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Runaway medical costs must be limited, whether we eventually implement a single payer system or not. To this end, we should consider turning care providers into a regulated utility.

Like today's gas and electricity distributors, the medical-pharmaceutical complex would have to justify prices to a government regulatory commission. The commission would set reasonable maximum prices for treatments and drugs, while allowing providers decent compensation for employees and adequate returns on prudently invested capital.

Utility status will be opposed by those believing government should never regulate prices, and of course trying to regulate the prices of all goods and services is a terrible idea. When the Soviet Union suppressed markets and dictated quantities and prices of all goods and services, it produced shortages, bottlenecks, lack of coordination (in a "planned economy"!), technological stagnation, and gross waste of natural resources and capital.

On the other hand, many Americans would be injured if government stopped regulating some prices, current examples again including electricity and gas distribution.

Monopolies, lacking competition to protect us from excessive charges, are an obvious exception to the general rule that government should not regulate prices. Building expensive competing distribution systems for electricity and gas would be wasteful and drive consumer prices up, so such services are best provided by monopolies. Utilities implicitly accept regulated prices by accepting government's conferral of a monopoly.

In many ways the medical-pharmaceutical complex is a monopoly or its equivalent and thus an appropriate target for price regulations. Some areas have only one hospital. But even when several hospitals are available, medical care's complexity makes it virtually impossible to compare prices and quality of care in different facilities.

In addition, hospitals treat their prices like top secret information, unavailable to prospective patients, and actual charges at a particular hospital vary greatly depending on who is paying the bill. People with emergencies obviously can't shop for the best price.

Most areas have more than one doctor, but here too complexity, price secrecy, and urgency prevent patients from making informed choices.

Producers of patented medicines are literal monopolies, allowing them to raise prices without losing all their business to another producer. Pharmaceutical companies have become experts at protracting the supposedly limited period during which patents protect their monopoly. Even when patents finally expire, generic producers need to get FDA approval and this continues to limit price competition.

Prices charged by insurance companies have long been subject to state regulation. Insurers must remain solvent enough to pay claims, and unrestricted price competition could undermine this. But increases in the unregulated prices of doctors, hospitals, and pharmaceuticals have forced regulators to allow increases in medical insurance prices.

The medical-pharmaceutical-insurance complex, like gas and electric distributors, is an important exception to the general principle that government should not regulate prices. It would make sense to make it a regulated utility. But as always, the devil will be in the details. Before enacting any legislation, Congress should hold hearings, consult interested parties and experts, study American and foreign experience with price controls, get an analysis from the Congressional Budget Office, and in general follow due process of legislation.


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