Monday, January 31, 1994
Several Wall Street analysts and a few CEOs have been arguing for months now
that price controls on drugs are unlikely to survive as part of President Clinton's
health care package, so we can stop worrying and be happy. But a recent swing
through Washington was enough to convince us that price controls remain a threat,
if not an inevitability.
The key to this conclusion is the realization that the arcane rules of the
congressional budget-making process - coupled to the exercise of raw political
power - are moving to force price controls into place.
In this situation, discussion about the merits won't matter. The long sorry
history of price controls is irrelevant. Arguments based on economic rationality,
bureaucracy, investor incentives and patient welfare will be out of order.
In fact, even the goals of health care reform and the true societal costs and
benefits will largely become irrelevant once the budget rules take precedence.
And we're reasonably certain that the House Democratic leadership will use this
to their advantage to stifle attempts to modify the Clinton legislation.
The bottom line, given the timing of the leadership's timetable for delivering
a bill, is that time is running out to redirect health care reform.
Budget rules: Through the Looking Glass
In a nutshell, the only way for the White House to provide a prescription drug benefit is to ensure there's enough cost savings in the system - and the only way to ensure enough savings is to control prices. In other words, the drug benefit is tightly linked to the plans to impose Medicare rebates on drug manufacturers and to the ability of the government to blacklist capitation-busting drugs.