linton proposed prescription drug coverage under Medicare in mid-1999, the health care industry moved to combat the proposal, which it considered amounted to price controls on the industry (Stone, 1999, p. 2082). From an economic perspective, the increased lobbying effort will likely lead to an increase in the cost of doing business for drug companies, and consumers are likely to see an increase in prices as a result. Prescription drugs have a relatively inelastic demand schedule (even generic drugs can vary significantly from their ethical counterparts), and some conditions can only be treated effectively with a single product. Lacking widespread substitute goods, suppliers in this industry are able to pass along any increased costs (such as might be associated with lobbying to protect the industry's interests) to consumers. The price increases will most likely be felt in the form of increased premiums or in decreased availability of particular drugs since insurance companies will be the direct consumers affected by the price increases. They, in turn, are likely to pass the cost increases along to their customers.
It is not only large insurance companies and large health maintenance organizations which are affected by government regulation. Physicians which operate in private practice or as part of a small medical group have also called for guidelines to assist them in their Medicare billing (Hallam, 1999, p. 24). In this case, the physicians are themselves asking for increased intervention to help them negotiate through existing government bureaucracy. However, there is a danger that the guidelines they receive will place undue burden on the limited resources of these smaller providers, and (at its extreme), these providers could be forced to give up their smaller practices.
Such a move would be taken because these smaller providers would not be able to justify their costs given what they are able to receive for their se...