Price Controls for Medicine?

In his most recent column, John Stossel makes a point that should be obvious to anyone with pretensions to economic literacy:

In the real world, prices are set by supply and demand … When the government uses its muscle to force prices to sub-market levels, the drug companies will develop fewer life-saving drugs.

In other words, government-mandated price controls create shortages. For proof of this one need look no further than physician reimbursement under Medicaid and Medicare. Central to these two programs is a system of price controls that has produced shortages of physicians in rural areas all across the country. The government dictates to doctors how much they can charge Medicare and Medicaid for their services, and the allowed amounts are below cost. Thus, rural communities in which the majority of patients have Medicare or Medicaid have seen their doctors flee to urban locales containing lots of patients with private insurance.If our alleged leaders in Washington attempt something similar with prescription drugs, the result will be the same. There will be shortages of vital medicines.

Comments 2

  1. Brenda Bowers wrote:

    The only problem with this argument, which I agree with by the way, but why should the American tax payer be forced to pay for all the research and development of new drugs? My neighbors take a cruise to Mexico once a year sty a few weeks and get a years supply of all their drugs and while there get their dental work done. The drugs are the exact same drugs sold here in the United States. People who live near the Canadian border get their drugs from Canada. It seems that the only way to cure this particular problem is for the government to get involved and regulate drug prices so the companies will have to charge other countries more. Not a solution I agree with but better than us subsidizing the world’s health care . Then again, why not health care too since we are paying for everything else with our “foreign aid? to everyone! (sigh)

    Posted 11 Mar 2007 at 5:27 pm
  2. Catron wrote:

    The result of any government attempt to “regulate drug prices” will be a shortage of many important drugs. Shortages are the inevitable result of price controls (see my response to your comment on the quality of VA doctors).

    Posted 12 Mar 2007 at 9:39 pm

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