Friday, June 27, 2003

Rights and Reason: The Prescription Drug Menace

Don Watkins sums up the prescription drug "reform" bill pretty well:
So now GovCo is going to cover most of the costs of prescription drugs. Sounds great, doesn't it? Uh huh.

I'm no economist but I know enough to make the following predictions: subsidizing prescription drugs will increase demand for prescription drugs thus driving up their price. One of two things will then happen -- (1) medicare costs will skyrocket or (2) the government will impose price controls on prescription drugs. Probably there will be some combination of (1) and (2).

Now, anyone who knows anything about history understands that price controls accomplish exactly one thing: they increase demand while restricting supply. In other words, more and more people will want more and more drugs, fewer and fewer of which will be available. Doctors will then feel pressure from GovCo not to prescribe drugs unless they absolutely have to and even that will not be enough to ensure that everyone who needs a particular drug gets it.

Oh yeah, and one more thing: don't expect to see half as many new life-saving drugs reach the market in the coming years. After all, would you spend hundreds of millions of dollars to develop a drug that, if it works and if the FDA approves it, won't make you any money?

That's right. Thanks to this bill, and thanks to the so-called conservatives who passed it, more people are going to want prescription drugs, fewer of which will be available; doctors will be forced to prescribe drugs only when absolutely necessary, which of course is a judgement call resulting in the likelyhood that a lot of people who do need a drug will not get a prescription for it; those who are lucky enough to get a prescription will still have trouble getting it filled; and fewer new drugs will be available as drug companies find they are unable to recoup their R&D costs. Oh, and for the rest of us, we'll be paying for all this and I can promise you: the suppossed $400 billion price tag cited by Congress won't even cover half the cost of the program.
Don is right about price controls. But here's something to keep in mind: price controls need not be imposed by direct fiat. For years, antitrust law has doubled as a crude price control method to impose price limits on physicians. As readers of this website know, the FTC regularly prosecutes doctors under false "unfair competition" claims for the express purpose of ensuring doctors don't get private health plans to pay them at rates too far above the federally-mandated rates for Medicare and Medicaid. Under this theory, the government decides "market" rates, and those who deviate from them are, by definition, acting "anticompetitively."

Aother thing to look for is heightened antitrust scrutiny of pharmaceutical company mergers. The Muris FTC has already been doing this, forcing merging firms to divest certain drug lines to third companies chosen by the Commission. The new prescription drug bill will essentially green-light Muris to attack any merger that might, in the FTC's view, increase drug costs even a little. After all, now that the government will be a major purchaser of such drugs, it's not in the "public interest" for price increases to stand.

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