of capital investment would fund such undertakings. This most critical and foundational responsibility of a well-working healthcare system falls squarely on governments and the public sector.
So the logic and data are clear once more: Without (smart) policy-level involvement to administer healthcare, outcomes (relatively) suck and society as a whole literally suffers as a result.
3. So What Are We Doing? (Global State of Healthcare System Trends)
We've so far established that the market-reliant healthcare system of the US is comparatively inferior in general quality to the detriment of a majority of its constituents. But - credit where credit is due - the US does an incredible job of continuing to engender and churn out innovations where greatest unmet needs (i.e. top causes of death) intersect with greatest profit potential - why do you think big pharma is so hell-bent on commercializing an Alzheimer's treatment? And the results of this profit-motivation ultimately benefit most of the world. How do you think South Korea and China (among many other emerging economies) achieved such rapid improvement in outcomes (Figure 3) without spending nearly as much as their Western peers? (Figure 4). And do you think it was luck that Pfizer - a US pharma company - was the first to get a SARS-CoV-2 vaccine approved?
I mentioned that the EU pharma industry is experiencing a progressive decrease in profitability, but this is actually a phenomenon that is trending across all of pharma. Deloitte has published a report detailing the progressive decline on return of late-stage pharma pipeline assets in the last decade, from a mean of 10.1% static IRR in 2010 to 1.8% by 2019. During the same time, the average R&D cost from discovery to launch has continuously increased while forecast peak sales of assets has conversely decreased. In short, pharma innovation is being squeezed globally. And it isn't just pharma experiencing the squeeze.
From the UK to Japan to South Korea, aging demographics and expanding social programs continues to push healthcare spending up well beyond the rate of inflation (or GDP growth, for that matter) in developed nations, which in turn increases pressure on the progressively shrinking working population pool. Take a look.
(Figure 4 (above): Public health expenditure as % of GDP. Source link)
At least the spending roughly translates into positive outcomes (in most cases). And paradoxically, that is actually the problem.
As I have established in the beginning, demand for healthcare is infinite. Everybody deep down wants their DALY to be 0 while living well past 100. And like most things in our world that requires input of resources, healthcare spending has a (nebulous) point of diminishing returns. Complicate this by budget-deficit-running governments imposing austerity measures on healthcare systems that rain misery on healthcare workers (also here, here and here) and also end up turning away potential innovators and entrepreneurs from unleashing their talent in this fundamental and vital industry.
Of course, there is the other extreme opposite of the US approach which is imposing strict equitable care for everyone. Canada and France are prime examples of this approach of "no one is allowed to better care than others". It doesn't work (some wait times are ridiculous), it never stopped the wealthy from priority access (private jets, anyone?), and brings about a whole lot of issues that need fixing. This Fraser Institute study concurs with my assessment.
Here's a fact of humanity: A certain amount of inequality is inevitable and essential for the continued development and increasing prosperity of the human race. (1) Quality of care matters just as much for the same reason the placebo effect is real. But without incentive to offer better care from the supply side, motivation evaporates. I wouldn't go as far as apathy, but have you tried getting a family doctor in Canada? It took me a good 6 months, and I consider myself lucky. And I still have to hear back from that allergy specialist after a year and a half of waiting.
Let's step outside the healthcare frame for a moment to examine how pragmatism can work while balancing equity. Turkey runs something dubbed "bedelli askerlik" as part of their military conscription program - essentially paid military exemption. This money (in principle, at least) is used to fund defense system upgrades and support the military budget. These upgrades better protect those serving active duty and a heavier purse makes barracks life more comfortable for those that couldn't pay. If wealth inequality is an inevitable feature of a continuously prospering capitalist society, why not admit the obvious and exploit it to raise the floor like the ingenious Turks have? Germany and South Korea (among others) run a dual public-private model where people with the means can receive private, expedited and/or advanced care with great success. Money (and the potential for more) in the system improves it both directly and indirectly. Heck, levy a tax on private care to subsidize and maybe even improve low-income care - it can be a low-resistance form of that elusive and politically toxic "wealth tax". People with money have and will always find ways to cut in line. Why let some other country take that revenue when it could be used to help your own disadvantaged or increase quality of care for the rest. Isn't that the "greater good" outcome underlying the original approach anyways? (2)
We must also not discount this pesky thing called evolution, coupled with the limitation of human knowledge which results in a curse where humanity must continuously battle new threats to health and well-being while also dealing with the pathological dingleberries of yester-year. I've already mentioned the mountain of challenges we face because of this in a previous article. Without a ceaseless effort to innovate against new foes and ailments, nature will catch up to humanity and may very well afflict far greater pain and suffering than COVID-19 could ever dream of doing.
I've commented on how COVID-19 exposed the brittleness of our "advanced" healthcare systems. In the name of efficiency, most developed nation healthcare systems have been designed and managed down to the point where the system is so brittle that it can barely muster up a reaction to changes or worse, literally breaks with the slightest epidemic perturbance. The US (and Canada) with its dependence on the ultra-efficient network of centralized diagnostic laboratories has contributed to the perpetual COVID-19 testing backlog. Canada with its "efficient" reliance on US and European drug manufacturers has the government shamelessly tapping COVAX vaccine stock to save face. The global valsartan NDMA scandal was the result of the relentless pursuit of cost efficiency by all involved parties. Lethal drug shortages are happening far to commonly in every developed country as a result of declining profitability for old drugs. Although seeking efficiency is at the core of increasing human prosperity, healthcare is in the business of dealing with a continuously evolving and adapting biological world that survived billions of years through literal outliers - the antithesis of efficiency. Ironic, huh?
So a whole lot is going on right now with healthcare systems in the world, and I have just scratched the surface to point out the most prominent features I managed to observe.
4. The Perfect Healthcare System?
From what we've established throughout this article, I think a few fundamental features of a perfect healthcare system can be teased out.
Universal health coverage, universal Medicare - don't care what you call it, it needs to happen. Health equity is a critical feature of social stability and national security.
Compulsory participation - everybody with a pulse will use it, so why have exceptions?
Hybrid, two-tiered, public/private or whatever you call it, there has to be a fundamental accommodation for innovation by carving out a segment where earnings potential is protected.
Let each party do what it (should) does best. Government does policy, infrastructure and safety regulation. Industry does innovation and business. Don't dick with on-patent pricing. Don't bribe politicians.
Maintain system flexibility - demographics change, disease profiles shift, treatment standards evolve and pandemics happen. Vigilant and diligent stewardship of the system is critical. This is NOT something that can be made to "set it and forget it".
There are a few minutiae with these points that make it so damn hard to get a healthcare system just right. For example, how does one draw the line on the level of healthcare to be universally covered? What about exploitation by the innovators?
I'm glad you asked. Here's my proposal for a compromise.
I say peg public inclusion to patent expiry as the primary threshold. Most every nation with economies of any consequence are part of the WTO and already implement intellectual property protection schemes. So the line of demarcation could be an unequivocally clear patent expiry date. Any invention past patent expiry - and only after patent expiry - would be eligible for universal coverage, plain and simple. This can also expand development incentivization (i.e. orphan and/or breakthrough status) with the added carrot of early inclusion into the public payer scheme for earlier expanded market access on top of exclusivity extensions that are currently offered.
Hear me out.
For the duration of the patent life, a given healthcare invention will accumulate real-world data on clinical utility. Instead of squeezing innovators on price from the second (actually, before) it debuts on the scene, a government could actually make itself useful by constructing and running a granular health outcomes data collection and analysis infrastructure to 1) not burden innovators with excessive and mandatory post-market surveillance responsibilities which in turn provides leverage for those innovators to demand concessions such as extended exclusivity periods, and 2) provide a massive and solid evidence-based foundation for later determining the cost-benefit of whether to include a freshly patent-expired invention under universal coverage. Essentially, push the burden of proof of real-world efficacy to the innovators while on-patent, along with the carrot of monies. (3)
Upon patent expiry an invention - which up to then should have been free of price controls to fully reward (and thus encourage further) innovation - accumulated data would naturally deliver an ultimate verdict of real clinical utility. A consolidated Cochrane review, if you will. If it turns out the invention was not all that useful after the decade-ish of real-world use, then generic competition coupled with exclusion from the public reimbursement scheme would pretty much seal its fate. If it was useful, then concurrent entry of generic competition will provide more leverage for the government to impose evidence-based price controls on something that is proven to improve outcomes and is technically in the public domain to boot. Win-win.
This approach could also achieve something incredible: provide justification to avoid price pegging to current standards of care, which is the bane of healthcare innovators around the world. How? Price pegging logic is convincing because freshly approved products work on an a priori assumption of clinical utility based on clinical trial data generated in a tightly controlled manner and discounted for performance uncertainty in the real world. If empirical evidence of real-world superiority versus the current standard of care is available, then the focus can shift to how valuable the proven QALY improvement is. The reimbursement criteria can be surgically narrow to boot to further save money, because this criteria would be backed by a mountain of evidence (besides the fact that additional indications would probably be patent protected for a few more years).
And yes, I am aware that post-patent public scheme inclusion would be applicable to generics as well, but how is it different from any other industry when all benefits of patent exclusivity were reaped in full? Governments should also do well by their citizens by regulating generics to a higher standard afforded by this leverage, especially if they learned anything from the NDMA fiasco of recent. The threat of pay for delay tactics would also be neutralized since the presence of generic competition would no longer be a prerequisite for price reduction - the threat of eventual generic entry, along with irrefutable clinical evidence and the promise of expanded (public) market access would serve as the new set of carrots and sticks.
Anyhow, this proposal would leave innovators to invest whatever sum they feel adequate to generate whatever quality clinical data they need to obtain approval and then charge whatever price the market will bear - of course while the patent is still valid. The utopia of free market is realized in healthcare. In this structure, the government does not owe the innovators anything so they can enforce transparency and come down like a ton of bricks for any unethical behavior, i.e. bribes, prescription rebates, misleading promotions etc. Seriously. Fuck them.
Look, the market will find a compromised price point between supply and demand for a new treatment. If a new invention looks promising, rich folk that need it will pay for it, or private insurance will bridge the gap. If data on a new treatment is questionable or if a treatment is simply too expensive, nobody's going to pay for it anyways.
Seriously, worries about innovator exploitation are overblown. Never underestimate the power of Best Alternative Care or the Gold Standard and their decades of clinical evidence. Also never discount the majority of good physicians and medical professionals that have sworn to uphold the best interest of their patients to act as responsible gate-keepers. As long as the government does its job of smacking down unethical behavior, the rest of the industry will do their jobs too.
I also have to say: I think that the sub-sector of the healthcare industry that manufactures tangible goods, e.g. pharmaceuticals, medical devices, diagnostics etc. are unfairly targeted in the healthcare cost control debate - likely because tangible goods are simple to understand and can easily stir up popular opinion. But I've already mentioned in another article that the healthcare services market is more than 3 times larger than all of the tangible healthcare manufacturing sectors combined! Where do you think more savings are going to come from if a government starts looking? Has anyone bothered to look into the situation with long-term care facilities? I hear that there's a lot of room for improvement (and cost savings to boot), especially considering the fact that pretty much all developed nations will have to deal with an increasing elderly population. Just a thought...
I know that what I've just described is near impossible to implement as-is, partly due to the inertia and legacy of existing systems, partly because of the wide spectrum of cultural nuances that must be accounted for and the fact that this proposal simply won't work in a non-democratic political system. But aiming for a better, balanced and ultimately sustainable healthcare system is something that we should constantly keep in mind, especially when increasing austere cost-control measures targeted at healthcare innovations sends the wrong message to the coming generations. Look at it this way: one of the top, if not the first consideration in choosing an occupation is earnings potential. It's not a very inspiring message to tell a child "you can be anything you want to be, but if you choose healthcare you'll never earn as much as a lucky college dropout coding out of a garage." Is that really the message of the value of healthcare that we want to be sending to others as stakeholders? To our children as adults? As human beings?
In closing, I said I would talk about the "perfect healthcare system," but there really isn't a one-size-fits-all solution. And I completely ignored to address a gaping hole in this complex story where old drugs with evaporating profit margins result in the plague of drug shortages. But that's another article for another day.
Comments
Note: I do not in any way condone the present-day phenomenon of increasing extreme wealth inequality. What is happening now is unequivocally toxic, but elaboration of this is beyond the scope of this article. (Back to article)
I must point out there are very good and valid arguments against this hybrid dual-system approach, but it really is about the details of execution (e.g. Australia foolishly subsidizing private insurance, worries of not reinvesting gains from private healthcare to improve basic care etc.) that can quickly turn a dual system inequitable. I can speak from years of experience that the South Korean hybrid system is nearly on-demand for accessing primary care with public insurance - proof that it can work as long as it continues to resist privatization and for-profit medical institution attempts. (I say pay bigger salaries but don't fall trap to the corporate curse of eternal growth) Governments need to be vigilant, and constituents need to vote more (and wisely) to avoid this fate. Again, this is a very careful balance that must be struck in a dynamic world. (Back to article)
Excessive burdening of regulatory agencies one of the reasons the US generic drug quality situation is as opaque as it is today and also why the US nutraceutical industry is essentially the wild west. Regulatory agencies should oversee safety first and foremost, while making approval decisions based on best available data - which does not necessarily equate to real-world performance. (Back to article)
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