Healthcare: Time, Money, and Details

Capitol Hill is filled with buzz about Obama’s rushed health care proposal, intended to overhaul the current system. But as politicians portray healthcare with broad rhetorical brushstrokes, they continue to overlook a plethora of details that unnecessarily inflate its cost. A less publicized news item from last week was the annannouncement that the FDA will delay their final decision on Ampligen – the leading drug for the treatment of Chronic Fatigue Syndrome (CFS) – until this fall. The FDA announced that the delay was due to staffing problems.

Submitting Ampligen’s application is Hemispherx, a small biotech company that has researched the drug for nearly 3 decades. Like a handful of similar companies, their future solely depends on the FDA’s forthcoming decision. All of the clinical trials are complete. The drug’s application was accepted for review just over a year ago, which would make the FDA’s turnaround time over a year and a half. Judging from Hemispherx’s annual operating costs, the FDA’s delay by itself will cost them a total of approximately $15 million.

The FDA’s mission is largely to protect the public from harmful drugs, however critics demonstrate that their overcautious ways do more harm to the public than good. Their delays have cost the public thousands of more lives than they have saved, along with making them unpopular among most practicing physicians.

Even if you believe in the FDA’s mission, then it is hard to overlook the sheer inefficiency and waste that they introduce to healthcare. Clinical trials for new drugs take about 10 years, but even after all the data is in – as is the case with Ampligen – it often takes up to 1 more year for them to make a final decision. FDA delays are not-too-unexpected, but they have still hit Hemispherx hard.

Following each FDA delay, Hemispherx announced new efforts to raise more cash. Currently they are operating like a bear in hibernation, placed on life-support.

Given the millions of dollars lost due to FDA "staffing issues", one strategy might be to give them more staff. They might have applicants pay directly for these staffing issues, but the FDA already receives hundred of millions of dollars worth of fees; supplemented with more money by Congress, fees from private companies consist of half of their drug approval budget. Why these fees aren't enough to reduce the decision time to under 12-months isn't clear.

But the real problem, as discussed above, is with the structure of the FDA and the responsibilities placed on them. As drugs like Vioxx prove to be more dangerous than people could have guessed, the FDA has taken part of the blame; in response they have received more money and power, but this hasn’t led to marked improvement, accuracy, or efficiency.

Determining the safety of drugs can be particularly tricky, but there is only so much that you can ask for: Did the clinical trials meet their endpoints? Were there side-effects? Is there any reason to believe that there might be additional risks? Even if it takes 10 years of research to answer these quesitons, it should not take an additional year to intrepret the results: Either the end points were met or they weren't; there are side-effects or there aren't; there are reasons to consider additional risks or there aren't. These questions are not black-and-white, but following 10 years of required research (and often more), an additional year to make the decision - supposedly filled with heated internal regulatory debate - is not likely to find anything new.

As with most jobs, the problem lies not so much with the staffing, but with the structure of the organization. The main question is whether their mission – to approve and oversee every single drug (and many foods) on the marketplace – would be feasible, even if they had a large army of scientists at their disposal.

Science, like anything in life, obeys laws of diminishing returns: Beyond a certain threshold, the more you study one particular thing, like a drug, the less return in greater knowledge you'll receive for your efforts. Going back to the Voixx example, how many more years of clinical trials, and how much more power and money granted to the FDA, would have better assured its safety?

The assumption being placed on the FDA is that more research and regulation is better, regardless of the specific types of research and regulation being carried out. This is the same mistake that has been applied to the SEC for years, whose added regulations over the years tends to favor red tape, paper work, and superfluous committee-creating over investigatory manpower.

Currently drugs like Ampligen wander through a maze like patients lost in the healthcare system, knowing where they want to go but not being able to get there. And likewise they incur quite a cost – in the case of Ampligen, an added 18 months and about $15 million, assuming, of course, that the drug is even accepted. On top of decades of research and piles of paperwork, does it really take an additional 18 months and $15 million to judge a drug? The frustrating part is that much of this could be avoided either by cutting back on new drug requirements; somehow lowering the cost to big pharma of drug approval; or at least greasing the FDA's wheels in any manner that would make them more - not less - efficient. As it is, patients along their way are forced to pay for these costs, which are often more attributable to regulatory stuckiness than to added value.

Any improvement in healthcare requires us to look at the factors driving up its cost, rather than further re-distributing costs that already exist. In this environment, small companies like Hemispherx - who can survive 30 years researching just one drug - exist not because of the current healthcare system, but in spite of it. Indeed, in what other private industries is it common for a company to go decades without a product? Such gargantuan human efforts are testament to our need for better healthcare, not for better government intervention.

-KJ

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Note: Long position held in HEB.

Media (in order of appearance)

Photo: (1)Day 20, 1/20/2009, Richard; (2)Ampligen PR; (3)Healthcare, hospital, doctor, 04/22/2009, Anoto Group; (4) corridor, 04/10/2005, sumit. Sphere: Related Content

Complexity vs Simplicity...and Specialization

Since I was a kid I’ve had an ongoing debate in my head about whether the world is complicated and hard to understand or whether it’s actually quite simple and straightforward.

I know, it’s a silly question, and of course, the answer is relative to your perspective, or to the question you’re asking, or to what you’re trying to get out of things. Still, though, whenever my head goes down that road of thought – the one that deems the question silly – it’s clearly coming from the analytic – maybe read complex – part of my brain that wants to break everything down and attach qualifiers to everything it sees. That’s the pro-complex side in the debate talking. It deems not only that the world is complex, but, more importantly, that this is whole question is worthless and unfocused because we have to get back to work and figure more things out.

Nonetheless, this little debate has stayed with me for quite some time – almost in a nostalgic sense, like a pop song that you like when you’re young, and as you return to it throughout life it takes on new meanings. I’m not sure what’s fueling it. I think it’s a nagging feeling that life is pretty simple, but we just make things artificially complicated for ourselves. That’s the pro-simple side of the debate. Recently I’ve been erring towards the simple side. Maybe it’s because I need to think less and do more.



But as I think about it more, the problem seems to be that when you look into phenomena, you can either raise more questions or consolidate phenomena. On some level many of us are familiar with both of these outcomes, and at times they go hand-in-hand. The ability to raise more questions is what drives knowledge – it’s that section at the end of a research paper that states future directions for your research; more importantly, it’s that intuitive feeling that the more you learn, the more you discover you don’t know.

And yet we’ve all had that feeling where we solve a problem, life is better, and, well, that’s that.

Although if the drive for knowledge ever became complacent in its footsteps – as if it were to accomplish some new feat, and say to itself, “That’s just what I was looking for. We’ve made such great progress that I feel like I can take a break for a while and bask in the glory of my achievements” – well, then it would have stopped a long time ago.

At the same time, this endless drive forward produces a more fragmentary and disconnected picture of things, where further endeavors become more exacting and less relevant. We’re back at the complicated side of things.


The saving grace is that all of these bits of explanations will eventually be consolidated, somehow sometime. The individual study of such disconnected areas as the color of pigeons, speciation of dogs, beaver dam-building, and barnacles might leave one with an incoherent view of things, but it left Darwin with the puzzle pieces to propose evolution by means of natural selection. For every system of Ptolemaic complexity I presume there must be a Copernican revolution waiting on the other end to fix things. It’s just that the turnaround time can be slow, and that the whole thing only becomes obvious in retrospect.
Most importantly however different fields are more or less open to change, and this is where that nagging pro-simple feeling – that we’re making the world artificially complex – returns. On the one hand, the modern sub-division of scientific fields might actually reflect true scientific progress along with the real nature of the things. On the other hand, there may be artificial or economic reasons for keeping things so complicated. Afterall, the time-consuming credentials required to practice science or medicine inherently pushes those professions towards further specialization. This specialization might not be a bad thing, as per Adam Smith the modern economy is based on it, but it can become suspect when – unlike private or less regulated areas – the costs of entry are greater than the out-going benefits, creating diseconomies of scale like our health care system (or, more questionably, like science...I'll have to think on that one some more).

From another perspective, the pro-simple side of me keeps wondering what that Copernican revolution – or even just a bit of genuine scientific consolidation – would look like in various fields. Its benefits I’d think would have to outweigh the pressures pushing towards specialization.

-KJ

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Media (in order of appearance)

Photo: (1), (2), Metamorphosis series by MC Escher; (3) S'more Peeps!, 03/03/2008, by Rory Finnerman;

Video: (1)Music video, from The Beatles 56 Channel, of the song "We Can Work it Out" by The Beatles, released as a 1965 single. Sphere: Related Content

Healthcare: A Diseconomy of Scale

Economic recessions offer the benefit of making inefficiency more costly. During times of plenty, we can tolerate mediocre businesses or bad public policy; but during a recession they come under heavier scrutiny. This appears to be the case for medical care. The Washington Post reports that

For years a booming economy camouflaged the burden of medical debt. Patients borrowed against their homes or whipped out credit cards, including some specially designed to pay medical or dental bills. But falling house prices and tightening credit have eliminated those options for many.

It’s long been recognized that medical care in the US needs improvement, it’s just that when the economy was good we could afford its extra costs. Michael Moore’s documentary Sicko – a polemic rant about our lack of universal healthcare – was released in the summer of 2007, which was one of the decades’ most prosperous economic times. Only now, with money tight, are we forced to do something about it. An estimated 78 million baby boomer retirees are thought to further weigh down the future of medical care. However, I’ve always been baffled about the inability of our medical care system to take advantage of economies of scale.

What are economies of scale?

An economy of scale refers to the advantages a business gains from an enlarging consumer base. It’s a piece of economic jargon, but don’t let that throw you: Knowledge in modern times is heavily fragmented, so fields of study are constantly adopting new idiosyncratic jargon-terms, with the unfortunate result of often alienating outsiders and novices. Economy of scale however is one of the most valuable concepts in modern times – even outside of economics – because, by any scale of measurement, the world’s stage is getting larger. The future of truth and knowledge itself – epistemology – is likely to be interwoven with this principle of economy of scale.

The principle is pretty simple. At its heart is an exchange of capital for economic security. For instance, a full-time job that pays $10 an hour is often more valuable than a temp-job with erratic hours that pays $20 an hour. In accepting the full-time position, you’re trading the potential extra earnings of the temp-job for the economic security of knowing your salary for certain. Likewise, when you buy large quantities of goods, you’re guaranteeing a supplier economic security; suppliers often offer discounts in return. That’s why products at stores like Best Buy or Costco are inexpensive.

Ford’s Model T car is the classic example: By marketing the car towards the general population, Ford Motors drew in large quantities of capital, which made it cheaper for them to buy supplies and hire permanent workers. If Ford only bought enough supplies for 1 car and hired a temp to construct it, then the Model T would have been unaffordable for most people; on the other hand, if Ford mass produced the Model T and it turned out to be a flop, they’d have gone bankrupt.

The Model T was of course a hit and the investment payed off over many times. Inventors were playing around with cars long before Ford, but Ford’s ability to tap economies of scale made cars accessible to the population at large. The automobile went on to revolutionize our economy more than any other single invention. Likewise, Microsoft popularized the computer by marketing an operating system accessible to non-geeks.

Economies of scale have fueled such transformations, which would’ve been impossible without enough capital and without enough people. People – in both quantity and quality – are an economy’s best asset.



That’s why international trade sanitations against foreign nations are so harmful: When a nation is left to fend for itself it can’t take advantage of economies of scale. The harms of trade sanctions are escalated as the world population grows: If there are only half a billion people in the world, and a nation is cut off from four-fifths of them, then they’re not missing much; but if a nation is cut off from 5 billion people, then they’re missing much more.

A similar effect occurs when groups of people cut themselves off from the rest of the world in order to become “self-sufficient”. Self-sufficiency will always be difficult regardless of the world’s population, but as the world population expands, the drawbacks of self-sufficiency become more obvious. The Amish for instance weren’t so different from the original American settlers; but today their differences from mainstream America are magnified tremendously.

Self-sufficient groups such as hippie communes lack any economy of scale. In fact, you might even say that their isolation makes them anything but sufficient. It’s not just that they miss out on this or that technology, they also miss out on all the opportunity created by technology: The time saved through efficient transportation, or a PC’s computing power.

Likewise, protectionist international trade policies, or the push to make the US "independent" from foreign oil, isolate us from economies of scale. The costs of such policies often outweigh the benefits. And these costs extend beyond the extra money we're forced to pay; they retard progress as a whole.

Healthcare's "impending crisis"

…all of which is why a predication such as the the following would be a blessing to almost any industry except for medical care:

We face an impending crisis as the growing number of older patients, who are living longer with more complex health needs, increasingly outpaces the number of health care providers with the knowledge and skills to care for them capably. (CBS News, 04/2008, quoting John Rowe)

Say, for instance, we find out that, without a doubt, in 10 years, a quarter of all 18 year-olds will purchase a new MP3 player. As early as possible, Apple would plan to mass-produce more iPods at more competitive prices. As the leader of the industry, Apple’s stock would soar immediately. And as a direct result of the expected economy of scale, the price of iPods and other MP3 players would fall significantly.

But in healthcare an influx of customers is a crisis not a blessing. This maybe because health care is different: It’s a service industry, and it relies on insurance and risk. But at the same time, other service industries – such as IT support - have adapted to increasing demand. Now is in fact the best time in history for your computer to break down, since so many other people own computers. If there were only 500 other computers in the whole world, and yours broke down, you’d be SOL. Likewise for your car. Yet the point remains that health care lacks such a safety in numbers; on the contrary, it has a danger in numbers.

The problem is that advances in healthcare haven’t been applied to economies of scale. It’s like in the early 20th century, after the car was invented, but before it was mass-produced. I suspect that the difficulties in boosting health care through economies of scale are due structural inefficiencies rather than a lack of technological advancement.

Consider for instance the costs involved in becoming a doctor or in producing drugs, which include huge sums of both money and time. These costs are inevitably passed onto society at large. Additionally, anti-competitive practices such as social security and medical care leave no incentives for cost-cutting or increased efficiency. Some liberals might shiver at the prospect of business profiting from elders' health problems. But the costs of our present system are too great. Indeed, the current system benefits much more from high-cost solutions to medical problems than from low-cost solutions. Similar to trade sanctions or hippie communes, the flaws of poor healthcare policy only become more apparent as the world gets bigger.

And herein lies economies of scale’s epistemological import: As populations continue to grow, advancements in cost-effectiveness will become more important than other types of scientific or technological advancements. This is somewhat counterintuitive because we tend to think in categorical terms. Medical science seeks cures, not ways to save money. But with more people in the world, the benefits of less expensive treatments are more pronounced. It’s not just that they save lots of people lots of money, it’s that they free up lots of money for society to pursue other problems.

The debate on healthcare in America is backwards because it’s from the perspective of who should pay the bill, not how we can lower it. From the perspective of society at large, at any given moment, it doesn’t matter who pays off patients' debts – it still costs society the foregone alternatives of applying that capital elsewhere. In other words, the expensive cost of medical care will wreck havoc on society regardless of who foots the bill.

Thomas Sowell points out that modern times are unique because for the first time in history the poor and middle classes combined have more capital than the wealthy class. This is why economies of scale are important. And it’s why – if you measure time by the quantity and impact of significant events each year – time is exponentially speeding up. Unfortunately, sometimes we’re forced to advance by learning from bad policy, which can take years to start reaping rotten fruit. But properly harnessed, economies of scale will propel us into the future. We have the requisite capital, know-how, and gumption. Most importantly we have the people.

-KJ

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Media (in order of appearance)

Photo: (1) Crowds in Hong Kong, 12/22/2008, by LipJin Lee; (2) Costco, 12/16/2004, by Ryan Ozawa; (3) Old but not forgotten, 05/19/2008, chisdonia; (4) Life in Orange County, Indiana, 02/28/2007, by Cindy Seigle; (5) Ginza 銀座, 09/16/2006, by Nathan Duckworth; (6) Medical insignia; (7) faster than the speed of light, 12/28/2007, by Via Bulatao.

Music: Music video, 09/22/2008, from KERAKO's channel, of the song "TNT" by Tortoise from the 1998 album TNT. Sphere: Related Content