Arnold Kling's Econlog called my attention to this WaPost op-ed. If Medicare prescription benefits follow the rest of Medicare, argue Jonathan Oberlander of the UNC Med School and former Ways & Means Committeee staffer Jim Jaffe, price controls are practically inevitable.
A few years later the Medicare Fee Schedule for physicians was introduced. It was a terribly elaborate scheme that was based on measures of the complexity, time and resources involved in physicians' services. Its advertised purpose was to establish a fair and scientific basis for Medicare payments to physicians. But ultimately it divorced doctors from their historical and customary fees.
As with hospitals, Medicare imposed a system of administered pricing on doctors. By this time, of course, many physicians were dependent on their Medicare patient base and simply couldn't afford to walk away from the program, despite the lower reimbursement rates.
Both Medicare hospital and physician payment regulation were supported by Republican presidents in the name of controlling federal spending. The Johnson administration generosity of the 1960s was replaced by the Republican restrictions of the 1980s. Fiscal exigency overwhelmed ideology.
Whether that's portent, precedent or an irrelevant bit of history is the question of the moment.
We now have a system in which the government pays hospitals and doctors what it thinks it can afford, subject to the usual lobbying to adjust prices. Not surprisingly, some of those lobbyists succeeded in getting aid for their clients in the Medicare drug legislation. But they didn't challenge the basic premise that the government pays what it chooses.
Perhaps drugs are a different case. Perhaps the pharmaceutical firms that are so skilled at creating miracle drugs can create a political miracle and preserve the pricing power as well.
But anticipated cost pressures -- which the drug bill will make worse -- make it unlikely that they'll be able to prevail over time. In short, they've made a deal with Medicare that looks very similar to that made earlier by other medical providers in the past -- a boost in business and profit in the short run that's subsequently replaced by tight price controls. If Medicare's history is a guide, the blank check for America's pharmaceutical industry will soon be canceled.
Conservative legislators of the past argued regularly against federal aid programs on the grounds that repugnant government controls would inevitably follow. While that argument was abandoned during the congressional debate about a Medicare drug benefit, it was true then, and it is true now.
Largely unbeknownst to the general public, Medicare reimbursement rates are in fact driving doctors to "walk away from the program." Some simply stop accepting new Medicare patients. One result is that in some areas, some of the sickest patients find it hard to get regular care.
More insidious is a pattern my brother and sister-in-law, a family practice physician and an anesthesiolgist, observe in their area. The best general surgeons are going into cosmetic surgery, and they're luring the best anesthesiolgists into at least part-time cosmetic work. The dermatologists are telling patients with rashes to go elsewhere. Patients expect to pay for cosmetic work themselves, at market prices. They expect someone else to pay for health-related treatments, at lower prices. The result is predictable: the degradation of health care even as cosmetic care improves.
Applied to pharmaceuticals, this pattern would give us more skin care and baldness drugs, fewer treatments for complex diseases. We'll be good looking but sick. I'm all for cosmetic improvements, but that's not a tradeoff most of us would choose.
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