Innovation Labor Economics Pharmaceuticals

Medical innovation improves not just health but labor market outcomes

An interesting study from Garthwaite 2012 examines  the removal of Cox-2 inhibitors.  Rather than measuring the direct effect of Cox-2 inhibitors on quality of life or health status, Garthwaite examines how this removal affected labor market outcomes.

Despite dramatic improvements in medical technology, little attention has been paid to the role of these innovations in improving economic outcomes. This study estimates the labor supply effects of Cox-2 inhibitors, a widely prescribed class of pharmaceuticals used for the treatment of chronic pain and inflammation and primarily marketed under the brand names Vioxx, Celebrex, and Bextra. This paper exploits the removal of Vioxx from the market in 2004 as an exogenous change in drug use. This removal was associated with a 0.35 percentage point decrease in overall labor force participation and $19 billion in lost wages.

This example demonstrates how innovative treatments not only improve patients health, but these health improvements can also have large impacts on the economy as well.



1 Comment

  1. This blog is a response to the post “Medical innovation improves not just health but labor market outcomes” by Jason Shafrin. Medical innovation plays a massive and vital role in policy, economics and health outcomes. According to Louis Nguyen, “Medical innovations often spur further advances and spinoff technologies, exponentially increasing the values of advances, but also being rarely accounted for in current models of effectiveness.” While medical innovation drives vast enhancements in healthcare, policy practices and ineffective planning can stunt its true potential. Medical technologies have clinical value: incorporating the appropriate targeting of diagnostics, established specialists with experience and direct patient engagement. Economic value also plays a huge role in medical technology, which depends on launch price and changes in unit price per dose, cost per course of care and cost per population. Medical innovation involves assessment of data from real-world settings and existing standard of care through comparative effectiveness research; as well as examining clinical benefits to economic costs through cost effectiveness analysis. The time and energy invested in assessing medical technologies is of vital importance as this leads to appropriate and conceivable goals in cost effective research. With the changes in the benefits of a new treatment and the incremental costs, it is key to take potential reductions in other costs of care into account. Like author Jason Shafrin points out, the removal of a drug of treatment can largely affect labor marker outcomes. The innovation of medical technologies plays a beneficial role in population health and has economic impacts, but there is concern over future policy and regulation.
    For decades, the prevalence of chronic diseases and conditions in the United States has grown. According to Currie and Madrian, “Physical and mental health is a primary dependent of labor supply.” The economic effects of labor supply and innovation are largely unknown as it is increasing with greater spending in the US. Garthwaite explains that improving medical technologies has had an economically and statistically significant impact on labor supply. More broadly, greater emphasis is needed in accounting for economic impacts in medical innovation research. An increasing desire for evidence-based medicine can be necessary to consider the full gamut of regulation of medical technologies. Innovation occurs in a cycle, with research, commercialization, FDA and EMA assessment, and coverage taking place in the pre-market phase. Payment incentives and cost sharing, adoption, assessment, and replacement cover the important stages in the post-market phase. These processes allow for growth in innovation and limits the amount of spending in the future, overall benefiting people and health outcomes.
    The effects of health care reform are far and wide and include the growing sector of medical innovation. As Jaan Sidorov points out, “Many health system executives struggle with reconciling innovation with the downsides of abandoning existing business models and disrupting long-standing culture and workflows.” He later states that, “One reason for the slow pace of innovation in U.S. health care may be the unconscious biases that have been described in behavioral economics.” There can be business barriers to medical innovation and technologies that can severely halt economic and health outcomes. If hospitals have limited funds and resources, they may not be able to effectively implement newer technologies. There have been numerous reports of doctors and nurses with the intention of exploring new innovations but are unable to with inadequate funds. Another challenge moving forward with innovation lies in data barriers. Because innovation moves so quickly, it may give insufficient time to evaluate its impact. Innovation is inherently quick, and companies and regulators must account for policy snags. There is a serious lack and need for medical innovation and as Shafrin originally references in his post, “Innovative treatments not only improve patient’s health, but these health improvements can also have a large impact on the economy as well.” The removal of Cox-2 inhibitor technology, as Garthwaite examines, was associated with a 0.35 percentage point decrease in overall labor force participation and $19 billion in lost wages. This shows a real world consequence of halting innovation or removing a medical tool that can negatively impact both people and the economy.
    In an effort to strive for continued medical innovation, new and effective ideas should be set in place to improve health and economic outcomes. This requires policy makers, regulators, doctors, researchers and patients to be conscious of the current situation. A solution will most likely multi-faceted and based on collaborative approach. Medical innovation requires a tremendous amount of money and resources, which are the limiting factors to its growth. One answer could lie in the relationship between university research and the life sciences industry. An increase of NIH funding is absolutely necessary, as universities have seen slashed budget cuts over the past several years. The relationship between development conducted by university labs and industry lab collaboration should be tightened with increased funding and access. Companies have immense resources and according to Stossel, “Allowing academic scientists to have access to them not only could facilitate achieving discoveries but would also obviate the need for universities to invest scarce assets to acquire such technologies.” A federal subsidy for academic research would be extremely beneficial to new medical innovations. By acknowledging university research and let pharmaceutical and health innovators to access academic resources, development of newer technologies would be less restricted. As private investment in medical innovation has fallen dramatically, NIH budget cuts could prove to be catastrophic for the future of medicine. Another solution to help keep medical innovation afloat lies in regulation. As Herzlinger points out, “An innovator faces the complex task of complying with a welter of often murky governmental regulations, which increasingly require companies to show that new products not only do what’s claimed, safely, but also are cost-effective relative to competing products.” Regulation is increasingly important and necessary in the realm of medical innovation. Governmental regulators can be extremely helpful in certain instances in health care, with treating orphan diseases as an example. Loosening regulation may not be the best answer but keeping innovators aware of the widespread web of regulations can be extremely beneficial. By streamlining and making regulation easier to understand by politicians, scientists, researchers, professors and doctors, medical innovation can flourish with less barriers. Positive economic and health outcomes can be secured with increased support, funding and resources in medical innovation.

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