Six health industry leaders promised President Barack Obama in May that they would do their part to help slow the growth of health spending. That much is agreed.
The president held a press briefing announcing they would reduce health spending by 1.5 percent a year for 10 years. He called the commitment "a watershed event" that could lead to $2 trillion in savings over a decade -- enough to pay for the massive reform agenda he envisions.
But then a very public battle began over how spending would be reduced and by how much.
Richard J. Pollack, the executive vice president of the American Hospital Association, said: "The groups did not support reducing the rate of health spending" at the pace Obama claimed, basically saying that the president had exaggerated their commitment.
A month later, the groups sent another letter with ideas for how health insurers, physicians, pharmaceutical companies, medical device makers and labor unions will do their part to achieve the administration's goals.
The tools involve sensible steps such as simpler administration, coordinated care, evidence-based medicine, use of health information technology, and reducing medical errors.
Health spending can be reduced, but it won't happen in meetings at the White House or in media events. It will happen only by engaging the power of competition and innovation in the private health sector.
Market-friendly changes in public policy and countless innovations from the private sector have helped to moderate the rise in health insurance cost, create new models for care delivery and financing, and support the movement toward patient-centered health care.
Wal-Mart's decision to sell generic pharmaceuticals for $4 for a month's supply led to a competitive pricing war with significant savings on drugs. Private retail health clinics have opened in stores across the country, giving people easy, more affordable access to health care, saving millions of people an expensive visit to the emergency room.
Because of these and thousands of other innovations, U.S. health spending in 2007 grew at its slowest rate since 1998 -- just 6.1 percent. This is still higher than inflation, but not the double-digit spikes seen over the last several decades.
This is proof that the private sector can succeed, unlike the top- down, price control and regulatory regimes that government employs in its attempt to cut spending. Medicare, for example, has cut its reimbursement rates for doctors and hospitals by 5 percent since 2000, but the volume of services has increased by 40 percent, causing spending to soar.
Price controls haven't worked in 4,000 years of history, and they won't work with the health-reform plans that Congress is contemplating. If the White House wants to find real savings, it will have no choice but to rely on the private sector.
The only price-reduction scheme that will work in the long run is the power of competition, giving consumers more choice over their health insurance, better incentives to take care of their health, and new options to seek care in the most appropriate, affordable setting. More competition in a properly functioning market is the answer, not government price regulation.
Turner is president and founder of the Galen Institute, which is funded by the pharmaceutical and medical industries; Web site: www.galen.org.