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European Health Care – Here We Come!

The changes in Congress accelerate what has already been a trend toward the “universal health care plan” long endorsed by all “right thinking Americans.” One likely change (a change that a recent survey finds most Americans prefer) would grant the federal government the power to force down drug prices by aggressive bargaining). Many Republicans (and some libertarians) already favored the drug re-importation from Canada and other developed countries, and existing programs to use the leverage of government payment schemes (drug purchases by the Veteran's Administration and the state governments) to drive down prices have faced little opposition from anyone. When government seeks to drive down health care costs, it can do so only by shifting the costs to others. And, this process has been going on for some time. Costs were first shifted to the medical profession (in Medicare and Medicaid), then to hospitals and, now, to the pharmaceutical sector. Cost shifting doesn't reduce costs — it just moves them around. Moreover, as P.J. O'Rourke has long noted: “If you think health care is expensive now, wait till it's free!” The pharmaceutical sector, like many parts of our modern economy is characterized as a declining cost industry — that is, the costs of producing the first pill is vastly higher than producing the next. The result is that — absent some form of creative financing policy (prior purchasing arrangements, controlled marketing channels, diversity pricing, bundling of pills with other services, enforced intellectual property statutes, and a host of other poorly understood and generally distrusted financing practices), the drug sector will fail to cover its costs, will be forced to curtail investment in innovation. Nonetheless, the idea that the lowest price is the best price is widespread. Most economists believe in marginal cost pricing, the view that only avoidable costs should enter into the determination of price. And, in a competitive economy, there will always be competitive pressures to lower one's offer price closer to that avoidable cost, a result disastrous when pursued by all. The result is well understood: in today's highly politicized health care system, everyone wants to do better than average! Europe has already taken that route and destroyed the innovativeness of its medical sector. Must America kill off the inventive incentives that have done so much over the last fifty years to enhance health? Congress should consider that fact before deciding to shift the costs of unfunded health care onto the sick and the future.