Tuesday, March 20, 2012

New England Journal at 200, and Disruptive vs. Accretive Innovation

Today’s Managing Health Care Costs Indicator is 200

The New England Journal is celebrating its 200th birthday, and the New York Times  has a touching article about two former editors, Arnold Relman and Marcia Angell, who have been tireless advocates against for-profit health care, and have become a couple late in life.

From the Times:

In [Relman’s] ideal health care system, doctors would be salaried and organized into large multispecialty group practices similar to the Mayo Clinic and other private clinics; care would be delivered by a single-payer nonprofit system, financed by the taxpayers. “You’d save an enormous amount of money,” he said, much of it by eliminating the private insurance industry, “a parasite on the health care system.”

There is more nuance to the role of profit in health care than Relman and Angell would allow.   The pharmaceutical industry might have many profiteers – and the return on capital for the pharmas has historically been high.  Further, it often seems that the pharmaceutical industry spends more energy on marketing “me too” drugs and promoting new medications that are much more expensive but only a tiny bit more effective than existing generics.  BUT – and it’s a big but – most of the major improvements in medical care in my professional lifetime have come from pharmas. This includes highly active antiretroviral therapy (HAART) for HIV, gleevec for chronic myelocytic leukemia, and drugs that aim at specific genetic targets for breast and lung cancer.    For-profit companies have led the way in accretive innovation – the innovation that layers on new technology or new approaches to increase quality (often just a little), and also to increase revenue and cost (often a lot).

Can for-profit companies play a meaningful role in disruptive innovation, where there are large increases in value – often associated with small initial sacrifices in quality?  I’d suggest the answer is unequivocally “yes,” as long as the market will reward disruptive innovation.   Toshiba (a for-profit company) created the MRI machine that profitably performs $100 MRI scans  for the Japanese market where price regulation didn’t allow for $1000 scans.  General Electric   has developed in its labs (in India) inexpensive PC-based EKG machines and a low-cost hand-held cardiac ultrasound.   Ironically, of course, in the US  GE would like to position the handheld cardiac ultrasound to replace the stethoscope (thus increasing cost) rather than the fixed ultrasound.  In the US, where higher payment is possible for improvements in quality that often have little or no clinical value, even potentially disruptive innovation is transformed into accretive innovation. See this post  for more ruminations on this example.  

I’m not convinced that the profit status of a company alone determines how effective it will be at delivering value in health care.   There are plenty of high-priced not-for-profit hospital systems and there are plenty of high value physician-owned offices.   I do think that how the company is paid – including the price-sensitivity of purchasers and public knowledge of quality – plays a substantial role in determining whether companies increase value, or merely increase revenue.    I think we need to focus on effective payment reform to increase value in health care, and then encourage competition of both for-profits and not-for-profits.

I blogged about Arnold Relman’s complaints about the Affordable Care Act last fall.

There’s more about the  NEJM’s 200th anniversary.  For the skeptical, check out On the Media’s interview with Jeffrey Drazen, the current editor, who talks about the many nostrums that were at one time promoted in its pages.  The Journal at one point supported eugenics, pathologized homosexuality, and editorialized against women in medicine. It was published for almost a half century before the germ theory of disease became popular.  Drazen notes

The key thing is to recognize you made a mistake and try to make progress. 

The New England Journal has also been a market leader in making its articles available for no cost to those logging in from developing countries, and making articles with important clinical or public policy implications free immediately to all.  Happy Birthday.    

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