Medical Research Tax Credit Would Aid Reform Plans
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Related subjects: Health Science, Healthcare Policy, J.E. Robertson, Legislation, Opinion, Science & Technology, U.S. Economy, U.S. Law, U.S. news, U.S. Politics Comments (1)
One of the great complaints heard from groups opposing comprehensive health insurance reform, especially from quarters where the chief concern is to prevent a drop in private profit related to healthcare services, is that reform will strip away incentives to devote funding to medical research, in pathologies, treatments and technology. This is a point of philosophical dispute, but to make sure we enact reforms that will not curb research incentives, we should institute a new medical research tax credit.
The program would make all donations to medical scientific research tax deductible, or in some cases, eligible for rebates, designed to steer research into certain pressing areas of health treatment. This would incentivize investment into medical research, whether by for-profit firms or not-for-profit foundations or by individuals giving charitably. That incentive is important, because too many pseudo-theories about the economics of healthcare link the incentive to invest in medical R&D to the profit motive.
In fact, of the $28 billion in funding the NIH devoted to medical research in 2004, $13 billion went to medical schools and teaching hospitals and fully $8.5 billion went to universities, non-profit research foundations, other hospitals and research entities. Only $1.9 billion, or 8%, went to private for-profit firms. This is, in part, owing the fact that those firms have enormous reserves of cash they can devote to R&D, but it is also owing to the fact that the institutions receiving the bulk of the funding actually conduct the bulk of the research.
For-profit firms do conduct R&D, but much of it is related to products already in production, shepherding products in the works through the regulatory process and marketing and cross-marketing (alternate uses) for those products. The logic of private for-profit enterprise tends to dictate that it is more cost effective to let the universities and research foundations do the bulk of the total research, then pay for the right to produce something based on the most promising research.
This means for-profit entities actually contribute far less to the overall fund for medical research in the US, substantially less on an annual basis than the NIH itself does. The idea that the “public option” would strip away market incentives for investment in medical research is at best a fallacy, based on philosophical assumptions about the reach and motivation of for-profit entities; at worst, it is a misleading rumor designed to kill what might be the most significant way of reducing costs across the board, optimizing healthcare spending, and spurring new revenue streams (52 million uninsured that would be covered).
What is certain is that pharmaceutical companies reap huge profits from spending on brand-name prescription drugs, and they want to make sure the pool of people spending on those drugs is expanded. With 52 million people currently uninsured, treatments to those people, wherever they occur, often wind up falling into the category known as “uncompensated care”, which puts downward pressure on health centers’ (hospitals and private clinics) inclination to prescribe the costlier drugs.
A market expansion of 52 million individuals (millions more than the entire population of Spain) means a huge windfall just over the horizon for the pharmaceutical industry as a whole, even if costs per patient or per pill come down significantly. Bringing costs per patient down 10% overall, but expanding the market by 20.23% (52 million is 20.23% of the total number of people currently insured by public or private plans), means a huge expansion of revenues.
This, coupled with the fact that major pharmaceutical manufacturers not only don’t provide the bulk of research funding, but also know the system which funds research through other entities is far more efficient than if they did provide the bulk of funding, means the industry is in favor of the current proposed reforms, which aim to bring “quality, affordable healthcare” to all Americans.
PhRMA —the Pharmaceutical Research and Manufacturers of America lobby umbrella group— has announced it will spend $150 million in a national ad campaign to support Pres. Obama’s healthcare reform plans, as laid out by Congressional legislation. Ken Johnson, senior VP of PhRMA, has said “The new ads will focus on the importance of making certain that everyone has high-quality, affordable health insurance, including affordable co-payments and does not deny coverage because of a pre-existing condition.”
The pharmaceutical industry does not, apparently, believe the proposed reforms would hamper its own ability to fund research or the broader national funding system for advanced medical research. But taking additional measures to both expand the funding opportunities for bold innovators and for research attuned to the new market environment for medical study and application can only reinforce the dynamics of the market that emerges from these reforms and ensure better care for all who are part of that system.
A medical research tax credit would guarantee that real direct incentives for foundations and enterprises to conduct meaningful innovative research in medicine and medical technologies insulate the research sector from any marketplace upheaval related to health insurance reforms, either those mandated by legislation or those enacted in response by the private sector. It would also liberate private-sector entities to make their pricing schedules more competitive and consumer-friendly and could speed the development of best-results new treatments and paradigm shift discoveries, by putting science at the center of the process.
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