Washington might have just solved the problem of high drug prices. But the road to that would be incredibly painful.
It’s an argument laid out in an unsettling column for Bloomberg, by former Office of Management and Budget head Peter Orszag.
“Senate Republicans may not realize it, but their repeal-and-replace health-care legislation, if passed, would set the U.S. on the road to European-style price controls and rationing of prescription medications. This would follow fairly directly from the enormous cuts to Medicaid that the bill would impose,” he writes.
To be clear, Orszag isn’t writing this because he thinks it’s a merit of the bill that’s aimed at repealing Obamacare. It’s an unintended consequence, he says, and Orszag is one of President’ Barack Obama’s guys.
But the scenario he lays out is fairly simple: The Congressional Budget Office estimates that Federal spending on Medicare will fall by 25% by 2026 under this bill. After that Federal health care funding to states would increase at the rate of inflation, which is an estimated 2% less than the rate of healthcare cost inflation.
You can see how this problem could start to run away from state governments, especially those already suffering from budget constraints.
So Orszag, who now the global co-head of healthcare at investment bank Lazard, thinks that states will have to go into emergency mode, pulling back on big costs like prescription meds. After all, according to the Center for Sustainable Rx Pricing, prescription drugs now make up almost 20% of healthcare costs.
This would hit drug companies and patients subject to drug rationing alike.