How Drug Prices Respond to Billions in Funding
January 12, 2010 in Health Care "Reform"
What happens when billions of dollars are thrown into a system that does not respond to the classic economic forces of supply and demand?
The nonpartisan General Accountability Office said it found “extraordinary price increases” for 321 brand-name drugs, with prices jumping by 100 percent to 499 percent — and in a few cases by more than 1,000 percent. The number of drug price increases more than doubled from 2000 to 2008 with most drugs maintaining their higher prices over time, the investigative arm of Congress said.
But the Medicare Prescription Drug, Improvement, and Modernization Act, passed by Congress in 2003, which includes Medicare part D coverage was supposed to introduce some free market forces into the Medicare program by allowing beneficiaries to choose between various private prescription medication plans. Except that the plans themselves were so complex and there where so many choices (a perfect example of the phenomenon of the “paradox of choice“ in which too many consumer choices leads to negative results) that patients were confused and frustrated and not likely apt to make the best consumer choices.
And besides, Medicare D didn’t address the major force in prescription medication sales; physicians. There is still very little in the way of incentives or disincentives for doctors to utilize their prescription pads in an economically sensible way. Part of this is time constraints (roboticly prescribing the same expensive med to all patients), some is laziness, some is ignorance (the newest and most expensive medications must be the best!), and some is even pressure from patients who want the pretty neon green pill they saw on TV even though it will break their med budget.
Sadly, there are no incentives for good physicians to wisely manage not only their patient’s medical problems but their expenses as well. Ultimately, there will be price controls and disincentives slapped on physicians because they don’t care about the prices of the drugs they prescribe and won’t until it’s too late.