Predicting Drug Price Controls
By Arnold Kling
Jonathan Oberlander and Jim Jaffe think that drug price controls are on the horizon. They say that this is what happened to payments to physicians and hospitals under Medicare.
The government has habitually responded to budget stresses by changing the reimbursement mechanism and lowering payments. Whatever one thinks of government efficiency, this practice has worked well. Over the past two decades, physician and hospital payments have been regularly cut.
I think that a lot will depend on the extent to which prescription drugs are substitutes or complements for other medical treatments. If prescription drugs are substitutes, then adding prescription drug coverage could lower Medicare costs, which would reduce budget pressures.
For Discussion. How likely is it in practice that the prescription drug benefit will cause substitution away from higher-cost treatments rather than an overall increase in the demand for Medicare services?