Society cannot avoid facing the trade-offs involved in producing medicines and medical devices such as implantable pacemakers and defibrillators. We want these products to be effective and safe. We also want them to be as inexpensive as possible and available to as many people as possible.
Moreover, we want continued technological advances with a steady stream of newer and better products coming out of the system. Yet, emphasizing one of these goals often has adverse effects on achieving the other ones.
These issues are important right now because drug and device safety is in the news. On Tuesday, three more deaths linked to defects in Guidant Corp.’s heart devices were disclosed. On Monday, a deadlocked jury led a judge to declare a mistrial in a lawsuit against Merck & Co. over Vioxx. And Pfizer announced a major new study to determine whether its pain reliever, Celebrex, does or does not have dangerous side effects.
Trade-offs always exist in producing any kind of good or service. Our lives are better than our parents’ because we have modern medical technology. Our children’s lives will be better than ours if development of such technology continues apace. Yet every dollar spent on unnecessarily high costs for drugs and medical devices is one that cannot be used to meet society’s other needs.
Some naive people see the issue in terms of good and evil rather than of trade-offs. Drug and device manufacturers should sell safe products, period. If unsafe products are sold, some say, it must be because some greedy executive put profits ahead of people. If only such executives saw the error of their ways, the problem would be solved. They think any added resources that are needed to ensure safety can come out of bloated profits, so no drug or device need cost more.
Some incorrectly assume there’s no trade-off between a manufacturer’s profitability and innovation. Government-funded research develops new technology that drug and device manufacturers appropriate for their own businesses. Lower profit margins don’t affect innovation in the least, they figure.
Life is not that simple. Producers of pacemakers and pain relievers respond to incentives just like the rest of us. While risks from unsafe or ineffective medical technology can be reduced, they can never be eliminated. At some point, the benefit to society of reducing such risk eventually is outweighed by the cost.
Some will object that cost should never be a consideration in medical treatment and that weighing costs and benefits puts a price on human life, an act that is inherently immoral.
But in their own lives and decision-making, people balance health and safety against other considerations — including time and money — on a daily basis. I know that the value of my own life is not zero. But neither is it infinite. The same is true for every other life.
Consider some drug that costs $25 per user per month with side effects that kill two out of every 1,000 users per month. If we could cut such deaths in half with only a $1 increase in monthly cost, everyone would think it a good idea.
But what if the death rate from side effects is two per 10 million users per month and the cost of halving this death rate means increasing the monthly cost from $25 to $250 per patient? What if such a price increase causes some people to stop taking the drug entirely? What if the risk is one per 100 million users and the mitigation cost pushes the price to $1,000?
This example is not intended to show actual costs of risk reduction for the industry. It’s merely to show that if one attempts to reduce the risk of harm to zero, at some point nearly everyone will agree that the cost exceeds the benefit.
Happily, history shows that we can have quite safe drugs and devices at relatively reasonable costs. Every day, people use life-saving drugs or have pacemakers and defibrillators implanted. Deaths caused by these products, even though often highly publicized, are quite rare. And innovation continues apace even though testing and clinical trials cost billions of dollars.
It is not clear, however, that we are at some optimum point in the balance between risk and cost. History shows that free markets, without any government action, will not necessarily reach such an optimum. Markets fail in this case because of information problems. The cost of securing knowledge about the risks of drugs or devices is high, and companies that voluntarily invest in such research will have higher costs — and lower sales — than those who do not.
Most economists accept that government action is needed. But just what form such government action should take is not clear. The regulatory approach we have adopted has many successes. But costs are high, and some problems — most recently Vioxx and Guidant heart devices — still slip through the net.
Could we do better? Yes, we probably could. But that is the subject for another column.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.