If you listen to Republican legislators tell it, medical malpractice lawyers are to blame for the high cost of health care. Frivolous medical malpractice lawsuits drive up doctors’ medical malpractice premiums and force them to practice “defensive medicine” – ordering more tests and examinations than are actually necessary to treat the patient. All of this translates into you paying much more than you should for your health care.
We’ve dealt with those claims before on this blog and found them lacking.
So now there’s a new explanation for the high cost of health care and it’s probably not one you’re going to like. The new theory is: You’re to blame. Yes, you. Stop looking around at everyone else.
As economist/blogger Tyler Cowen explains, a new journal article shows that since 1997, when the FDA relaxed its rules on direct-to-consumer advertising (DTCA), the cost of prescription drugs has gone up threefold. Prior to 1997, broadcast advertising by pharmaceutical companies was much more heavily regulated by the FDA. The 1997 changes meant drug companies were able to spend comparatively more money directing advertisements at the consumer (you), rather than targeting your doctor (the person who writes out the prescription).
This research is really surprising because it flies in the face of a very famous free market economics journal article showing that, when advertising bans on optometry services were abandoned, the price of eyeglasses fell dramatically. Advertising gave consumers access to information that they hadn’t had before, so they were able to shop around for the best prices and eyeglass frames and lenses.
How do we reconcile the famous study of eyeglass prices with the new research suggesting pharmaceutical advertising is driving up the prices of pharmaceuticals? There are many explanations, but it seems “informational asymmetry” is involved. When a consumer is buying eyeglasses, she can tell that she needs them (she can tell that her vision is poor or has declined) and she knows what kind of results the eyeglasses produce (she can see them plain as day). So, in short, she and the eyeglass seller possess a roughly equal amount of information.
Pharmaceutical pills are a little more complex. Most problems have a vague set of symptoms. You can’t really tell if your symptoms are serious enough to need the pills. But you see the advertisement and want the magic pill. And you go to your doctor and pressure him to give it to you.
And we wind up with the cost of prescription drugs tripling in a little over a decade.
Needless to say, I like this theory better than the “medical malpractice lawyers are the root of all evil” theory.