Rethinking Health Policy in America
Dana Goldman joins Richard K. Green to provide a look into how the economics of health care contribute to decisions about health policy and the strides that medicine is still making to close gaps in access to care.
Pulling from a variety of case studies, Dean Goldman shows why markets don’t always work in providing the most cost-efficient care, the economic balance between encouraging innovators and ensuring affordability, and the different ways policymakers and patients determine the value of health. Green and Goldman discuss the evolution of treatments for end-of-life care and the risk of relying solely on philanthropy or intrinsically motivated actors to drive innovation. Goldman also provides potential alternatives to the current systems to increase healthcare access and keep medical science moving forward.
Richard Green: Okay, good morning, everybody. I'm Richard Green, I'm Director of the USC Lusk Center for Real Estate and it's my pleasure to welcome you back to Lusk Perspectives. As you know I think we did our first Lusk Perspectives, it was almost exactly two years and one month ago at the beginning of COVID and our very first Lusk Perspectives was by a wonderful colleague near Niraj Sud, who talked about the importance of using testing in order to live with COVID or deal with COVID. And of course it seems like forever has passed since then, but something that continues to be relevant to people who care about real estate is the state of public health and healthcare, because so much of how we behave in the real estate market relates to that's happening out there with respect to the pandemic, now, the endemic, I suppose. And so we like to continue to bring people on from our great resource here at USC, which is the Schaeffer Center for Health Policy which was and continues to be directed by the Dean of the Price School of Public Policy, Dana Goldman. I'm pleased to say that Dana's been a friend of mine for more than 10 years now. I know it's more than 10, 'cause the Schaeffer Center is just a little over 10 years older. No, your celebration was before COVID so it's at least 12 years old.
Dana Goldman: 12 Years, yeah.
Richard Green: Yeah and so even though he is now my boss, so I have to say it's my friend. I promise you, he was my friend before he was my boss and continues to be. So he also took the Schaeffer Center from something that didn't exist to something that is considered by many people the gold standard in health policy research for the United States. Administrations consult with the Schaeffer Center and with Dana on how to implement health policy well, and so we could have no one better to talk with us about how health policy has changed over the course of the last two years. And so Dana, thank you very much for being with us today.
Dana Goldman: Thank you and I will share some slides and hopefully people will interrupt with questions.
Richard Green: Yeah, oh and by the way, thank you. So I'm a little out of practice with this. Is if you have questions, please put them in the Q&A not the chat and I will make sure that you are recognized at an appropriate point, but yes, feel free to ask any.
Dana Goldman: Feel free to interrupt me, Richard, I'm not paying attention to it, but if there are questions.
Richard Green: Yep, yep.
Dana Goldman: We get funding from a ton of sources. But what I wanna talk about is how some simple lessons that those of you who took Econ 101 might understand and how things go a bit awry when we start talking about healthcare and to give an example of what I'm talking about, what you see here is the median annual cost of treating multiple sclerosis. And you have two types of drugs. You have disease modifying therapies and then TNF inhibitors. And what we usually expect is that, and what's happening is a bunch of drugs are entering the market in this space. And what you would think is that as new entrance come, there'd be competition and that would lower price. But what you see here is the annual costs are going up and the cost of treatment is rising. And this seems very perverse to those of us who studied economics and what is going on here. The reality is sometimes markets they don't always work and those of you at our school who studied climate change know about this. I told Richard, I would pay homage to Milton Friedman. Milton Friedman asked two questions. First is, who is paying and the second is, who benefits. And what he said was if you're buying something for yourself, then you economize but you wanna seek the highest value. So I wanna buy a nice car for myself but pay the lowest price. If I'm buying something for others, I certainly wanna pay the lowest price for that, but I may not buy them the nicest car. Those of us who've given gifts understand this but it even gets worse in some cases you can actually end up in a case where people who benefit are others and the people who are paying are others. And in that case you don't care about cost and you don't really seek the highest value. And Milton Friedman sum this up by saying, "Nobody spends somebody else's money as wisely as he spends his own," but that's actually what's going on in healthcare. Patients and the doctors who are telling patients what to do are spending other people's money. And so that means they're gonna seek the highest value, they want good care, but they're not gonna economize on the costs. And the entire mechanism of healthcare has been built around tools to control use. And so we've seen things like cost sharing, formularies, utilization management, HMOs. And if we do health policy right we're gonna ration this stuff more effectively. We'll minimize costs for a given level of health and that'll make more money available for other goods. And we should be spending as long as we get sufficient value. And so I wanna go through some health policy lessons, and I wanna start with measuring the right price because I showed you that slide at the beginning and I wanna switch from multiple sclerosis to cancer. Cancer care for many years would get a lot of attention. This was an article in the New York Times a while back, maybe 10 years ago. But doctors denounced cancer drug prices of 100,000 a year and the argument went, cancer's expensive, the care doesn't improve mortality much. And even aggressively treating cancer can be very punishing for people. And if you know someone who's gone through chemotherapy, you understand that. So an example of this is bevacizumab, which is also has a brand name of Avastin and to treat colorectal cancer. And those of us who work in health policy, we see slides like this all the time, it's a survival curve. And what you see here is, this is from the New England Journal of Medicine, one of the premier journals. And what you see is that those who got standard of care plus bevacizumab survived longer than those who got a placebo. But if you look at the data here progression free survival is measured in months. And so the median survival gain here was four months and this costs about $60,000. And so the way a health economist might think about the price here is let's look at the price for an improvement in mortality. So take the $60,000, divide it by a third of a year of life. And that ends up with a price of $180,000 per life year. And if you look at what happens in other countries, UK regulators looked at these data and they said, we're not gonna cover Avastin. And their calculation was that you get a third of a year and they value a life year at $60,000, or they did at the time in the UK. So the benefits that come from Avastin are only worth $20,000 to society, the cost was 60,000. So for every pound that they were spending, they'd only get a third back. And so they did not recommend Avastin. This created an uproar in the UK and actually they ended up coming up with exceptions through a cancer fund to find way and so the question is what went wrong? And part of it is where does this value of a life year come from? And I think to economists and I think a lot of people on this call certainly understand some of these principles, the way we think about value is we usually put a demand curve. And I'm not gonna explain this too much, except to say that when I did my early work on things like medicine for hypertension, medicine for asthma, medicine for hay fever, what you found is if you charge people $5 more, they would take less of it. When we started looking at cancer, what we saw was that actually, and part of it you've seen the headlines, people are willing to go into bankruptcy to pay for their medical care. To an economist what that says is that demand curves are extremely inelastic, no matter how much you charge people they'll do what they can to pay for it. And that suggests that there's an enormous amount of value associated with getting these treatments. And so actually the irony of all this is that that also suggests from a health policy perspective, the most important thing you could do to generate value to society is to generously cover things like these. And so when we looked at this and estimated some of these demand curves, we knew people were paying different prices. We were able to see that the willingness to pay for getting a year of cancer survival was about $282,000. So think about that $60,000, ignore some of these other numbers on this chart, but we're valuing a life year. And the point of all this is that when we think about the price it's not the price of the treatment that we care about, it's the price of health. And so when I go into the doctor's office, I don't really care what the cost of the visit is. What I care about is the potential health gains that I'm gonna get from this. And these types of measures, the value of a quality adjusted life year or a year of survival are really getting at the price of health and it's the right metric to be working in. But we have to make sure that our policy numbers are reflecting that, and we've done some work at the Schaeffer Center, we've talked about things like the price of health and quality adjusted life years. We also worry about other costs, but the there's a whole bunch of other things that we're now realizing generate value. And I'll just point to one on this chart. And a lot of this work is done by Dirius Lakuwala who's here at USC. Like insurance value or fear of contagion, think of how much we're willing to pay right now to stockpile potential vaccines that we have no need for right now. That has tremendous value but a lot of the models that health economists have developed don't take into account those types of value. And I wanna show you something coming back to this cancer idea. So this is a study again, another survival curve from the New England Journal of Medicine for metastatic skin cancer. And here is the control group. And you can see that everyone in the control group had died within four years. And that's why you should always get checked for skin cancer, metastatic melanoma. Once it becomes metastatic, it's very dangerous. And what happened is they came up with this new therapy called ipilumumab and they looked at it and this is what the change, the survival curve looked like for people who got the new therapy and the change in median survival was, remember I gave you that colorectal cancer example, here's one that sits 3.6 months. And this also costs about $100,000. And this was in the New York Times as well. And there was an article saying it's $100,000 for a 3.6 month increase in survival. But it turns out when you talk to patients, what you find is that what happened is we took a disease that for sure killed everyone in four years. And we gave people a one in five chance that they could survive four years. And it turns out this is a durable therapy. So think about the public perception. There's one example where you say to people, it's $100,000 for a median survival of 3.6 months, which doesn't seem worth it. But think about the same drug you could also say it's $100,000 for a one in five chance that you're gonna get cured of a deadly cancer. And as a rich society, do we want one of those and not the other? And it turns out when we talk to of patients, they actually wanna roll the dice and they value this chance at a durable cure. And the challenge becomes maybe we should just be paying in the cases where the therapy works and I'll come back to that later in my talk. So the policy lessons here are that we really need to think about the real price here that we wanna measure is the price of health, but doing that is really complicated. And I'll get into some of these other issues about value based payment now. The other lesson here and are there any questions at this point or has everyone tuned out? Okay.
Richard Green: I think people are riveted.
Dana Goldman: Okay, the other question is let's talk, so I talked a little bit about what's going on the demand side. Let's talk about the supply side. And on the supply side, there is this real dilemma between innovation and access. So in the short run if I develop a drug, think of it as a COVID vaccine if you want, we want as many people to get that as possible. And so any markup is gonna, if the demand curve is at all elastic, is gonna limit access. And so the right thing is we should set the price at the cost of production and the cost of production is pretty close to zero. So we should basically be giving them away. And actually that's what the government did. They stepped in and did that. The problem with that is that in the long run we want innovators to be there to develop new treatments. And we know this is a risky and inherent process and that's why we have patents and all these other systems. And they're actually enshrined in our constitution. That's where the patents are in the US constitution. And what this sets up is a challenge between patent rights in the long-term and patient rights in the short-term, and government needs to step in to do this. But part of the problem is that people you'd think that is an obvious trade off, but even economists get confused by this. And I just wanna review some of the evidence quickly on why it's problematic. If you look at mortality data worldwide, what you see is that tuberculosis kills about as many people as Alzheimer's disease. Okay and actually tuberculosis is killing people at younger ages. And so if you did a simple calculus of life years, you'd say there could be nothing. It would be much more important for us to be investing in tuberculosis cures rather than Alzheimer's. But when you break it down by countries, you look at lower and middle income countries, tuberculosis and diarrhea are really burdensome there, those don't even make the list on high income countries. Whereas Alzheimer's is here in high income countries and it doesn't make the list for low income countries. So Alzheimer's is a disease of rich countries. And now let's look at the R&D. If you looked at the number of trials that were going on for Alzheimer's versus tuberculosis, what you saw is that there's a lot more work in Alzheimer's. And now some of this, this was 2017. Now some of this is bearing fruit. We have our first FDA approved treatment for disease modifying therapy controversially just got approved, but there's a lot of innovation that's coming down. And actually USC is probably the leading academic clinical trial center for studying Alzheimer's. And so you might ask, who's doing research on TV and actually a lot of this is supported philanthropically. And so the question is, do we wanna rely on people like Bill Gates to invest in cures for tuberculosis or can we do better? So clearly they're responding to markets here. If you look at the Orphan Drug Act, the Orphan Drug Act was designed to encourage research, encourage product development for rare diseases. And they had a definition of rare diseases. And what they said is they would give market exclusivity if you found a way to treat a rare disease, and you didn't need a patent for this, you would get. So if I figure out how aspirin would treat a rare disease, I would get an exclusive right for five years to market that. And when they passed this in '82, what you see, Wes Yin has done some really interesting work. What you see is the research took off in rare disease. Now the problem has become that like in many policy changes, a lot of diseases have become rare because of genetic typing and phenotyping and genotyping. And so people worry that this is being exploited. And we can talk about that. Another example is that we passed a Part D and Niraj who Richard mentioned earlier, did some work and showed that when we passed Part D which is the drug benefit for Medicare, suddenly the elderly got prescription drug coverage, lo and behold, we see something that looks like this, where in more are innovation for Alzheimer's. Now there's a time series issue associated with this, but you take something like contraceptives, which don't affect the elderly. We didn't see a big innovation spike around the time of passage of the prescription drug benefit. And then my early work and how I got involved with this is that I worked in HIV and in the mid '90s, I don't know if anyone's watching that new Lakers documentary on HBO about the early days of the Lakers when Magic Johnson joined. I came to LA around the time Magic Johnson announced that he had HIV and I fully expected that was the last I would see of Magic Johnson. But what happened is around the time he retired, we also developed highly active antiretroviral therapy. And there were a lot of protests over the high price of HAART, but Magic is still here, he's around, he's doing well, he owns the Dodgers now, ironically, and it changed people's lives. And so as a drug what you see is, again, I'm gonna come back to survival curves. This is what survival looked like in 1984. By 1994, now this is prior to the introduction of HAART. The survival curve had already moved out. And this is one of the mistakes I think we make in health policy is that there were some drugs that got criticized like AZT and others. We actually were doing better treating patients, and this is a substantial improvement. And we viewed it as a failure 'cause we couldn't cure the disease. Now what happened is with the introduction of HAART, this is what happened to the survival curve. And so if you look at this, this is probably one of the greatest technological innovations ever invented. It extended life 15 years.
Richard Green: So Dana, so what does that survival curve look like relative to the population survival curve?
Dana Goldman: Well, I think you can see it right here. I think the average age that someone was getting life expectancy at that time was probably around 30, it was a disease at that time, that was affecting a younger homosexual population and eventually moved into an IV drug using population. But life expectancy was probably around 40 years at that time. And essentially it was going from 19 to 34. And Magic has born that out. And for someone who was diagnosed with AIDS, they expected them to die in three years. And now it's by 2000, it was 17. So really dramatic expansion and just do the math. If you treat someone they get at 15 years of life, if you value that year of life at $100,000 per life year, let's say, that's $15 million and health economists are good at math like that, we can multiply things. And so if you do that math, $15 million times all the people who are HIV positive, what you get is that there was about the development of these drugs generated about 1.4 trillion in health benefits for society. Now this is again the issue that where the difference between where measuring prices matters, because what people were saying is how can we profit by? And we're seeing this in COVID by the way, spending 100 billion on COVID vaccines. And there's literally trillions in health benefits, but people are upset now about the spending, but with HIV drugs, 63 billion seemed outrageous. If you look at it from an innovators perspective, about 5% of the value creation was returned and those of us who studied surplus appropriation, there's producer surplus and consumer surplus. And that's what you're seeing here. And consumer surplus is about 1 trillion and producer surplus is about 63 billion, 'cause again, the costs are close to zero once you've developed it. But how you frame it really matters. And anyway, so that was the lesson for HIV. So now let's talk a little bit about some of the more recent policies. So I wanna come back to cancer. Actually I wanna say one more thing about HIV. So Magic Johnson gets diagnosed with HIV. Prior to the introduction of these drugs, the price a year of life saved was infinite because if you don't have the innovation, the price, it doesn't matter how rich you are, there's nothing you can do. And so from a health economist perspective this went from the introduction of these drugs, took us from an infinite price per life year to about 15,000 per life year. So from my perspective studying this, this was the greatest sale in history literally, and we should be spending as much as possible to get people access. From a policy makers budgetary perspective, they said where we were spending nothing on drugs for HIV and suddenly they cost $15,000 a year. So that looked like a price increase. And the difference is policymakers were responding to the wrong prices in my view. In cancer were starting to measure the right price, price per life year gained. And again, this comes back to people we're studying this and saying, how are launch prices going up if we're getting more compounds? There's something wrong with the market. Well, Alice Chen and I started looking at this-
Richard Green: Excuse me, Dana, we have a question from Maisha, I'll just read it. "The cost of drugs can determine access or a lack thereof. Health outcomes from Magic Johnson are different from others without access to adequate healthcare."
Dana Goldman: Yeah, so what I'm going to say about this is that the right answer is what we did during COVID, which is reward the innovators but make them free. And that's what insurance does. And at the end of this, what I'm gonna argue is that we want the insurance company to generously pay for things that work. So I totally agree, that's that innovation access dilemma. But the right is not to extract it all out of the innovator. So I think-
Richard Green: So Dana, could I ask a question about extracting it from the innovator?
Dana Goldman: Yeah.
Richard Green: So understanding that R&D is high risk, but what return on investment do the pharmaceutical companies get? So you think about like a venture capitalist, they're looking for a 30% return because they're very risky projects that they're taking on.
Dana Goldman: Yeah, so I've looked at this in terms of stock market performance and actually the biotech sector has not returned excessive returns. It was actually, that was true from 1960 to 1990, but it's not true anymore. And actually the best performing stocks in the healthcare sector and the place where the return on capital has been highest, been in the PBMs and other people who siphon off this innovation scheme. So if you bought Express Scripts stock, which now controls the three top pharmacy benefit managers control more than 85% of the market. And the FDC is starting to look at them. They figured out how to siphon off some of the money that used to go back to the innovators and we hope would go back into innovation and it does. That's what the data show. So actually there are no excessive returns in the pharmaceutical anymore. And some people have argued they're actually lower once you adjust for risk, that's really-
Richard Green: Well, so somebody run a basket of pharmaceuticals.
Dana Goldman: Exactly, if you run it from the old days, you would say this was excessive returns. If you run it now you might go the other way, if anything. But I wanna come back, so coming back to the question that was asked which is if you charge high prices, Magic can it but poor people can't but that's why we have insurance. And the question is with COVID is the right strategy to say to Pfizer, "Thank you, now we're gonna take your IP and we own it because we wanna make sure the world gets it. It's very noble and fantastic." The problem with that at is without a Pfizer you don't get a vaccine. And so what happens with the next pandemic? And we have to be very careful because the price of treating the next pandemic right now is infinite. And do we want a profitable company around that's willing to engage in... And if you look, they did this in, you might say the government could step in and do it. But even in the UK, Oxford had to partner with AstraZeneca to figure, that's a National Health System and they were behind Pfizer and they were behind Moderna in getting out their vaccine and they still had the partner. So I do think there is an important, the answer to that question is really should a third party, should we have generous insurance? And should we reward the innovators and how? But I wanna come back to this because this says people are exploiting and they're pricing per life year gained. But it turns out this is median survival. Remember we looked at median and we said that's sometimes skewed, it's not what patients want. So if you just use, here's the price of a life year for newly launched cancer drugs using the median. And here's what it looks like using the mean. And it's about 200,000 per life year. And think back to what I said before where our data suggests about 250 to 300 is a reasonable value of a life year gain. That's the price of health for treating cancer and that's what people seem to want. And in fact the trend has continued over time. And so did this work with Alice Chen who's in the Price School. And so it's some ways we focus a lot in policy on launch price, but it's really missing some important dynamics. For the most successful drugs, this gets to Richard's question. So I answered in a stock market way, but another way to say it is in the case of HIV, it doesn't appear that 8% of the value went to innovators. That makes sense but that certainly seems like a good deal for everyone. They made 63 billion and we got a trillion in healthcare benefits. But the converse is also true that some drugs are being priced to capture all the value. And probably the most egregious example is Pharma Bro, Martin Shkreli who took generic, increased the price, it was a generic drug, he figured out that there was limited supply, he bumped up the price, I think 10,000 fold and basically extracted all the rents. And now he's in jail and has become a poster child in this instance. So there's a point where society is not willing to do this, but I think the mistake people make is to think that this story about the Pharma Bro is actually the Pfizer story. And by the way, we don't get supported by Pfizer at the Schaeffer Center. So what do we do about this? And I think what I wanna say is and Richard, before we got on the call, said something about Jim Perturb asking him, is this all worth it? And what I wanna point out is that if you look at, again, survival curves, which are one of the best metrics for how we're doing, survival is improving. It turns up because of COVID actually but age standardized death rates were going down for a long time. And part of this would from cardiovascular disease. Deaths from cancer were starting to make progress too, but in heart disease especially, we had a lot of innovation and for both men and women, it made a big difference.
Richard Green: And excuse me, Dana, how much of that is statins.
Dana Goldman: Again, you've got my next slide.
Richard Green: Oops, sorry. Oops.
Dana Goldman: So it turns out it's actually statins and a few other anti-hypertensives and some other classes, but cholesterol lowering, thank you, Richard, I love that. That's the third time that's happened on this topic.
Richard Green: My father is a retired cardiologist, so.
Dana Goldman: Yeah, so what happens with cholesterol is this is an artery wall and you can see there's accumulation of lipids or fat, and you can see how it could easily block the artery and lead to adverse event, a heart attack in particular. And what statins came along is they figured out how to inhibit an enzyme that produces LDL, which is low density lipoproteins, which is helping the fat move around in the body. And so statins really had quite a benefit. We estimated 40,000, fewer deaths, 80,000 fewer hospitalizations. And again, coming back to this HIV example, about a trillion in value with 25% of it flowing to the manufacturers. So more than the case of HIV, partially reflecting the older population. But now generic, these are generic. But what I wanna say is we're no longer making progress in addressing heart failure, for example, which is one of the, not the big risk from heart disease, but certainly an important one. And especially in populations that are underserved by the medical system. And if you look a lot of people are still, this is people who have high cholesterol as estimated by the CDC through their NHENE survey. So there's probably about 10 million people, sorry, there's probably about, these are tough colors. There's probably about 3 million people who are being treated and at goal, but there's probably about 8 million people who aren't being treated for cholesterol and probably about 10 million who are being treated but still aren't reaching a cholesterol goal. So we feel like we can pat ourselves on the back for statins, but here's a technology that's 30 years old and we're still not getting access. So along comes a new class of drugs, PCSK9 inhibitors. And these are the next generation statins, people don't like this, but I think of them as super statins. And there was a lot of press that these were gonna break the bank. and Gina Kolada wrote a piece in the New York Times. These cholesterol reducers may save lives so why aren't heart patients getting them? And I'm not gonna go through all this. What I'm gonna say about this is we modeled this out, but the problem here is one of contracting that if these cost about $8,000 a year and the payers don't get the gains though. So if I have an annual insurance contract and I'm gonna save money down the road for Medicare, then what's the point if in some of these health plans the average tenure in the plan is like four years. And so why would I pay for someone to take these expensive cholesterol lowering medications and we can talk about solutions. I don't wanna get into this. I wrote something 10 years ago saying we should have a subscription model. This whole technology looks a lot more like software than it does healthcare. And if you think about software, you pay a license fee and you get to consume as much as you want and I call that the Netflix model. And that may be the right model for pharmaceuticals, to be honest. So you reward the content creator for creating it, but you don't have a per use fee. And so some of these things can be done. So I want to time check Richard, 'cause I don't know, it's been about 50 minutes I think.
Richard Green: Yeah, we have about 15 minutes left and I know I have one or two questions and I'm hoping the audience does too, but-
Dana Goldman: Okay, I'm gonna say something just very quickly, which is, some people believe that the right answer is more clinical trials here. And I just wanna point out that if you look at the way the world works, suppose there are two different treatments, a blue pill and a red pill, but they're the different treatments. They're not the different colored pills. Some people are over here, and this is efficacy. Some people are over here and they prefer the blue pill and some people are over here and they respond to the red pill. But you can see there are more people below the line than above the line. If I go and do a clinical trial, what I'm gonna find is that the blue pill is better. And so what we've been doing in healthcare is we've been saying, "You know what? What we're gonna do is have insurance pay for the blue pill, but not the red pill." But what that means is for this group here in the minority who don't respond to the blue pill well, there's gonna be a welfare loss given by this area here. And we have to be very careful when we come up with health policy that we're allowing ourselves to differentiate the people who are gonna respond better to these things. And actually we did some work in schizophrenia and we found, but I'm gonna stop the share here. We did some work in schizophrenia and we found that this would be a disastrous policy to just make everyone take one type of pill because there's more that needs to be done and I'll stop there.
Richard Green: Well, thank you, gosh, I learned so much in such a short time, I really appreciate it. Let me start with a really big picture question. So one of the big picture questions I had is, is Pfizer making too much money? And you're basically saying no, they're not, they're making a reasonable return in light of their investment. Okay, we spend 20% of our GDP on healthcare according to CMS. I mean, is that the right amount? Are we spending too much? We spend a lot more than other countries and I know you've you and your colleagues have done work on why we spend more than other countries, but is there an adjustment we need to make or are we just fine?
Dana Goldman: Yeah, so what I wanna think, these discussions really need to distinguish average from marginal. So go back to when we are spending 10% of GDP on healthcare, go back 20 years. And if I said to you, would you rather have the medicine of 1990s at 1990s prices or would you rather have today's medicine at today's prices? Most people would prefer the latter, that is on average we are better off where we are. But there is no doubt we waste a lot of money at the margin. So the question is, how do you cut the wasteful spending? But don't say, we could roll back the clock, say we are not gonna pay for anything that wasn't developed in the 1990s. And I often wondered what if someone offered that cheap insurance policy? Well, it turns out patients don't want that. They actually want the latest technology. And so the question is how do you control access to it? And I think value-based pricing in some other ways. If we price on the basis of health gains and we measure them and do a good job, we actually can get there. But there's a lot of stuff we waste money on. So a good example of this is intensive care units. If the intensive care unit we're a drug, people go in, it costs half a million dollars or more and only 30% make it out. So 70% die and it costs half a million dollars, no drug would ever, that placebo would not make it past even if everyone else died. And yet we put people in the intensive care unit all the time. But the question is, does anyone wanna say, let's get rid of intensive care units? No, what they wanna say is the let's be more prudent in how at the margin we treat end of life care.
Richard Green: Well, and so I was gonna ask about that. So this is a politically problematic thing is end of life care. And so you have people in their 90s being offered chemotherapy.
Dana Goldman: Yep.
Richard Green: Does that make any sense from a health policy standpoint or for that matter a humane standpoint because chemotherapy makes people miserable. But if the answer is no, how do you not appear cruel and rationing based on age, if you say, you know what? We're not gonna give people who are 93 years old with Alzheimer's chemotherapy. And by the way, we will give them the palliative care necessary for them not to suffer more pain than is necessary under the circumstances.
Dana Goldman: You threw a monkey wrench by putting Alzheimer's in there 'cause of the cognitive impairment. But what I will say is when I started in this field, they used to say, should we treat heart attacks for people who are 85 years old? And they said, no, obviously we shouldn't. And now we do, it would be seen as a violation of the Hippocratic oath. The reality is that people are living longer and want high quality of life. And when you're a rich society, that's what you want. So we do knee replacement at 65, that doesn't sound problematic. At some point people were saying, why would you replace a knee? People have arthritis of their joints and they just get old. So I think as a wealthy society, why do we work so hard and why do we wanna be a wealthy society? Part of the reason is we wanna enjoy the fruits of our labors and we wanna live longer and happier and more wholesome lives. The question you're asking is at what point is the quality of life? The real challenge is the quality of life is not so good and we can't do anything about it and how do we adjust that? That is a harder question, but I think Zeke Emanuel who advised Obama and was one of the architects of the ACA wrote a piece in the Atlantic once saying why I don't wanna live past age 75? Well, Zeke is approaching age 75, I see him all the time. He's enormously productive and I'd love to ask him, why did you write that piece? And so I think he-
Richard Green: I think he wrote it 'cause running something with a headline like that will get you in the Atlantic.
Dana Goldman: Well, he's good at that and he's a bioethicist and he was asking the right questions. But when you talk to him it is relatively, this affects policy in very fundamental ways. So social security, when it was, you go back to the early 20th century, when we came up with Social Security, very few people were living past age 65, which was the traditional normal retirement age. And this was really a catastrophic pension plan if you will, for people who just outlived their productive lives. What happened over time is people were living longer and our policy didn't adjust. I think the important point is our policy has to adjust for these demographic shifts, but it doesn't need to be in the ways. And we just have to be better about how we ask the questions and end of life care is always gonna be there, it's just at what age and we're gonna face it.
Richard Green: So there's a question from the audience, anonymous attendee, and I'm gonna ask the question as written but also rephrase it a little bit with apologies to the attendees. "Just wondering if we should find innovators motivated by intrinsic rewards as opposed to profit." And I guess the way I would rephrase that a little bit is we do have a history of government innovating, is like NASA is clearly a very innovative agency and I'm guessing NASA, well, I know NASA engineers are not paid more than, I don't know, 150,000 a year, but whatever the top of the civil service salary scale is at the moment, maybe it's 180. I don't know, but it's certainly not, it's comfortable, it's not something that enriches anyone. So should it be that we are relying on people motivated by income to do innovation?
Dana Goldman: Yeah, so I think what happened, there are altruistic innovators. People work at NIH, they're foregoing profits, our students are dedicated to public service. Bill Gates is investing his wealth in trying to find cures. He is doing well though. And so innovators are motivated by altruism, but what you find is you under provision that innovation if you rely on philanthropy. And so my point is we've got these diseases like Alzheimer's, tuberculosis is a perfect example. There is no reason why we can't get rid of tuberculosis. It would do an enormous amount of good and nothing would be better for the world than if Americans died of tuberculosis. And COVID is a good example. The fact that COVID affected Americans, meant the rest of the world benefited because a rich country that could afford the innovation is doing it. But if you look at the data on NIH investment and private investment, what you find is they are compliments not substitutes. And I'll just tell you that you go to NIH and I've been an NIH fund investigator for years, I know a lot of key scientists in this area. And they wanna discover the basic science that gets published in top scientific journals and could win them a Nobel Prize. And then that's when the hard part begins because someone has to actually do the clinical trials, go through development, figure out how to price, market it and do all these things. And I can tell you that the government is terrible at that. If you look at the government, how it was allocating, the companies that developed monoclonal antibodies to treat COVID gave them to the US government to distribute. If you look at how those were... And we're gonna hear this story soon, if you look at how they were allocated, people were dying and not getting access to these therapies. And we had a strategy and actually they were getting unused. Meanwhile people are dying, why weren't people getting... And so relying on the government to provision, government and altruism to distribute what is really valuable innovation in my view would be a big mistake.
Richard Green: So we have two more questions and we have four more minutes. I'm gonna just combine them and take what you want is from John Loper. "Has there been research on the cost that is added to the US healthcare system by having only three or four middlemen companies control a large portion of the drug market?" And then from Azaria Kabedi, I hope I got that more or less right. "Can you go into detail about the different options for the distribution of drugs. You mentioned what you call the Netflix options, where patients pay a subscription for drugs, what are other options, if any? Are there that serve both the enterprises producing them and the underserved demographics heavily in need of those products?"
Dana Goldman: Yeah, I can answer John's question, John we have a report on this and it turns out that we looked at the pharmaceutical supply chain, it got a lot of attention and actually the FTC is looking into this as well. It turns out that on every $100 spent on drugs, about $50 of that goes back to the manufacturers and the rest of it gets lost in the supply chain. So the wholesaler, the insurance company, the pharmacy, et cetera, and that share has gone up, not down. That is sorry to say, it used to be the innovator got about $65, now they get about 50. So the rents that are being taken out and Amazon has looked at this market and they're actively looking at it and saying this is a very profitable place for us to be, but it's very highly regulated and difficult to enter. And it's an active area for the FTC. On the second question, what are the other models? I'll just say that take the example of the metastatic melanoma, where 20% of the patients got cured, but 80% die. If I go into the Apple store and I buy an iPad and it dies after a year, I can get my money back. Maybe not, but if it doesn't work, I don't have to pay. And so the question is, could we charge more for the 20% who just got an incredible surplus? They're gonna live many more years and not charge if the drug doesn't work. And so moving towards value based contracts or subscription models make a lot of sense. And the right people to do that are insurance companies. Now you raise the question, everyone raises the question of access. I just wanna point out that all of this stuff should be free if it works, in my view, but we should be paying collectively as a society through our insurance companies to the innovators for providing that service. And that that's what insurance does. And so if you wanna insure access, let the insurance companies handle it and make this a negotiation. And Richard is right to ask the question, where is the line? How much of the value should go to the innovators? And we can debate whether it's 8% in the case of HIV or 100% in the case of Martin Shkreli, it should be somewhere in the middle. What I will tell you is that after 30 years of working in this field is that I think the right number is that about 20 to 25% of the health benefits that are generated by innovation should be returned to the manufacturer. So in the case of COVID, for example, where there's probably 5 trillion, the innovator's probably gonna get about 3%. Maybe that makes sense when you have something like a vaccine. But with cancer, it should be something higher if we wanna keep innovating.
Richard Green: So Dana Goldman, thank you very much for spending an hour with us this morning. I'm sure our audience knows a lot that they didn't know an hour ago. You present very clearly engagingly and on stuff that really matters to all of us. And again, Dana, one more time, thank you very much, see you all soon.
Dana Goldman: Thank you.