Medical innovations improve health outcomes

Innovation in medical technology, over the last five decades, has given scientists access to powerful tools to develop new procedures and drugs that have resulted in unprecedented advancements in human longevity. Worldwide life expectancy at birth has increased dramatically from an average of 52 years in 1960 to an average of 71 years in 2013. There can be no doubt as to the extraordinary benefits that advancements in medical innovations have conferred upon humanity – helping people to live longer, healthier, and happier lives

Between the 1920s and 1940s, huge advances in medical procedures were made, including discoveries such as penicillin, sulfa drugs, bacitracin, streptomycin and chloroquine. In the post-World War II years, such drugs became widely available and their application brought about the remarkable decline in the crude death rates experienced in many developing countries. By the 1950s and 1960s, fewer and fewer children and young people were succumbing to the easily preventable diseases that, historically, had depressed the health indicators of developing nations. Throughout the world, life expectancy was on the rise.

And this process continues today. New drugs and medicines invented in one place are made available elsewhere, throughout the world, via international markets. Most drugs start off protected by patents which eventually expire and open the market for generic competition. As a result, many off-patent medicines are available at extremely low prices — allowing people in poorer countries to benefit from the knowledge and innovation of more affluent countries. Recent examples of this include antiretroviral drugs, statins and insulin, as well as neonatal intensive care units, kidney dialysis equipment, screening equipment and myriad other modern medical devices.

Many patented drugs are also subject to competition from other medicines in the same class, which puts downward pressure on price; and the strategy of price differentiation practiced by manufacturers allows many developing countries to access patented drugs at prices close to the cost of production or for free. Indeed, the South African government has been able to obtain some of the lowest prices for medicines in the world. However, due to the South African government’s pricing policies, private sector organisations are prohibited from entering into the same sort of commercial arrangements. If the South African government wishes to see all South Africans gain greater access to medicines, it must allow private actors to freely negotiate their own terms – in the same manner that government itself is free to negotiate prices with pharmaceutical manufacturers.

Private medical insurance has also played a significant role in increasing access to quality care for South Africans. Many people have recognised the importance of contributing a regular, small, fixed amount to a private medical insurance company as to shield themselves against sudden, devastatingly high, out-of-pocket payments required when illness strikes that could potentially be financially ruinous.

But individuals have diverse needs. For the health insurance market to function correctly, actuaries must be free to design policies that cater for the varied healthcare requirements. More specifically, individuals should be allowed to take responsibility for their own lives and be charged premiums commensurate with their risks. Insurance companies would then be in a position to offer incentives to people to be more careful.

Private medical schemes need to be in a position to compete in the market by offering either positive incentives such as reduced premiums or special discounts, for instance, to members and policyholders who exercise regularly, drink in moderation, or do not smoke, or create disincentives and charge higher premiums to those who do. But, currently, the laws that govern the medical schemes market in South Africa prevent actuaries from devising schemes that cater for individual needs and this has been particularly damaging to low-income individuals, the very people who can least afford to be without insurance coverage.

Government interference in the private medical sector prevents people (especially low-income people) from accessing the latest innovations and technologies available in the medical field. In order for more South Africans to be able to access the latest available drugs and to receive the quality of care they deserve, the government needs to remove the barriers that prevent the market from operating efficiently and effectively.

Author: Jasson Urbach is an Economist and director of the Free Market Foundation.

This article was first published in the June edition of ENT News.


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