What should government do about expensive medicine?
- This week in Amsterdam, the World Health Organization (WHO) organized a ‘Fair Pricing Forum’ to discuss what to do about the cost of drugs. It was a closed meeting, so we don’t exactly know what was discussed. We know that one of the goals is to “facilitate discussion on strategies that could lead to a fairer price setting and a pricing system that is sustainable for health systems and for innovation.” It’s likely that price fixing by governments is one of these scenarios. And that is a very bad idea.
Why Price-Fixing Doesn’t Work
In the health care system of the Netherlands, we can find a good example of why exactly price fixing by is a bad idea. De Nederlandse Zorgautoriteit (NZa) is a government agency that sets both the quality demands and prices for health care, regulated by the Wet langdurige zorg (Wlz) as well as dental care. Each year, the tariffs are updated, adding more bureaucracy and uncertainty for health care providers.
It should not surprise us that it is problematic to let government decide what the quality and price of a service should be. The practical solution to a real life problem of a patient is often different from the prescribed ‘solution’ by a bureaucrat. For many health care providers it is hard to comply to these ‘one size fits all’ policies. It’s hard for health care organizations to be a good employer: many employees are complaining about the work pressure, but there is not enough money to hire more personnel. It has even forced health care providers to move their businesses to Belgium or Germany.
As much as price fixing by the NZa is not improving health care in the Netherlands, it is a bad idea to let governments fix prices for medicines. The result of price fixing will be that pharmaceutical companies can only vary their quality. And since the quality is mostly regulated as well, it will take away opportunities to optimize the production of medicines that consumers really want. Actually, it will take away the freedom to sell and buy from businesses and consumers. Besides that, it can evoke the forming of monopolies because the market will be less interesting to invest in if it is not rewarding.
To improve the products and service in the healthcare sector and the pharmaceutical industry, both price and quality should be determined by what consumers want to pay and what quality they expect vis-à-vis what producers want to provide. It should be a win-win situation for both parties. Price fixing by governments will only make things worse.
How to Improve the Situation
Here are a couple of measures to improve both quality and affordability in health care.
First, keep the legally determined ‘basic package’ of health insurances as minimal as possible. Hereby the negotiation power of insurers will be strengthened; the pharma industry can no longer claim that the insurer is anyway bound to buy their products. Moreover, it will create more possibilities to match the insurance premium an individual pays to this person’s specific needs;
Second, let individuals (represented by interest organizations) and insurers free to agree on price ceilings; the extent to which health care services and products are reimbursed in relation to the extent to which it improves quality of life and lifespan. In the United Kingdom this kind of price ceiling is already implemented and the prices of medicines are significantly lower. A 2014 research by EenVandaag and the Orde van Medisch Specialisten (OMS) found that medical professionals in the Netherlands actually support price ceilings by a majority of 71 percent.
Health care and the pharmaceutical industry don’t need price ceilings, they need a better match of supply and demand. Government should allow more market dynamics that will benefit both consumers and producers.
Leendert de Rijke is a local coordinator for European Students For Liberty and a member of the Consumer Choice Center
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