Louisianans Would Lose with Drug-Pricing Plan

Another day, another state with a bad idea on prescription drugs that could backfire on taxpayers. That’s probably the best way to describe bills recently introduced in the Louisiana legislature to even more heavily oversee pharmaceutical pricing. HB 436 and SB 59 would require manufacturers to report a raft of information to a “Prescription Drug Review Committee,” which would then publish a list of medications whose prices are judged to be “excessively high.”

Taxpayers have seen this type of misguided reaction to headlines before in other states, including New York and Nevada. Although the particulars of these various bills are different, they usually embrace the nanny-state narrative, starting with mandatory disclosure of manufacturers’ proprietary business data to some newly created “authority.” From there they can descend further into price controls or forced “rebates” (on top of discounts already granted voluntarily) that often fill government coffers rather than consumers’ pocketbooks.

As NTU has written before in other contexts, the U.S. market for prescription drugs is based on an elegant, delicate balance between price discipline (through mechanisms such as generics) and new discoveries that obviate the need for ultimately costlier treatments (such as surgeries). This is not a mere hypothetical concern: to cite just one source, the National Bureau of Economic Research has concluded that every dollar spent on prescription drugs leads to a $2.06 reduction in Medicare expenditures. Similar results can translate to Medicaid programs.

Yet the Louisiana legislation begins with an overbroad premise that this balance needs a massive readjustment, by noting in its findings that “the costs of prescription drugs have been increasing dramatically without any attributed reason” and that “containing healthcare costs requires containing prescription drug costs.” While there are cases of individual pharmaceuticals with high price tags, federal statistics show that for more than 50 years, drug costs have accounted for a remarkably consistent share of total national health expenditures (around 10 percent). And to the extent that some drugs are expensive, the overhead in creating and marketing them (which includes government regulatory burdens) is often quite high.

While the Louisiana bills have yet to reach the level of the depredations in other states’ proposals, the situation still bears careful vigilance. Bad ideas have a way of propagating as they go through the legislative process. One path for mischief is already evident in the text of HB 436 and SB 59, which directs the Review Committee to obtain manufacturer information on prices “charged to purchasers outside the United States.” This alone could become a stalking horse for follow-on legislation that allows drug (and price control) importation from abroad, a harmful scheme that NTU has long opposed.

For these reasons Louisiana public officials would be well-advised to take a cautious step back from HB 436 and SB 59. There is indeed a great deal of money at stake in the outcome of this legislation .... for starters, the savings that taxpayers currently enjoy from free-market drug development are on the line.