Price caps on Medicare Part B: big thumbs down

Dan Spencer at Red State explains why:

. . . the administration’s proposal last week to implement price caps on Medicare Part B is worrisome. The administration has consistently and rightly removed government interference and regulation from the healthcare industry to bring down prices – and it has worked.

But, the proposal would tie the price the government pays for drugs to an “international pricing index,” a yet-to-be announced average of prices paid in developed nations. The administration believes these prices should be analogous to prices paid in the United States, overlooking that almost all of these countries have socialist, single-payer systems that limit choice for patients and force one-sided negotiations.

This system and this proposal are antithetical to the Trump Administration’s stated goals of increasing competition and patient access. Worse, history shows that price controls don’t actually work, instead they force governments to control costs by instituting formularies or refusing care, or they force companies to scale back investment in research and development.

For example, Canada has a single payer system and implements government-set price controls. On the surface, this seems great, as consumers don’t see higher prices. However, on a local and a global scale this actually decreases investment in new cures (which lower costs in the long run and improve life expectancy) while driving up prices in market systems, such as here in the United States. The problem of other countries benefiting from U.S. innovation without paying their fair share is a problem of free loading and global market imbalance, bringing the policies that lead to that imbalance to the United States would not help correct the larger issues.

A good resource to illustrate this is a recent report from the White House’s Council of Economic Advisors. The following graph from the report illustrates these larger trends. The graph compares wait times between other developed states and the United States’ Medicare system. It’s important to note that our Medicare system is not single payer, but rather uses certain market forces to set prices. The administration’s plan would cap those prices, in essence bringing our system closer to single payer via increased government interventions. Those caps, as the report shows, have downsides such as increased wait times and other metrics related to access to healthcare.

Another side effect of that system is that fewer cures are available, or they are introduced later, in countries with single payer systems than they are in the United States, because those governments will not pay for those cures. The end result is that patients who live in countries that impose centralized value judgments also have access to fewer treatment options. Recent data shows that nearly 90 percent of newly launched medicines were available in the U.S., compared to just two-thirds in the U.K., half in Canada and France, and one-third in Australia.

Why this move? I'd say part of it is that there's nothing consistent - and certainly not consistently free-market - about the economic views of the guy at the top (the Very Stable Genius). Another factor, which surely has infected the policy wonks who actually came up with this, is that no one argues any of this stuff from a free-market starting point anymore, particularly at this point in an election campaign cycle. It's all about what government can "do for" people - particularly some proverbial "little guy."

It's an apt moment for restating the LITD First Law of Economics:

A good or service is worth what buyer and seller agree that it is worth. Period. No other entity should be party to that agreement - most certainly not government.