Ten Myths about the Market for Prescription Drugs
Myth No. 9: We Can Have Price Controls without Rationing Drugs
If federal price control-based legislation for pharmaceuticals were adopted, the government effort to control the resulting rise in consumption would lead the government to decide who got what drugs.
Consider the Medicare program's handling of erythropoietin (EPO), a biotechnology product used to control anemia in kidney dialysis patients. (Medicare pays for drugs that are part of overall therapy such as cancer care, bypass surgery and diabetes management. Prescription drugs are not covered except when available through HMO plans.) Dialysis patients are healthier and longer-lived with EPO than without it. In 1994, to limit its expenditures for EPO, Medicare put a price control on the drug, rationed the amount patients could get and refused to cover patients with healthy blood cells above a certain level.
Subsequently the number of people who died in the program increased and people with healthy blood levels wound up getting sicker and spending more time in dialysis and in hospitals. It took five years of lobbying and administrative review to get Medicare to loosen its chokehold over the lives of diabetics.29
Drug rationing in state Medicaid programs also has been strongly associated with a huge spike in hospitalizations and doctor visits. Whatever money was saved on drugs was more than offset by the cost of the untreated illness.30 Price controls would institutionalize this perverse consequence.
"Drug rationing in state Medicaid programs has been associated with a huge spike in hospitalizations and doctor visits."
Further, a prescription drug benefit would invite bureaucrats to decide what drug the elderly could take and to switch drugs without patients' consent. Government-mandated drug switching interferes with the doctor-patient relationship and may compromise the health of seniors. Medicaid's price controls have been combined with such approaches to controlling the inevitable rise in costs associated with regulation.
- A 1991 study published in the New England Journal of Medicine found that when New Hampshire restricted the number of prescriptions reimbursed by Medicaid, the elderly entered nursing homes at a rate more than 60 percent greater than in a control state.
- Although drug utilization fell 35 percent, nursing home admissions rose 60 percent and overall health care expenditures increased.
- When the restrictions were lifted, nursing home admissions decreased.31
- A 1994 study in the New England Journal of Medicine by the same authors found that New Hampshire's prescription drug caps saved an average $57 per year on drugs for schizophrenia patients - but added $1,530 per year in costs for visits to mental health clinics and emergency rooms.32
Drug switching and rationing can harm the elderly because seniors can react differently to medications than do younger people. This is particularly true for medications used in treating depression, Parkinson's disease and high blood pressure. A change made to save money may force a senior into a nursing home or hospital. Yet advocates of a new drug entitlement program are the most aggressive supporters of forced substitution of generic medications by the government.