Healthcare Reform - Price Controls?

As I wrote on 6/24/09, I expressed a concern that the Administration had agreed not to negotiate Medicare drug prices in exchange for $80b from Big Pharma over 10 years in reduced prices for Medicare Part D recipients in the "doughnut hole". Now, unfortunately, there are rumors that this was indeed part of the agreement. I also suspect that there is also the possibility that the Administration has agreed not to pursue legislation that would prevent Big Pharma from extending the patents on brand name drugs or legislation that would prevent payments from Big Pharma to generic drug makers in exchange for the generic manufacturer agreeing to delay the production of low cost generics. It now appears that Big Pharma will gain much more than the $80 in price reductions and, what is of more concern, there is nothing that would prevent Big Pharma from increasing prices for everyone else not covered by the agreement.

The American Hospital Association has agreed to price cuts of $150b over 10 years if the reform includes universal coverage. Since hospitals had $34b in uncompensated charges in 2007 alone which will probably increase over the next 10 years, hospitals will get as much as $340b in exchange for $150b in cuts. Again, there is nothing in the current legislation that would prevent the hospitals from increasing other charges not covered by the agreement to recoup the $150b in cuts.

The private insurers have agreed to raise premiums by 1.5% less than the premiums would otherwise have increased if the reform includes universal coverage mandates in which case the private insurers have agreed not to charge a higher premium for pre-existing conditions or to reject applicants with pre-existing coverage. Again, there is nothing in the current legislation that would prevent the private insurers from raising the average premium to compensate for the higher costs related to the pre-existing agreement.

There have been few policy considerations designed to reduce costs and none of the changes being considered so far will reduce costs. For instance, changes to enable a private insurer to sell across state lines would probably increase costs. A private insurer moving into a new area would incur significant costs in establishing a provider network and negotiating prices with medical providers in the new area and would probably resort to acquiring a local insurer with consequent huge costs that would be passed on to the policyholders.

In summary, the major medical providers have made relatively minor cost concessions in exchange for significant profit increases with no restrictions on being able to shift the costs for the concessions to other areas. Perhaps it is worth considering the implementation of price controls for medical providers to be no more that the Bureau of Labor Statistics measured cost increases at least during the transition period of any major health care reform.

Every reform that would lead to significant price reductions have so far been excluded from consideration. Medicare prescription drug price negotiations, tort reform (at a minimum, any punitive damage awards should be paid in into the Medicare trust fund), taxing employer health benefits, higher co-pays, etc. have all been excluded.

Unfortunately, the current reform efforts look like they will produce higher profits for the providers and higher costs for the consumers. We lose.