Monday, November 13, 2006

Pelosi Care

'Don't do it', says an Italian who has to live with it in his country:

The next speaker of the House, Rep. Nancy Pelosi (D-Calif.), has let it be known that within her first 100 hours on the job, she will move to allow the government to negotiate directly with pharmaceutical companies to obtain lower drug prices for Medicare patients.

....But before Pelosi rushes down the road to Italian-style health care, allow me to offer a word of caution. Italy is hardly a health-care paradise. In fact, it's more like a quagmire of red tape.

....The state purchases nearly 60 percent of the nation's prescription drugs. And it supposedly negotiates prices directly with pharmaceutical companies. But since the Italian government controls such a disproportionate share of the market, it in effect dictates drug prices.

....Because of the country's artificially low drug prices, demand for pharmaceuticals is artificially high -- higher than it would be under free-market conditions.

The point is that the government's attempt to force down drug prices has not reduced overall health-care spending. Rather, it has resulted in a spike in demand -- which is one reason why Italy's health-care spending has skyrocketed, growing nearly 68 percent between 1995 and 2003.

As for the quality of Italy's care, that, too, is suffering. With demand for drugs rising, the Italian government has attempted to save money by adopting reimbursement policies that favor certain drugs over others. Unfortunately, the most innovative products often aren't considered reimbursable by the government precisely because they are the most expensive.

It's a great system if you just need an antibiotic. But if you're hoping to avoid open-heart surgery through access to a miracle drug, it can be a nightmare.

....The economy is also harmed. Because it's simply not profitable for companies to invent cures in Italy, price controls have decimated Italy's pharmaceutical industry. Today not one of the world's 50 largest drug manufacturers has its headquarters in Italy, even though the country is the world's seventh-largest economy.

....So by attempting to hold down drug prices, the Italian government has deprived its citizens of the best care without reducing health-care spending. And it has deprived the country of what could be a vibrant sector of the economy. In their rush to revamp Medicare, U.S. policy leaders should be careful not to make the same mistake.

[Thanks to Don Boudreaux]

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