No. 654

November 18, 2009

Bending the Productivity Curve

Why America Leads the World in Medical Innovation

by Glen Whitman and Raymond Raad

Executive Summary

tion in this area appears weak across nations.

The health care issues commonly considered

In general, Americans tend to receive more new

most important today--controlling costs and cov-

treatments and pay more for them--a fact that is

ering the uninsured--arguably should be regarded

usually regarded as a fault of the American system.

as secondary to innovation, inasmuch as a med-

That interpretation, if not entirely wrong, is at least

ical treatment must first be invented before its

incomplete. Rapid adoption and extensive use of

costs can be reduced and its use extended to every-

new treatments and technologies create an incen-

one. To date, however, none of the most influen-

tive to develop those techniques in the first place.

tial international comparisons have examined the

When the United States subsidizes medical inno-

contributions of various countries to the many

vation, the whole world benefits. That is a virtue of

advances that have improved the productivity of

the American system that is not reflected in com-

medicine over time. We hope this paper can help

parative life expectancy and mortality statistics.

fill that void.

Policymakers should consider the impact of re-

In three of the four general categories of innova-

form proposals on innovation. For example, pro-

tion examined in this paper--basic science, diag-

posals that increase spending on diagnostics and

nostics, and therapeutics--the United States has

therapeutics could encourage such innovation.

contributed more than any other country, and in

Expanding price controls, government health care

some cases, more than all other countries com-

programs, and health insurance regulation, on the

bined. In the last category, business models, we lack

other hand, could hinder America's ability to in-

the data to say whether the United States has been

novate.

more or less innovative than other nations; innova-

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Glen Whitman is an associate professor of economics at California State University, Northridge. Raymond Raad,

M.D., M.P.H., is a resident in psychiatry at New York Presbyterian Hospital / Weill Cornell Medical Center.