We Can Find Consensus on Health Care Cost Reforms
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By Marc Joffe
April 13, 2014

With the Affordable Care Act’s open enrollment period now closed, perhaps there is an opportunity for constructive, bipartisan policy discussion on health care reform. One thing that both Obamacare supporters and opponents can agree on is that our health care system remains inefficient. And, although health care inflation slowed in recent years, informed observers from across the political spectrum realize that population aging will produce a new bout of cost escalation – unless something else is done. 

Although most progressive and market-oriented analysts agree that U.S. health care is too expensive, their approaches to control costs fundamentally differ. Progressives prefer mechanisms that promote equal access to health services, such as single-payer insurance. Market advocates focus on maximizing consumer choice and thus prefer greater competition. 

In an era of divided government and routine filibusters, neither side will likely have the opportunity to push through a major reform any time soon. Rather than accept gridlock, we need to identify and implement reforms that appeal to both sides of the debate. There are smaller reforms that, while market oriented, may be attractive to progressives. 

Prescription drugs – which account for 10 percent of the nation’s health care costs – are generally more expensive in the United States than elsewhere. Other countries use price controls or their exclusive buying power to hold down prices. While such measures are unattractive to market advocates, alternative reforms could reduce drug prices within a market context. These prices are often high because the government grants manufacturers a monopoly over their sales for periods of up to 20 years, through pharmaceutical patents and exclusivity periods. If we reduce the number and length of these monopoly grants, we can open up the pharmaceutical market to competition from generic drugs and bring down prices. 

Patent protections are often justified as a way to compensate pharmaceutical companies for the benefits their inventions create and for the development costs they incur. But this argument doesn’t always apply. Many of today’s blockbuster medications, like Nexium, Crestor and Cialis, are “me too” drugs – pills that have similar effects to drugs that are already available – e.g.  Prilosec, Lipitor and Viagra, respectively. Studies show that Nexium, AstraZeneca’s remedy for acid reflux, has similar effects to Prilosec, an over-the-counter medication that contains the same active ingredient and is sold by the same company for a small fraction of the price. If Nexium hadn’t been patented, the vast majority of acid reflux patients would have achieved similar benefits with Prilosec – at an annual savings of over $4 billion. 

Limiting pharmaceutical patents to only those drugs that provide major unique benefits would reduce drug company profits and make medicines more affordable – developments that should be attractive to those on the left. 

A similar point of agreement is possible when considering the role of midwives, nurse practitioners and other so-called “mid-level” providers in our health system. Many states limit the activities of these professionals or require them to work in a physician’s practice. As Barbara Ehrenreich and Deirdre English have observed, limitations on these traditionally female-dominated medical professions has its roots in the male chauvinism of the medical establishment. Eliminating restrictions on “mid-level providers” is consistent with both feminist objectives and free market principles. Expectant mothers and patients should have the right to choose the practitioners who provide their care. Allowing the choice of lower cost providers, creates opportunities for healthcare cost savings. 

Finally, tort reform is often seen as a right-wing approach to health care cost reform. But, as Michelle Mello and her colleagues find, some of the strictest limitations on malpractice awards exist in New Zealand, Denmark and Sweden – three nations not known for their right-wing orientations. These countries use administrative law systems instead of adversarial court procedures and lottery-sized damage awards. As a result, they make a much larger number of smaller sized payments to patients injured during the health care process. 

By eliminating the need to demonstrate liability, these countries can identify and potentially remedy many more errors than our confrontational system turns up. Under our system, medical providers have a strong incentive to obstruct fact finding procedures; in New Zealand, Sweden and Denmark, they have much greater reason to cooperate. 

These are just a few reforms that can become part of a bipartisan dialogue around ideologically feasible reforms. If, instead, policy analysts continue shouting each other across the chasm of the equal access/patient choice divide, we face years of stagnation on the healthcare policy front. By finding measures that further both sides’ objectives, we can take incremental steps toward reigning in health costs and promote long-term fiscal sustainability.

Marc Joffe is the principal consultant at Public Sector Credit Solutions and author of a new working paper published by the Mercatus Center at George Mason University, “Medical Cost Containment: A Microeconomic Approach.”