The Congressional Budget Office estimates that Americans waste $700 billion each year — roughly 5 percent of GDP — on services that provide zero value. Reallocating that money to productive uses would essentially make us $700 billion richer every year. Pres. Barack Obama’s budget director, Peter Orszag, testified before Congress last June that “there do not appear to be other examples that credible analysts can identify that offer a potential efficiency gain of that magnitude for the U.S. economy.”
However, the economic argument for taxpayer‐funded comparative‐effectiveness research is shaky, and experience suggests that it will fail to achieve any savings. Under Orszag’s direction, last year the CBO estimated that a measure similar to the House Democrats’ would reduce federal health spending by a mere “one one‐hundredth of one percent” over the next ten years. But due to their desire to see a bigger government role in health care, Democrats persist.
One argument in favor of using tax dollars to fund comparative‐effectiveness research is that the information produced has characteristics of a “public good”: Some people who didn’t invest in the research might benefit from its results. When the investments don’t reflect all the benefits, markets may fail to produce (some) research even when the benefits would exceed the costs.
The extent of this problem, however, is unclear. It is even less clear that government provision could improve on a policy of laissez‐faire. Private health plans like Kaiser Permanente are powerful engines of comparative‐effectiveness research, thanks to corporate structures and financial incentives that encourage such research. If the government were to provide this work at taxpayer expense, it could crowd out these private efforts.
Also, the government is not well‐positioned to reduce wasteful medical spending. Every dollar of wasteful spending is a dollar of income to somebody—and that guy usually has lobbyists working to squelch unwelcome research. For the crime of producing research that questioned the value of their services, the health‐care industry has already killed the National Center for Health Care Technology (d. 1981), the Council on Health Care Technology (d. 1989), and the Office of Technology Assessment (d. 1995). The Agency for Healthcare Research and Quality has twice escaped the gallows, but only because Congress effectively neutered it in 1995. Indeed, the only agencies that Congress seems capable of eliminating are those that produce comparative‐effectiveness research.