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In Defense of Experts

To recap: There is an argument that national health insurance will be a net negative because pharmaceutical companies will make less money and thus create fewer new and life-saving products. On Monday, I published an interview with Dr. Jerry Avorn, author of the excellent book "Powerful Medicines", and a noted expert on pharmaceuticals and the pharmaceutical industry. His argument was fairly simple: There's little reason to believe that the pharmaceutical industry is our most efficient engine for innovation.

R&D, he argued, is a small slice of the companies' costs, much of the fundamental research is conducted by the public sector, and the business model expends a lot of energy on high-return but low-innovation activities like advertising "the purple pill" or building me-too drugs. "If we want innovation and scientific discovery we should fund innovation and scientific discovery," he said, "not go after it bass-ackwards by paying too much for overpriced drugs and hoping that some of the excess profit will trickle down into innovative research."

In return, Megan McArdle showered him with contempt. Her post began with a spectacularly telling dismissal. The interview, she snarked, was part and parcel of "Ezra Klein's obsession with experts." I should go talk to some drug industry executives, she advised.

It's the experience of talking to ideologues on both sides of this issue -- some of them industry employees, others activists -- that has actually led me to rely so heavily on, well, actual experts. But McArdle's rebuttal isn't premised on interviews with a different class of experts. Rather, she's relying on a mixture of basic economic theory and intuition. The product, as you might imagine, isn't terribly responsive to Avorn's arguments. "I am completely unsurprised to find out that Dr. Jerry Avorn has completed no work in economics," she writes in her concluding paragraph, "and indeed, so far as I can tell, no work in anything except being a professor of medicine."

You'd think being a professor of medicine was illegal in 14 states after reading that sentence. But this gets to something that I think is actually interesting. There's a strain of commentary that's deeply hostile to subject-specific expertise. In my experience, this opinion is voiced with the most confidence by economists, who tend to believe that they have a theoretical framework for understanding most any issue. McArdle is not, herself, a PhD economist. But Alex Tabarrok, who approvingly linked to her post, certainly is.

So does Tabarrok -- or McArdle -- know as much as Avorn does about the pharmaceutical industry? Of course not. Neither of them is a health economist. Neither of them, to my knowledge, has worked at a pharmaceutical company. Neither of them has had sustained contact with the drug industry. Nor is medical innovation a subject that's dominated by economists. It's something that requires some knowledge of, you know, medicine, and the interactions between public and private research divisions, and the FDA process, and all the rest of it. Economics is a useful discipline. But it's not a decoder ring. And it's not a substitute for discipline-specific knowledge. That's why Tabarrok read Avorn's book, which he called "excellent."

McArdle elides this by spending a lot of time explaining how companies work to Dr. Avorn. Almost all of her post relies on spinning Avorn's comments as if they were about pharmaceutical companies, rather than about whether high reimbursement rates for pharmaceuticals is the most cost-effective spur to further innovation. It's quite a performance.

To get some perspective on all of this, I fell back on my traditional obsession with experts. I asked Jonathan Gruber, a health economist at MIT, whether he thought that universal health care would retard medical technology innovation. "No," he said. "In fact, there is direct evidence to the opposite."

He referred me to the work of his colleague, Amy Finkelstein, whom I reached earlier today. "My prior belief would be the opposite," she said, using the same word Gruber had. "If you cover people with insurance it increases their demand for health care and that will create a larger market for innovations. That's certainly what I found happened with Medicare."

She continued: "One can imagine if one somehow reduced demand you could have the opposite effect. But it's a bit hard for me to understand how going from less insurance to more insurance would reduce demand."

So much for the argument that national health insurance is some sort of obvious innovation killer. But Avorn's argument was more specific than that. I had asked about the best way to maximize innovation. "If we want innovation and scientific discovery," he said, "we should fund innovation and scientific discovery." McArdle didn't respond to that point, and instead made it seem as if Avorn didn't understand that pharmaceutical companies spent money on research, or that profits funded that spending.

I posed a similar question to Finkelstein. If she had billions of dollars and wanted to supercharge innovation, how would she do it? Would she simply increase reimbursement rates for drugs? Would she give it to pharmaceutical companies? What's the most efficient engine for medical innovation?

In reply, she pointed me to the work of Harvard's Michael Kremer (another expert, sadly). "The two main things that people talk about," she said, "are funding a lot of basic research -- push strategies -- and then pull strategies, where governments get together and define a prize for innovation on a particular disease." In other words, funding innovation and scientific discovery in a direct and targeted fashion.

By Ezra Klein  |  August 5, 2009; 5:05 PM ET
Categories:  Health  
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Comments

Ezra, the nerve of talking to people that actually understand the subject at hand. It is far better to rant about how intuition and a basic knowledge of economics trumps what an "expert" says. /snark Seriously, after reading her ranting, it amazes me that she gets a prime writing spot at the atlantic at all.

Posted by: srw3 | August 5, 2009 5:28 PM | Report abuse

There is a reason that I never read anything by Ms. McArdle. After having sampled her posts at Atlantic, I found her to be a profound "expert" on nothing at all, and her musings to be tremendous evidence of that fact. McArdle? Meh.

Posted by: donovong | August 5, 2009 5:35 PM | Report abuse

McArdle, proudly ignorant and convinced that her MBA and fascination with Randism means that she knows better than people who've devoted their lives to understanding a subject, so much so that she can just dismiss them by doing little more than calling them socialists or hippies?

Quelle surprise.

Posted by: WarrenTerra | August 5, 2009 5:36 PM | Report abuse

You sound like a creationist who is baffled by the fact that no one takes his experts seriously.

Did you notice the grants that were awarded today to GM and Chrysler to develop new electric car technologies? It's not surprising that the Government awarded them the grants but I think it's highly unlikely that they are most likely to bring great innovations to the market.

Posted by: fallsmeadjc | August 5, 2009 5:44 PM | Report abuse

Ezra, your problem is not experts...it is ONLY talking to experts who share your view.

Have you talked to this expert who praises McArdle's post?

"Megan McArdle has done the work of attacking this at greater length than I can right now, and her post is a good palate-cleaning read after the Avorn interview. One tiny point she brings up that Dr. Avorn might want to internalize is that 15% is actually quite a large percentage of R&D spending. Apple spends 3%, and Google, 10%. Intel manages to get all the way up to 15%. At any rate, the whole post is worth reading, and was clearly written in a mood of complete exasperation. Which I share."

http://pipeline.corante.com/archives/2009/08/05/just_give_it_to_nih.php

Posted by: kingstu01 | August 5, 2009 5:50 PM | Report abuse

"If we want innovation and scientific discovery we should fund innovation and scientific discovery," he said, "not go after it bass-ackwards by paying too much for overpriced drugs and hoping that some of the excess profit will trickle down into innovative research."

You can say this about any industry. Why funnel our money though all these companies and firms? If we want a better computer, why don't just collect the money and fund research on better computers?

Because it doesn't work!

Megan was responding to your interview subject, who didn't want to make the argument that universal healthcare would slow drug company innovation. He wanted to argue that drug companies don't do anything useful.

Posted by: 98thStory | August 5, 2009 5:50 PM | Report abuse

To be charitable, McArdle's position is solipsism: If something doesn't confirm what McArdle already knows...it's wrong.

Fallsmeadjc is trying to run away from the facts about how in the medical field, the government funds a huge portion of the research. Look it up!

Posted by: michaelterra | August 5, 2009 5:52 PM | Report abuse

Dean Baker while at CEPR had a good piece on drug patent policy issues.

Posted by: bdballard | August 5, 2009 6:01 PM | Report abuse

One doesn't need to possess a degree in medicine or health economics to observe that, historically, the following division of labor in R&D has worked well: government focusing its investments in basic research and industry focusing on practical, marketable applications.

US-based pharmaceutical companies have an exemplary record of producing innovative drugs. This is a high tech industry in which the US is a global leader. I am loathe to mess with success.

I'd be afraid that under the proposed regime that R&D invesement decisions would be driven by political considerations and the efficiency and effectiveness of the development pipeline would fall.

If the government doesn't think pricy new drugs represent a good value it should refrain from buying them for the beneficiaries of public programs. Make do with generic equivalents where available and wait for pricy drugs to go off patent. But please don't deprive others to make their own judgements of value.

Posted by: tbass1 | August 5, 2009 6:04 PM | Report abuse

kingstu01

I'm not sure if you're new to this thing we call the internet or the phenomena known as blogging, but most bloggers, left and right, make their bones by responding to people who disagree with their point of view.

It's ironic that you accuse Ezra of ignoring opposing view points in the comments section of an entry where he...well directly responds to someone with an opposing view point.

Posted by: TheChairman66 | August 5, 2009 6:05 PM | Report abuse

It's really important to keep the basic premise in mind here. No one is proposing we shut down the pharmaceutical industry. The question is whether we should be so afraid of harming innovation that we should reject attempts to move towards a national, universal health insurance system.

Avorn's argument is that, at this point, if innovation is your primary concern, there are better ways to accelerate it than simply paying much more for drugs than Canada does. Megan doesn't even really argue that point. She just sort of snarks at Avorn, and implies that he doesn't understand the pharmaceutical industry. You can think the guy is wrong on his prescription, of course. But to think he doesn't understand the pharmaceutical industry -- or to demand he take more coursework in economics -- is really quite a leap.

Posted by: Ezra Klein | August 5, 2009 6:09 PM | Report abuse

The main problem with Ms. McArdle's position is that it assumes that drug companies are the primary innovators and do most of the research that leads to new drugs. That simply isn't the case. A significant portion of the basic research done is done through the NIH and at universities, and in many cases the drug companies simply piggyback on that research. Not to mention that some companies, such as Pfizer, get the vast majority of their new drugs by buying other companies.

Finally, I have yet to hear a good argument why the American consumer must bear the brunt for all this innovation while virtually all other countries are able to purchase these drugs at a discount. Bring the prices in line for everyone rather than have us continue to pay through the nose for over-priced drugs.

Posted by: Jim405 | August 5, 2009 6:34 PM | Report abuse

EZ writes:

"No one is proposing we shut down the pharmaceutical industry. The question is whether we should be so afraid of harming innovation that we should reject attempts to move towards a national, universal health insurance system."

The pharma industry's current business model is not incompatable with univeral health insurance.

"Avorn's argument is that, at this point, if innovation is your primary concern, there are better ways to accelerate it than simply paying much more for drugs than Canada does."

His proposal may result in an improvement over the status quo but it might also kill the goose that lays the golden eggs. Less risky, I think, would be for the government to become a more effective consumer of pharmaceuticals. Let the government negotiate lower rates where it can for its own programs and set it own formulary, forgoing medicines that fail it's cost-benefit test. Such measures are far preferrable to the forceable reorganization of the industry, IMO.

My concerns about health reform with respect to pharmaceutical industry are:

1) Preserving its innovative capacity

2) Preserving consumers' ability to learn about and make their own decisions as to whether or not to purchase medicines with their own money/insuance, however expensive they may be.

3) Preserving an industry in which the US currently enjoys leadership and which generates profits, taxes, good paying jobs, etc.

Posted by: tbass1 | August 5, 2009 6:57 PM | Report abuse

But there's another point here. Drug companies spend 3 times as much on marketing as on R & D, so we could lower drug prices a lot and not impact their R & D spending a whit, no matter if it's mostly D and not R or not.

To put some figures in this, R & D - 10% - 12% and marketing - 33% - 35%, so we could cut drug prices by a third which is about $100 Billion each and every year. (google Alan Sager)

Posted by: lensch | August 5, 2009 7:02 PM | Report abuse

The obvious answer here seems to be to ban the advertising and marketing of drugs (or at least return to the way things were before when their weren't drug ads all over television) and leave it to doctors to actually make informed decisions when giving presciptions (and maybe even stop drug companies from giving gifts to doctors to influence their decisions). With this huge burden removed from the drug companies they'll have more money to spend on R&D.

Posted by: rickenharp | August 5, 2009 7:22 PM | Report abuse

"It's the experience of talking to ideologues on both sides of this issue -- some of them industry employees, others activists -- that has actually led me to rely so heavily on, well, actual experts."

This is where I've got the problem. I'm hoping you'd retract this statement-- that folks that are health industry professionals are ideologues, not actual experts. I'd love to hear the names of folks in the health care industry that you've interviewed that are similarly positioned to a Jerry Avorn or a Ron Wyden. Not lobbyists, not "government relations" people, not low-level industry people who are a friend of a friend, but senior industry veterans with significant experience on par with your so-called "actual experts." I highly doubt any of them would have given you the time of day, at least until you joined the Washington Post in the last two months.

Posted by: wisewon | August 5, 2009 7:32 PM | Report abuse

Which also sort of gets to my point the other day. While you had a nice rhetorical comeback on asking questions that you theoretically could have known the answer to, but were looking to get reaction-- we both know that this wasn't the actual case. If you spoke to a broader set of "experts" beyond academics, but folks that, you know, actually do this stuff for a living, not just read/write about it-- perhaps those questions, which have known facts attached to them, wouldn't have been part of the interview.

Just a thought.

Posted by: wisewon | August 5, 2009 7:35 PM | Report abuse

"We can't afford health reform, it'll cost us too little."

The latest in a series of self-contradictory arguments against health reform. This one rivals "the public plan will be so bad that everyone will want to use it".

Posted by: bluegrass1 | August 5, 2009 7:51 PM | Report abuse

Here's another clue. Pharmaceutical companies make money off selling drugs, not curing people. As a result, their research spending is designed to maximize drug sales without regard to whether it actually makes people healthier. In contrast, research funded specifically for the purpose of finding cures or cost-effective (for the patient, not just the drug manufacturer) treatments does just that, without regard to profit.

Posted by: bluegrass1 | August 5, 2009 7:54 PM | Report abuse

Hopefully the X-prize model is something that someone like McArdle can recognize as beneficial. It's essentially a market-based solution, but rather the incentive being set by drug sales, it's set by--that's right--results. For example, finding a cure for ailment X instead of just drugs to treat the symptoms.

Posted by: bluegrass1 | August 5, 2009 7:57 PM | Report abuse

"One tiny point she brings up that Dr. Avorn might want to internalize is that 15% is actually quite a large percentage of R&D spending. Apple spends 3%, and Google, 10%. Intel manages to get all the way up to 15%."

Um, drug research is not the same as IT research. I would think that would be obvious.

Posted by: bluegrass1 | August 5, 2009 8:01 PM | Report abuse

Ezra you should make this a regular feature.

Posted by: Castorp1 | August 5, 2009 8:49 PM | Report abuse

""Pharmaceutical companies make money off selling drugs, not curing people.""

Drug companies have figured this out, and have come to focus on those drugs that have to be taken every day for the rest of your life, rather than transitory courses of medication that effect a cure - drugs like statins, for example, or COX-2 inhibitors such as Celebrex or Vioxx (at least, that was the plan behind them, before the other problems with COX-2 inhibitors emerged).

Mind you, I'm in no way saying that the Pharma companies employ monsters who would hide a cure in order to sell a palliative for more long-term money, nor am I saying that they could do hope to get away with such a thing if they even wanted to. I'm just saying that industry incentives reward them for focusing their research on the discovery of more and better palliatives.

Posted by: WarrenTerra | August 5, 2009 8:53 PM | Report abuse

Is it economists who think we have a universal decoder ring, or is it libertarians who think that the answer to all questions is the same ? Or both ?

McArdle is not an economist and is a libertarian.

I don't think I have a magic decoder ring. However, I am unorthodox and I admit that many economists do so think (so I go for "both").

I was particularly stunned by McArdle's proposal that you talk to drug company executives. Given their fiduciary responsibility to their shareholders, it would be unethical for them to tell you that it would be fine if pharmaceutical corporation profits were lower.

Posted by: rjw88 | August 5, 2009 9:48 PM | Report abuse

To summarize Klein's response to McArdle: i) you're not an "expert" so you are not qualified to discuss this subject; ii) I am quoting even more experts, who iii) talk about the need for more... experts ("funding innovation and scientific discovery in a direct and targeted fashion.")

There's a strange circularity to this reasoning. What it shows is the axiomatic belief in the superiority of experts both in the consultative and deliberative phases.

Posted by: snap1 | August 5, 2009 10:49 PM | Report abuse

Klein's experts make a basic point: increasing demand should spur, not inhibit, innovation.

McArdle isn't against increasing demand. It's that she sees government as working to dramatically reduce drug prices by "negotiating" them, permitting reimportation, and by fussing with the patent system and the FDA.

I like the notion of using prizes to direct industry's energy, but the effect of a prize isn't that different from granting patents that allow the companies to earn an equivalent return in the market. One place it might be advantageous is in encouraging work on fundamental cures (e.g., a vaccine) instead of the take-one-pill-daily-forever stuff that by the way pays for most research today.

Posted by: lfstevens | August 5, 2009 11:18 PM | Report abuse

I think that innovation could potentially still decrease if we turned towards a more government funded research system. There was an article in the NY times a few weeks back discussing NIH grants and it said that most of the people applying for them chose to pursue projects that did not really advance the field that much. The idea was that they wanted to improve their career instead of taking a risk on a project that could fail and hurt their prestige in academia. This article seemed to imply that most of the innovate research was being driven by start ups because there was less of a fear of failure and more risk taking. I am not sure how much of this is true but its something to think about. I don't know if it is really an argument for the idea that government involvement hurts innovation but instead that we need to try and reform the way the NIH decides to give out research grants.

Posted by: khamadanchy | August 5, 2009 11:31 PM | Report abuse

kingstu01 says: "One tiny point she brings up that Dr. Avorn might want to internalize is that 15% is actually quite a large percentage of R&D spending. Apple spends 3%, and Google, 10%. Intel manages to get all the way up to 15%"

Apple and Google do software work, which involves basically having PCs networked in rooms. Intel does microprocessor research, which involves having labs to do simulation/design, labs with electric testing equipment and prototype fabrication facilities. Pharmaceutical companies need chemists to synthesize molecules in synthetic labs, biologists to screen large libraries of chemicals and test them in model systems and in animals, manufacturing personel to do trial scale-ups of interesting leads.

These research operations require vastly different organization, investment, resources, and personnel. Why on earth would you assume that the amount spent on R&D in COMPLETELY DIFFERENT FIELDS would even be comparable? This assertion is completely ignorant and idiotic, and an example of exactly what Ezra is criticizing in McArdle's shtick.


Posted by: btavshanjian | August 6, 2009 12:55 AM | Report abuse

"If you cover people with insurance it increases their demand for health care and that will create a larger market for innovations. That's certainly what I found happened with Medicare."

That's a fine argument if the point of "reform" is simply to expand coverage. But if the point of reform is to "get costs under control" and bend the cost curve, and spend only that percentage of GDP on health care that our European brethren do, then this "expert" opinion that a larger market will spur innovation is a bit spurious, no?

I presume by larger market we mean "more money sloshing around to spur innovation"--not "more people spending a smaller percentage of the overall economy," right? It shouldn't be hard to imagine how going from less insurance to more insurance would reduce demand if we simultaneously imagine bringing total costs down in the long term, which I thought we were supposed to imagine.

This strikes me as a flaw in the argument here, much as I hate to spoil a generally legitimate critique of Ms. McArdle indisputably indefensible amateurism.

Posted by: FrBill1 | August 6, 2009 2:47 AM | Report abuse

Presuming Ms. Finkelstein is a qualified enough 'expert' to make this assessment, isn't this, "If you cover people with insurance it increases their demand for health care" a bit problematic for the larger effort?

Posted by: michaeljamesdrew | August 6, 2009 2:50 AM | Report abuse

"Economics is a useful discipline."

That seems a bit too general. In the hands of some, economics seems like little more than a tool to be used to justify some elements of society preying on other elements.

Awarding a prize for a cure or significant treatment sounds like a fine idea. One assumes the trials to demonstrate efficacy would not be conducted by the pharmaceutical companies themselves, which would be a huge improvement. Better trials could eliminate drugs that offer no real therapeutic improvement, but still become cash cows for drug companies. Such trials would also offer the opportunity to test new drugs against one another and the older drugs of choice, instead of against placebos. Unfortunately, those improvements in testing would probably not be attractive to the companies themselves.

Posted by: treadlightly | August 6, 2009 2:51 AM | Report abuse

"Economics is a useful discipline. But it's not a decoder ring."

Umm, you know, there's your real problem Ezra. Depending upon what you're studying, economics is indeed a magic decoder ring.

If you're trying to understand how human beings react in the presence of money, how incentives work, how scarce resources are allocated, why politicians will promise that we'll all be farting through silk by next month and there'll be a chicken in every pot tomorrow if only we vote for them.....yes, economics is indeed a magic decoder ring.

It's not all that helpful when trying to work out why the earth revolves around the sun, this is true, but in its claimed area of relevance it is, well, umm, relevant.

So is real world experience as well: national health care does too reduce innovation. The UK has something called NICE, which specifically and deliberately bans access to new treatments (like Herceptin) on cost/efficiency grounds.

"I had asked about the best way to maximize innovation."

Might I suggest that you go and read some of the work of Willam Baumol? He's only an economist....so of course doesn't know anything at all relevant to your obsessions.....who studies invention and innovation. He's actually rather a lefty, so you shouldn't be all that shocked by his general world view.

This is rather dry:

The Free Market Innovation Machine: Analyzing the Growth Miracle of Capitalism, 2002.

This is a collection of essays about his work that might suit better (it did me)

Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity, co-authored with Robert Litan and Carl J. Schramm, 2007

Until you've read this sort of stuff, what economists have to say about innovation, invention and the incentives behind them, might I suggest Kant's advice? About which you know nothing you should not speak?

Posted by: timworstall | August 6, 2009 6:52 AM | Report abuse

I'd appreciate if you spent some time investigating the best proposals out there for the "pull" factor. I've advocated for a long time taking the methods from DoD R&D. Take proposals for some end product you want, fund, say, three companies entirely for R&D and production of prototypes, then choose a winner and start buying the product from that company.

It seems this is a perfect way to get all the BS overhead out of the pharma industry, while still keeping the parts of the system that seem to work okay, namely splitting basic research and application between academia and industry.

You put out a request for a new drug for some type of early stage cancer, or some chronic disease, then you fund all the R&D for a number of companies, keeping their R&D departments in business, then the winner gets something like 5 years of exclusive production and sales at a reasonable, but not ridiculous like the current system, markup, then the drug goes generic, and the government owns the patent rights the whole way.

Posted by: nokona13 | August 6, 2009 1:18 PM | Report abuse

"It's the experience of talking to ideologues on both sides of this issue"

Does this include the one in the mirror?

Posted by: mj13 | August 6, 2009 7:12 PM | Report abuse

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