How does that old saying from philosopher George Santayana go? “Those who cannot remember the history of price controls are condemned to repeat them?” Or something like that.
The U.S. Senate, which can’t seem to remember the terrible legacy of past price controls imposed on Medicare, is thinking about doing it again. In 1983, Congress passed price control legislation on Medicare Part A, which covers seniors’ hospital expenses. In 1992, it imposed price controls on Part B, which pays physicians’ bills.
Back in 1983, several senators argued that the price controls it was considering weren’t really price controls at all. No, indeed. The DRG (Diagnosis Related Group) system was free market. The government would set the price it paid for hundreds of services under Medicare, and if a hospital could provide care for less than the set amount, it would survive. If it couldn’t, it would fail.
Well . . . the legislation passed and guessed what happened: The government set the prices very low, creating a wide disparity between what the government paid verses employers and insurers. That opened the door for HMOs and other managed care companies to come in and say to employers, we can also negotiate discounts—if only you will put all of your employees in HMOs.
You may remember all of the jokes and criticisms of HMOs in the past decade, and you may have wondered how we ever got to a system like that. Well, you can thank Congress for imposing price controls on Medicare.
Now the Senate has completely forgotten that lesson and is considering imposing price controls on the new Medicare Part D benefit, which provides prescription drugs. Oh, most of them will deny they are price controls—just as they refused to call them price controls back in 1983. But that is exactly what they are. (Prescription drugs are an easy target because they are like most technology products, where the costs to develop are on the front end, not in the incremental costs of making each additional unit.)
Most surprising in this is Senator Coburn, a physician, may vote for the price control legislation. He should know the damage price controls caused in Medicare and in the rest of the health care system. He was even a supporter of anti-managed care legislation when he was in the House.
Price controls don’t work. They distort markets, as anyone who knows the health care system can attest—if only they could remember the past.