|Selected research from leading health care experts whose findings have a direct bearing on public policies effecting medical progress. Research is chosen based on its quality and relevance by the Medical Progress Today editorial staff.||
The Distortionary Effects of Government Procurement: Evidence from Medicaid Prescription Drug Purchasing
Government subsidies can distort markets in very unpredictable ways. For instance, when government isolates one group of citizens from cost pressures (setting prices through administrative fiat), prices can rise for everyone outside that group. One twist on this familiar theme has been identified by Duggan and Morton in the federal-state Medicaid Program, which “insures 43 million people for virtually all of the prescription drugs approved by the FDA.”
“To determine the price that [Medicaid] will pay for a drug treatment, the government uses the average price in the private sector for that same drug. Assuming that Medicaid recipients are unresponsive to price because of the program's zero co-pay, this rule will increase prices for non-Medicaid consumers.” [Ed. – emphasis added.]
This authors present yet more evidence that even government attempts to shield low-income consumers directly from prices – rather than through targeted tax credits or vouchers that still encourage price sensitivity – backfire by raising costs for all other consumers and the government programs that provide the subsidies.
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