Sometimes third-party payment *lowers* cost

Really. There is a new paper by Mark Duggan and Fiona Scott Morton — "The Effect of Medicare Part D on Pharmaceutical Prices and Utilization." — in the just-arrived issue of the American Economic Review.  

The point is that large buyer groups, structured incentives for patients to consume certain products, and formularies ("a mechanism that allows a buyer to identify a therapeutically similar treatment as a viable substitute for a patented treatment") all can help lower cost.  These institutions are cited as reasons why Medicare D has cost about twenty percent less than expected; the third party can institute these procedures more effectively than can individuals paying out of pocket, or so the data in this paper indicates.

Ideally much more of the health care sector should work this way, although usually it doesn't.

You'll find earlier versions of the paper here.  The references are also a good place to start for catching up on some of the major papers in health care economics over the last ten years.


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