With gabriel sherman, author of the loudest voice this the room. And we wrap up at 11 p. M. Eastern with Christopher Harmon and a citizens guide to terrorism and counterterrorism. That all happens tonight on cspan2s booktv. Robert field talks about the long history of government involvement in the Health Care System. Four key sectors pharmaceuticals, hospitals, the medical profession and private insurance were built up by the federal government, and he argues that this history must be understood before the possibilities of meaningful reform can be realized. This is about an hour. [applause] thank you, dan. My book, which was released in november, has a title with a slight sense of irony. Free market is this in goat quotes, and i talk about how the free market which we think of as the quintessential op is sit of the government was temperature opposite of the government was actually created by the government. This is clearly a pushback against some of the talk we hear recently to keep the government out of health care, keep the government out of my medicare, is the government up to the task of reforming the Health Care System . And after the shaky rollout of the insurance exchanges, is it up to the task of doing anything . I started this book in 2008 before there was an obamacare or even a president obama. But it has a lot to say about the Affordable Care act and why it is the way it is and the context. So it was, in a way, fortuitous that events played themselves out as they did so that i can really lead up to whats happening today which is very much part of the historical picture. I start out with the conventional view or at least the widelyheld view of how government regulators and private industries interact or fail to interact which is true really across the economy. My focus is health care, but you could look at a number of different industries. We have a wall. We have regulators on one side, we have private industry on the other. People tend to see the regulators as a Necessary Evil to keep some constraints on the potential excesses of the private market, with but also as a lid on some of the innovation of the private market. So theyre antagonists in which the private industry should be as free of the regulators as possible. What im going to argue is that they are really partners in a joint venture. To use a metaphor, if you want to have a field of flowers, someones got to till the field, someones got to garden it, someones got to fertilize it, use insecticide. What do you want, the flowers or the gardeners . You actually have to have both. And im arguing to have of robust private industry or free market if you prefer that term, you have to have both. So i begin each chapter with a quote, i start out looking at the conventional view this is from the economist. We talk, they talk about regulation as interference and talk about it as a 169 billion hidden tax. That figure comes from the Cato Institute which, obviously, has a slant on this. First of all, when you think about it in an industry that generates about 2. 7 trillion if revenue, thats a pretty low rate of taxation. But i would argue that it is really more in the nature of an investment than a tax, and it is what makes the rest of the 2. 7 trillion possible. But this view of the antagonists has particularly been pervasive in health care. If you look briefly historically, Teddy Roosevelt first raised the issue of a national universal Coverage Plan in 1912 in his third party candidacy. He did not succeed. A few years later some of the states picked up the call. That brochure, i know its hard to read the details, but on the left from 1918 was the pushback that talked about labors socialistic attempt to take over our Health Care System. Sound familiar . Almost 100 years later. In the 1940s, harry truman proposed a similar plan. That was called socialized medicine. If you can see the puppeteer with the marionette, his two contraptions are called socialized and medicine, and its described as a communist system. And then in the 1960s when medicare was proposed, that guy an actor at the time who may look familiar proposed that this was socialized medicine and would lead not only to a socialized Health Care System, but to an entire sovietstyle economy. And then weve seen the last four or five years with the Affordable Care act, hands off my health care, government and industry should not be mixing, government should stay out. So what i want to propose is that it is a partnership, that the proper graphic is more like the yin and yang and that we can even look at some of the theorists of the free market for support for this. This is the quote i begin with from adam smith, father of free Market Economics from 1776. One of the duties of the sovereign is to maintain Public Institutions and public works without which the wonders of the free market would not be possible. And what i look at is initially a couple of case studies beyond health care and some thought experiments. What would these industries look like if the government had not intervened . What would the computer industry look like if we didnt have an internet which you can say what you want about al gore, but the government did, in fact, create the internet. We had personal computers before the internet, before the internet was commercialized. 1984 was when apple introduced the first mac into be computer, but the mackintosh computer, but the industry would look nothing like it does today were it not for the internet. The interstate highways did the same thing for automobiles, particularly trucks and buses. The satellites that the government launched made tv way we know it today, particularly cable tv. And mortgage support, fannie mae and freddie mac made Home Construction possible. Maybe not the wisest program in the world, but it created a whole industriment industry. So we can then look in more detail at what does it say about this debate, keep the government out of my health care, can the Affordable Care act actually fix things. This is a graphic i came up with to sort of visualize the progression of Health Care Regulation going back to the 1800s, some of the Public Health regulation, sanitation, Infection Control and then layer upon layer, medicare and med caild, hipaa and Health Reform in the form of the Affordable Care act. Whats significant here is that the layers dont tend to go away. With very few exceptions, once a program is in place, it stays. So we just sort of build and build this mound of regulation. The conventional view would say this is crowding out the private sector. Has it . Well, heres the growth of National Health expenditures in the united states. If it were to crowd that out, that might actually be a good thing because we have seen astronomical growth the Point Health Care is now almost 18 president of our entire economy 18 of our entire economy, and it continues to grow at a rate unknown in the rest of the developed world. And then what has happened as its grown on that lefthand column as the percentage of gdp goes up, the percentage of spending from public sources has gone up. Its now actually over 50 . Health care spending as a percentage of federal spending has gone up, its now over a quarter of all health care spending. What has that done to the private sector . Has it crowded it out . Quite to the contrary. The amount of private money spent per capita on health care has continued to go through the roof. I would say that shows theres a synergy here, not an antagonism. And health cares a jobs engine. This is the growth of Health Care Employment. Its now more than 10 of all nonfarm jobs. Particularly senate, those shaded significant, those shaded areas are recessions, and when has Health Care Employment particularly taken off . Its during the recessions. This is a giant jobs program that has done quite a bit for our economy as well as for our health. What i do in the book is to take four key sectors of health care and dive into them in some depth to show from their history, to show from the statistics of their growth and to show through case studies how they grow, grew because of Government Intervention not despite Government Intervention. So i will spend most of this talk referring to pharmaceuticals, but hospitals, the medical profession and private Health Insurance are also aspects that i talk about, and if you buy the book, you will see those issues discussed in much more detailment so lets detail. So lets take a look at pharmaceuticals. My quote here is from a senior official of pfizer, the Largest Pharmaceutical Company in the world, talking about the National Institutes of health which funds basic Biomedical Research and describing the relationship between private industry and nih as symbiotic. This is industry acknowledging the symbiosis. As this crowded out private pharmaceuticals, this is showing profitability, rates of return for the industry. Its hard to read those numbers, but consistently close to 20 . Unheard of. Those paler lines are the average for u. S. Industry which is about 4 or 5 . So were looking at an industry thats four to to five times as profitable as the american norm. Over the past 20 years, its actually been the most profitable for all but three years and has been in the top three every year. Sales of pharmaceuticals have gone up like wildfire. Recently theyve leveled off, and ill come back to that in a minute to talk about the governments role there. What does this have to do with regula tour programs . First, patents. It actually outlaws the free market, it restrains who can offer a product. Its the Bedrock Foundation of the pharmaceutical industry as any executive in the industry will tell you. It is this program that headaches the whole makes the whole Business Model of pharmaceuticals possible. Beyond that we have the fda which instills Customer Confidence that the drugs we take arent going to kill us and competence in the physicians who prescribe the drug that theyre not going to lose their patients. First law was in 1906. A new drug law announced with a lot of fanfare. It meant that we didnt have a number of products like this ad for cocaine toothpaste drops. Maybe wed be better off with them, but the fda made sure that drugs that were considered up safe were kept away from us. In 1938 the law was substantially expanded after a scandal of antibiotic preparation that killed over a hundred children, and as part of fdrs new deal, regulations of drugs was enhanced and so the industry benefits from an insurance of safety that actually few other industries have. Most people will look in their medicine cabinet and see a bill bottle and see the name of the manufacturer and know that company made it and is making profits off of it. If you know anything about the industry, you know the fda is part of it to vet those products for safety and efficacy. What few people outside the industry see is the National Institutes of health, nih, which funds most of the basic Biomedical Research that goes on in the world really. Almost 30 billion a year in spending. Those numbers have gone up recently. The red on that graph is the stimulus which added a little bit to it, but it still remains way up there. I argue in the book that basic biomany medical research is in the nature of a Biomedical Research is in the nature of a public good. It benefits us all, but a private company cant really produce it because they cant really charge for it. If you make a finding, its a law of nature. Its not patentable. Its there for everyone to use, and its necessary to develop new drugs. But its almost impossible to charge for. Its also highly speculative. When you invest in understanding cell structure or the function of genes, you dont know whether it will lead to nothing, lead to something in 50 years, lead to something next year. So a private company cant take that risk. What do we do . The government steps in as it has since the 1930s. They provide that public good so that private industry can then attempt to commercialize it, create products that actually reach patients. Has government funding controlledded out private research . Quite to the contrary. Of that top dotted line is the growth in spending of private pharmaceutical companies which since the 1980s has been more than nih even, and that gap actually continues to widen. So we see the foundation of public goods, of basic research allowing the private companies to do the applied research. Now, those numbers for private Companies May be somewhat inflated, theyre a little bit controversial, but the National Science foundation did an analysis a few years ago which found theyre still, theyre lower than that but still substantial. Youre still looking at growth in private research in tandem with growth in government research. Among the other aspects i discuss are something called cooperative research and Development Agreements in which nih will exmissitly find explicitly find a private partner to commercialize a drug. I talk as a case study about the drug tax pil, the most widelyprescribed encology drug over the past several years. It was developed through the department of agriculture which founded the bark of the yew tree and then through a series of partnerships wean public, academic and private industry labs, taxil was isolated and synthesized and then nil found Bristolmyers Squibb as a partner to commercialize it. From the 1980s, the purpose was to allow the biotechnology industry to take off, and they certainly succeeded at doing that. We also have other programs that i talk about, the orphan drug act provides special regulatory favors and financing more companies that make drugs for rare decides, a whole major profitable subset of the industry. And then what i think is going to be the biggest of all, the human genome project. So were seeing the transformation of medicine before our eyes from conventional therapies to genebased therapies. How do we do that . Well, we need a map. We need a map of the human genome. And who provided that map . Thats basic biomedical science. Private companies couldnt risk doing that, its too speck thattive. The nil did that, and during the 19980s it 1990s it developed a map of the human genome. Since then companies are now developing gene therapies, diagnostic techniques and ore ways of harnessing other ways of harnessing it. They have developed a new center. In 2011 the National Center for advanced and Translational Sciences was launched to explicitly find private companies that would commercialize genomic therapies. So what nih now does is they isolate genes, they find potential drugs from those genes, they actually do the preclinical studies in labs and in animals, they do some of the actual clinical studies in humans which private companies traditionally do, and then they look for a private partner thats willing to take the drug once some of the risk has been taken out, once theyve established that its a likely candidate. This is the government explicitly creating the future of the pharmaceutical industry. There will be huge profits, there will be huge therapeutic outcomes from this, and it is the free market existing because the government is before our eyes creating it. And then when all is said and done, who buys the products . Well, a huge market for pharmaceuticals is the government again. Medicare, this is a figure of medicare spending for different components. 11 is outpatient prescription drugs, then there are drugs administered in doctors offices, drugged administered in hospitals and medicaid. If you put that all together, were talking about at least 100 billion a year in sales for these products that the government develops with one hand and then buys from the companies with the other. So lets do our thought experiment. What would the industry look like had the government not sewer screened. Without intervened. Without question we would have fewer drugs, lower profits for the companies, less public trust in pharmaceuticals without the fda and certainly nowhere near the problem fears of frontiers of genomic medicine that we are facing today. Let me briefly describe the other industries i look at. Hospitals, a quote from an ethicist describing hospitals as pawns of medicare. That maybe overstating it a bit, but the point is that medicares indispensable to the American Hospital industry. Hospital construction in constant dollars going up very steadily over the second half of the 20th century. Where were the bumps . Early 19 50z right after the hillburton act was passed which pumped billions of public dollars into expanding hospitals and the 1970s right after medicare. One of my case studies is on the forprofit chains which for the most part came into being in the late 1960s. What is it that brought them about . Well, it could hardly be a coincidence that right after medicare the hcas, the forprofit chains came into being. One explicit thing medicare did was it reassured investors there was a steady source of revenues for hospitals. Few other industries have the government pay the bill if there are shortfalls from their customers. And then i look at Academic Medical Centers like drexel, like penn which rely on medicare to fund the training of future doctors and rely on nih for the research that they