Chip Taylor

Price controls? What price controls?

From the New York Times:

Federal health officials plan to announce a proposal today that could save taxpayers at least $16 billion over the next decade by slashing the amounts Medicare pays for more than two dozen cancer and lung drugs, a move almost certain to raise an outcry among cancer specialists and some drug companies.

The health care industry has been bracing for rollbacks. But until today's report, few outside the Medicare agency have known the extent of the price cuts, which for some drugs would be as much as 89 percent below current levels. Besides saving the government money, the changes would directly benefit Medicare recipients, who pay 20 percent of the prices their doctors charge for the drugs.

..

The changes result from last year's Medicare drug law. The legislation's primary purpose was to set up a program that in 2006 will begin paying for prescription drugs dispensed by pharmacies. But the law also overhauled the way Medicare pays for certain drugs it already covers - mainly cancer and lung medications that are not available through pharmacies but are administered through intravenous tubes or mist machines.

Some critics of the Medicare expansion complained that it didn't provide for the government to use its "bargaining power" to "negotiate" the price of drugs as the Veterans Administration does. It looks to me like the government knows how to "negotiate" just fine. Really this is nothing new in Medicare; physician services have been price-controlled for quite a while. (Of course, sometimes officials goof and create excess demand. In other cases, doctors increase volume to make up for low reimbursements.)

Anyway, this is a tension you have in any third party payer system: get out the checkbook and pay whatever price they charge versus dictate the price you'll pay. Private insurers do the same thing, but they have an incentive to strike a bargain acceptable to providers to create a bigger network that is more attractive to consumers.

The prescription drug Medicare expansion is supposed to create similar competition in prescription drug insurance. That's the plan anyway. I'm skeptical. Democrats are outright hostile to privatization or competition of any sort. Even Republicans are often tepid in their support. For example, Don Young moved to exempt Alaskan airports from air traffic control privatization efforts. And here is a USA Today article that mentions a proposed pilot program in the Medicare expansion bill:

Beginning in 2010, it provides for a six-year program under which new private plans will compete directly with traditional Medicare in a few areas around the country.

Critics said it will lead to the privatizing of Medicare. Even some Republican supporters of the bill lobbied to have their states exempted, hoping to shield seniors from the possibility of higher premiums.

Privatization for thee, but not for me. Feh.

So, when the Medicare drug coverage begins in earnest we're getting either more competition or more government control. I hope it's competition; history argues in favor of more control.