Richard Epstein on the Cancer Drug Shortage

http://www.futureofcapitalism.com/2011/08/richard-epstein-on-the-cancer-drug-shortage

Libertarian law professor Richard Epstein has a new piece up about price controls and a medicine shortage:

Unfortunately, the law of supply and demand "really apply to cancer drugs," for it confidently predicts shortages whenever price controls are applied. That is what is happening here.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 introduced a set of complex price controls as part and parcel of the new prescription drug benefit contained in Medicare Part D. These are not garden-variety price controls, like those on gasoline or rents, which interfere with solely private transactions. They are controls that the government introduced as an effort to prevent overpayments under the Medicare program. The problem here is universal. It has long been well understood that market systems do not easily adjust to third-party payers. No healthcare plan, public or private, can allow physicians and patients to purchase as much as they want of any good on their insurer's dime. The 2003 Medicare restrictions impose a rigid cost-plus system, under which price is determined by first finding the actual average selling price, to which the government tacks on an additional 6 percent fee for handling. To keep Medicare costs down, the law stipulates that the base price of the drug may not increase by more than 6 percent every six months.

It's worth observing that the culprit here is not ObamaCare but a program signed into law by President George W. Bush, a Republican. Price controls turn out to produce shortages with remarkable indifference to whether the president enacting them is a Republican or a Democrat.

Link via Instapundit.

by Editor  |  Aug 30, 2011 at 10:58 am Related Topics:  Education, Health Care receive the latest by email: subscribe to the free futureofcapitalism.com mailing list