Price Controls for Health Care?
In “The Price Is Right” (October 16), Peter Laakmann gives much-needed insight into why per capita spending on health care in the U.S., although higher than in other developed countries, is appropriate to our circumstances. However, he does not address why the price of health care is so high in the first place.
As a physician in Kentucky, I am amazed at the disparity between price and cost. A local lab bills the patient $125 for a blood test for which they bill me $4. When the FDA took generic colchicine off the market in 2010 in favor of Colcrys, its price jumped from $0.09 to $4.85 per tablet. When insurance companies began paying for CT scans to screen for lung cancer, the out-of-pocket price went from $175 to over $500.
While some would argue that market forces should always determine price, I think health care deserves special treatment. For one thing, there is a third party, the insurance company, that prevents a direct financial relationship between provider and consumer. For another, health care is a necessity on the order of food, clothing, and shelter. For those who cannot afford it, it must be publicly subsidized. But even those with decent incomes often cannot afford it as it is currently priced, and I’m not just talking about catastrophic care.
My recommendation is price controls on high-end providers such as drug companies, hospitals, imaging centers, and laboratories. That would lower premiums and make health care more accessible.
David Marwil, M.D.
Peter Laakmann responds: I don’t dispute that the prices of some items and services are too high in some instances. It is challenging to reach general conclusions without systematic analysis. However, OECD researchers indicate that the average effective price paid for health care in the U.S. was approximately 10 percent above the OECD average in 2014, which is at or below the average effective price in several rich countries.
Domestic health-care-price indices suggest that inflation explains approximately none of the increase in health-care costs relative to incomes. As in other countries, our high and rising health-care expenditure is overwhelmingly attributable to a high and rising use of health care. (The U.S. real per capita volume of health-care use was 110 percent (!) above the OECD average in 2015.)
The potential to broadly reduce costs by cutting prices is much more limited than is popularly supposed. For instance, while we pay higher prices for prescribed medicines in the U.S., they make up a modest fraction of national health spending (10.6 percent in 2015, comparable to other rich countries). Valuable medication innovation is one of the last places we should impose price controls. Incentives matter, and the pharmaceutical industry is not unreasonably profitable when one accounts for risk, time value of money, etc.
Instead of painting whole sectors and practice areas with a broad brush, we should consider the sorts of concerns you mention on a much more granular basis, paying close attention to the ratio of total cost to value and to the affordability of the costs borne by individual patients. We can do more as a society to ensure that essential, highly efficacious medicine is accessible, affordable, and straightforward (especially as concerns questions of coverage and reimbursement).