An Open Letter to the Illinois General Assembly on HB 4900: Heaping Price Controls on Prescription Drugs Harms Taxpayers as Well as Patients

by Pete Sepp / /

Dear Speaker Madigan, Majority Leader Currie, Minority Leader Durkin, and Assembly Members:

On behalf of National Taxpayers Union’s (NTU) thousands of supporters across Illinois, I write to express our serious concerns over HB 4900, the tragically misnamed Illinois Generic Drug Pricing Fairness Act, which the Assembly will soon consider. While patient and provider advocates may object to the bill over its implications for health care, this legislation is an ill-advised response to a misperceived issue, on economic and fiscal policy grounds alone,. HB 4900 contemplates what is effectively a price control and business micromanagement regime administered by the heavy hand of government. Generic pharmaceutical companies would be dragooned into making detailed reports to the Attorney General on common pricing decisions should the bill’s provisions regarding “unconscionable” acts of “price gouging” be triggered (or merely suspected by authorities). Just like the onerous tax policies NTU works to reform, burdensome government mandates on businesses can drive up compliance costs, deter economic development, and in turn, affect the finances of families across the state.

This legislative response, to a few high-profile reports of price increases in a limited number of off-patent or generic drugs, is fundamentally flawed. The reality is that drug prices in general, and generic prices in particular, are not the root cause of perceived or actual rises in health care costs – they are simply rare but visible manifestations that grab headlines. Indeed, according to annual federal data reported by the Centers for Medicare and Medicaid Services, the share of National Health Expenditures attributable to prescription drugs have for decades hovered near 10 percent, well behind costs such as hospital care or physician charges. In fact, the increased utilization of generics, currently accounting for about 9 of every 10 prescriptions but only one-fourth of total drug costs, is the primary reason why this proportion has remained consistent even as expensive life-saving discoveries have entered the market.

Beyond the obvious consequences for consumers, taxpayers have an abiding interest in ensuring that public policy respects this balance between generics and innovator drugs. While the former helps to keep outlays for programs such as Medicaid from growing even further out of control, the latter provides cures that obviate budget-crunching treatments, such as long hospital stays and intricate surgeries. Placing heavier burdens of doing business in your state on generic and off-patent firms will tamper with these benefits, endangering not only patients’ health but taxpayers’ wealth in the near term.

In addition, the bureaucracy required to pursue the dictates of HB 4900 will lack sufficient checks and balances. To give just one example, while proprietary financial data of companies is exempt from normal disclosure requirements, the Attorney General in collusion with the courts could reveal such information in any proceedings deemed (by them) to be “in the public interest.” In this kind of arbitrary environment where government has virtually all the power and business has virtually all the burdens, potential start-ups in any field considering Illinois for their location will be tempted to look elsewhere, opting for states that do not impose such capricious market controls.

The Land of Lincoln can ill afford to be re-taught this hard lesson. In 2015 Illinois had a state and local tax burden of 11.3 percent of personal income, well above the national average of 10.1 percent and by far the highest in the Great Lakes region. It also places a mediocre 29th on Tax Foundation’s 50-state comprehensive business tax climate index. Given these indicators, Illinois officials should be working to tear down impediments to prosperity for residents, rather than building new ones.

Illinois has flirted with dubious drug price “crackdowns” before, such as the state’s ill-fated attempt to import prescription drugs from Canada that was terminated for lack of participation in 2008. Ironically, one reason that participation was so low had to do with generic availability, which reduced the attractiveness of imported branded drugs. While HB 4900 takes a different approach, the result will be similar: little to no savings for consumers or taxpayers, and likely higher costs as providers become wary of selling in the Illinois market.

Those who believe Illinois is “too big” for businesses to leave should bear in mind the exodus of population, activity, and money from the state due in no small part to decades of tax increases and hostile regulatory schemes. One need only recall the fate of small online companies suffered when Illinois enacted its 2011 “affiliate nexus” law and companies such as Amazon and Overstock had no choice but to sever their relationships with those “mom and pop” businesses. Subsequent court rulings and modifications to that law in response have not completely reversed the damage done to the state’s private sector.

It is time to recognize economic and fiscal common sense, by rejecting the policies concocted by HB 4900. The future health of all sectors in the state’s economy, and by extension the well-being of taxpayers, is at stake. Thank you for your consideration.​​​​​​

Pete Sepp