A Plan That Leads Health Care To Nowhere

President Obama recently offered up his plan for cutting the federal budget deficit by $4 trillion over 12 years. A big chunk of those proposed savings–$480 billion, or more than 10%–is supposed to come from federal health care programs.

Unfortunately, the president plans to achieve those savings through heavy-handed rationing. Americans will lose control of their health care as government officials dictate which treatments will be available–and which cost too much money.

The centerpiece of Obama’s deficit-reduction plan is the Independent Payment Advisory Board. Comprising 15 appointed experts, IPAB is charged with ensuring that Medicare spending doesn’t exceed its annual target growth rate. In order to do so, the panel will have the authority to reduce reimbursement rates for Medicare providers–including both physicians and drug companies.

The White House says that IPAB “will help keep Medicare cost growth per enrollee affordable.” The nonpartisan Congressional Budget Office appears to feel differently; it has stated that “the IPAB mechanism will not affect Medicare spending during the 2011-2021 period.”

Not exactly a ringing endorsement of IPAB’s cost-cutting potential.

IPAB could also reduce seniors’ access to doctors. If the board cuts Medicare reimbursement rates, some doctors will refuse to take new patients–or even cease seeing existing ones. As a result, seniors may find themselves waiting much longer for an appointment– and receiving lower-quality care.

Further, if IPAB were to slash reimbursements to providers in Medicare’s prescription drug benefit, then patients would likely have fewer drug options. Drug benefit plans may institute restrictive formularies or reduce coverage for new treatments, so seniors could get stuck with yesterday’s medical technology.

It’s no wonder that many members of Congress are gunning to scrap IPAB. Rep. Phil Roe, R-Tenn., has introduced a bill–with bipartisan support–that would junk the board.

The president hopes to trim federal spending on prescription drugs in other ways, too. In his deficit-reduction proposal, he’s called on Medicare to “leverage [its] purchasing power” to secure better prices for drugs delivered through the Medicare Part D prescription drug benefit.

The government purchases far more drugs than any other entity. So it can effectively dictate the price it will pay. Such price controls may seem like an effective way to cut spending–but they’ll actually reduce the supply of available drugs. Pharmaceutical firms will simply stop selling their wares if the government forces them to take a loss on every transaction.

Consider the drug benefit administered by the Department of Veterans Affairs. The VA pays about 40% less for prescription drugs than Medicare Part D, so many pundits have held it up as an example of how the feds can effectively rein in drug spending.

But the VA has only been able to deliver those savings by covering fewer drugs.

Health care economists Austin Frakt, Steve Pizer and Roger Feldman recently compared the VA’s drug benefit with Medicare Part D at the request of the Department of Veterans Affairs and the Robert Wood Johnson Foundation. They found that the average Medicare Part D plan covered 85 percent of the nation’s 200 most popular prescription drugs–while the VA formulary covered just 59% of those drugs.

That makes sense. The more comfortable benefit managers are saying “no,” the more success they’ll have demanding low drug prices. Patients, of course, will bear the downside–fewer choices.

Price controls will also discourage research into the next round of innovative therapies. Developing just one new medicine costs a drug company nearly $1.5 billion dollars. If investors fear that Medicare will refuse to cover new, expensive treatments, then they’ll simply refuse to fund the research and development needed to create new drugs.

Despite these destructive proposals, Obama’s deficit-reduction plan doesn’t even make much of a dent in the deficit. The bipartisan Committee for a Responsible Federal Budget crunched the numbers and concluded that the president’s proposal “falls short” of his own Fiscal Commission’s targets, as well as those set in the budget put forward by House Republicans.

In fact, President Obama’s plan would require the United States to borrow an additional $7 trillion over the next decade–$1.5 trillion more than the House plan and $1.7 trillion more than that proposed by the Fiscal Commission.

Make no mistake: Our leaders must get the deficit under control. But President Obama’s plan won’t do so–and it will wreak havoc on our health care system in the process.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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