Sunday, January 07, 2007

you don't have to be an economist to see the problem...

"I am required by law to negotiate with you over the price of this car. I am also required, at the end of the day, to buy this car. I see that the sticker price is $23,000. How about we start the negotiations at $17,000?"
"How about we end the negotiations at $23,000?"
"Um, $19,000?"
"The law says I have to buy this car! $21,000 is not my final offer!"
"Okay, $23,000."

This, as far as I can tell, is what the Democrats are offering as their plan for how the government will use its "power" to negotiate lower prices for prescription drugs with Medicare. NYT has critics making the point here.

That said, my guess is the government will be able to negotiate lower prices, which will be partly apparent [lower prices compared to what?] and partly real, just so this plan can be called a success and there will be no pressure to enact a plan where the government has true leverage and could force a much stronger deal.

It's a little like invading a foreign country without enough troops to do the job properly, except that, over the long-term, more Americans will be killed by suboptimal drug policy than by the war in Iraq.

To clarify: (1) some negotiation can't be worse than the Republican plan allowing no negotiation, but (2) this is still much better from the perspective of the pharmaceutical industry than what the Democrats could have done. Given how much money the pharmaceutical industry spent trying to defeat Democrats, it does make one wonder if part of the purpose is to neutralize this lobby by being ungenerous but not unfriendly toward them.

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