Home > Uncategorized > The Market is failing us? I’ve got news for you, it is not exactly operating unadulterated

The Market is failing us? I’ve got news for you, it is not exactly operating unadulterated

I am applying my background in economics to the industry I work in, hence the boldface. No expository analysis, just emphasis.

Asia’s Medtech is Inexpensive

The Star Tribuen/ Economist—January 24, 2010–Across the rich world,  governments with aging populations are worried about soaring health care costs.

In Britain last week, David Cameron announced yet another reorganization of the National Health Service. But the problem is most severe in America. Medical spending per head has nearly tripled since 1990, yet most indicators of health have barely budged. And the rising cost of health care depresses wages — because many Americans receive health insurance from their employers, who therefore pay them less.

Help may be at hand. Frugal innovators in China and India are making medical devices that are cheaper — sometimes by an order of magnitude — than their Western equivalents. Companies such as China’s Mindray and India’s TRS serve home markets that include vast numbers of people for whom every yuan or rupee counts. So these companies focus relentlessly on reducing costs. They create products that are stripped to their essentials: scanners that cost $10,000 rather than $100,000; portable electrocardiographs that cost $500 instead of $5,000.

These devices are not merely cheap knockoffs of Western designs. Often they are just as effective as the gold-plated machines used in the West, yet they are rarely found in hospitals of the rich world. Their absence helps explain the massive disparity in costs between treatment in the West and the emerging world. A night in an American hospital typically costs 25 times as much as a night in an Indian, Brazilian or Chinese one. A night in a European hospital typically costs four times as much.

Western medical device firms are well aware of eastern innovation. Indeed, firms such as GE Healthcare, Philips and Medtronic are investing heavily in China and India: setting up research centers, hiring local talent and developing frugal inventions of their own, which they gleefully sell both locally and in other emerging markets. Alas, they are not rushing to market such thrifty ingenuity back in America or Europe.

Two main factors keep cheap devices out of Western markets. One is the muting of price signals. Health care is not an efficient market in the rich world because — be it in Europe, where the state typically pays the bills, or in America, where private insurance companies do — the customer does not have to shop around. Patients neither know nor care how much anything costs, so they demand the best of everything, which is wonderful for the makers of hugely expensive equipment.

A second factor — which applies more in America than in Europe — is red tape. America’s Food and Drug Administration is excessively risk-averse: It often takes twice as long to approve a new medical technology as European regulators do. America’s confusing approvals process deters upstart medical technology firms, since they typically lack the deep pockets and army of experts required to navigate it.

And for a device to succeed in America, it must be blessed not just by the FDA but also by the bureaucrats who oversee Medicare and Medicaid, the two huge government health care schemes. Obtaining that blessing can take years…

(again, emphasis added)

Link to Article

 

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Categories: Uncategorized
  1. 2011-01-28 at 10:03:24

    Muting of price signals is huge. What do you think can be done to fix that?

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