The Problem With Price Controls

The Problem With Price Controls
June 1, 2004

If you ask most people about the cost of medical care, they may tell you how much they have to pay per visit to their doctor's office or the monthly bill for their prescription drugs. But these are not the costs of medical care. These are the prices paid.

The difference between prices and costs is not just a fine distinction made by economists. Prices are what pay for costs--and if they do not pay enough to cover the costs, then centuries of history in countries around the world show that the supply is going to decline in quantity or quality, or both. In the case of medical care, the supply is a matter of life and death.

The average medical student graduates with a debt of more than $100,000. The cost per doctor of running an office is more than $100 an hour. The average cost of developing a new pharmaceutical drug is $800 million. These are among the costs of medical care.

When politicians talk about "bringing down the cost of medical care," they are not talking about reducing any of these costs by one cent. They are talking about forcing prices down through one scheme or another.

All the existing efforts to control the rising expenses of medical care--whether by government, insurance companies, or health maintenance organizations--are about holding down the amount of money they have to pay out, not about reducing any of the real costs.

Price Controls

Many of the same politicians who are gung ho for imposing price controls on prescription drugs, or for importing Canadian price controls by importing American medicines from Canada, have not the slightest interest in stopping frivolous lawsuits against doctors, hospitals, or drug companies--which are huge costs.

Price control zealots likewise seldom have any interest in reducing the amount of federal requirements for getting a drug approved for sale to the public--a process that can easily drag on for a decade or more, costing millions of dollars, and also costing the lives of those who die while waiting for the drug to be approved by bureaucrats at the Food and Drug Administration.

For political purposes, what "bringing down the cost of medical care" means is some quick fix that will win votes at the next election, regardless of what the repercussions are thereafter.

What Repercussions?

If the bureaucratic hassles that doctors have to go through make their huge investment in time and money going to medical school not seem worthwhile, some can retire early and some can take jobs no longer involving treating patients. Either way, the supply of medical care can begin to decline, even in the short run.

In the long run, medical school may no longer look like such a good investment to many in the younger generation. Britain, which has had government-run medical care for more than half a century, has to import doctors from the Third World, where medical school standards are lower.

So long as there are warm bodies with "M.D." after their names, there is no decline in supply, as far as politicians are concerned. Only the patients will find out, the hard way, what declining quality means.

No law passed by more than 500 members of Congress is going to be simple or even consistent. There are already 125,000 pages of Medicare regulations. "Universal health care" can only mean more.

No Choice

I saw a vivid example of what bureaucratic medical care meant back in 1959, when I had a summer job at the headquarters of the U.S. Public Health Service in Washington. Around 5 o'clock one afternoon, a man had a heart attack on the street near our office.

He was taken to the nurse's room and asked if he was a federal employee. If he was, he could be sent to the large, modern medical facility there in the Public Health Service headquarters. But he was not a government employee, so an ambulance was summoned from a local hospital.

By the time this ambulance made its way through miles of downtown Washington rush-hour traffic, the man was dead. He died waiting for a doctor, in a building full of doctors. That is what bureaucracy means.

Making a government-run medical care system mandatory--"universal" is the pretty word for mandatory--means that we will all have no choice but to be caught up in that bureaucratic maze.


Thomas Sowell is a nationally syndicated columnist and author. © 2004. Reprinted by permission of Thomas Sowell and Creator's Syndicate, Inc.