Politics

Beyond Control

Reducing drug prices is an understandable goal, but it's hard to achieve by fiat.
by | November 2005

Just as prescription drugs offer the promise of remarkable cures for many illnesses, so policy makers are looking to concoct a statutory elixir that will remedy the problem of their cost. An ambitious ordinance just approved by the local government in Washington, D.C., demonstrates both how urgent and how troublesome this desire has become.

Under the new law, approved unanimously by the D.C. council, it's illegal to sell drugs in the city at any price more than 30 percent higher than what's charged for comparable drugs in Australia, Canada, Germany or the United Kingdom. The burden of proof falls on drug makers to prove in court why they would need to charge any more. This ordinance goes well beyond the drug re-importation plans that have been floated in numerous jurisdictions. It is certain to be challenged in court by the drug industry. But it is already being studied by legislators in other cities and states.

The law's sponsor, David Catania, says it was born out of a feeling of desperation. "I just hit a wall," says Catania. "It's no longer acceptable for the pharmaceutical industry to charge these prices and have the entire economy subsidize their bottom line." The question is whether his scheme can possibly work. Price controls usually don't, except in wartime or other emergency situations. When prices are capped on a global commodity within a confined jurisdiction, producers can send their products to other markets, leading to shortages and, ultimately, price increases. When the jurisdiction is as small as D.C., producers can simply move their products across the border into Maryland or Virginia.

That could well happen in this case. Drug costs may have been inflated by the complexity of the whole health care system, but it's hard to imagine one small jurisdiction sweeping away complexity and demand through price controls imposed by fiat. Prescription drugs, no matter how useful, have never been a regulated utility. D.C. is essentially trying to make them one.

There's a case to be made that governments, as the largest purchasers of drugs, should be able to use their buying power to drive prices down. That's the model now being followed in Maine, where the state has threatened to drop drugs from its Medicaid formulary if discounts aren't offered to low-income citizens. That plan has survived court challenges, and a version of it goes before California voters as a ballot initiative this month, although drug makers have spent heavily to defeat the measure, and it has been trailing in the polls.

Catania's bill in D.C. is far more powerful medicine than either the Maine or California schemes, and the drug industry is already warning that it would "stifle supply and smother innovation." Even for those not particularly enamored of the pharmaceutical companies, it's an argument that has some logic on its side.

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