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HB 631: A Bad Bill for Maryland Patients that should be Vetoed

Back in March, Red Maryland featured an article that brought HB 631 to the attention of Marylanders when the bill still faced votes in the House and Senate. After being passed by both chambers, HB 631 could be brought before Governor Hogan for his signature this week, and hopefully he concludes that HB 631 is a bad prescription for fighting health care costs.

The signing of this bill comes during a time when health care is front and center in the news after House Republicans on Capitol Hill passed a replacement for the Affordable Care Act, or Obamacare, just last week. Health care costs have been rising substantially for the past half-century, but have managed to rise even more dramatically the more government has gotten involved with the health care market.  HB 631 is just another example of government interference that will lead to the unintended (we assume) consequence of higher drug costs for Marylanders.

HB 631, or the “Essential Off-Patent or Generic Drugs Price Gouging Prohibition” attempts to fix a problem that doesn’t exist (price gouging in the generic drugs market place) and specifically places a new bureaucratic and financial burden on the one segment of health care that actually helps to curtail rising drug prices.

Bad Requirements

HB 631 specifies that generic drug companies are supposed to comply with a law that doesn’t even give those companies any idea of what even constitutes being out of compliance. For example, the bill states:

“UNCONSCIONABLE INCREASE” MEANS AN INCREASE IN THE PRICE OF A PRESCRIPTION DRUG THAT:

  • IS EXCESSIVE AND NOT JUSTIFIED BY THE COST OF PRODUCING. THE DRUG OR THE COST OF APPROPRIATE EXPANSION OF ACCESS TO THE DRUG TO PROMOTE PUBLIC HEALTH; AND HOUSE BILL 631
  • RESULTS IN CONSUMERS FOR WHOM THE DRUG HAS BEEN PRESCRIBED HAVING NO MEANINGFUL CHOICE ABOUT WHETHER TO PURCHASE THE DRUG AT AN EXCESSIVE PRICE BECAUSE OF:
    1. THE IMPORTANCE OF THE DRUG TO THEIR HEALTH; AND
    2. INSUFFICIENT COMPETITION IN THE MARKET FOR THE 6 DRUG.”

So who is responsible for deciding what counts as an “unconscionable increase” in the price of generic drugs? Apparently Maryland’s Attorney General Brian Frosh, the person who pushed the bill, will be the new Czar overseeing all compliance with the assistance of a new $100,000 state employee who will provide the reporting. Neither the pharmacist nor the Attorney General, I imagine, will have had much formal economics training – but that hasn’t stopped efforts at centralized planning before.

Bad Economics

Generic drugs have proven themselves to be the most effective tool against the overall inflation of drug prices. As a matter of fact, generic drugs have undergone price deflation as increased competition continues to pull prices down.

“Generics make up 90 percent of the prescriptions in the United States but only 27 percent of total drug spending. What’s even more remarkable is that generic drugs overall experience price deflation, meaning a majority of products finish the year significantly less expensive than where they started. Generic price declines overall are a steady trend well-documented by the FDA and other respected sources in numerous studies. In fact, the new Express Scripts Drug Trend Report notes that generics on average declined 74 percent since 2008.”

These aren’t the Martin Shkrelis of the world artificially driving prices of their brand name drugs higher – these are generic drug companies that have gained the ability to provide off-patent drugs to the people of Maryland at far cheaper prices than name brand drugs.

Bad Reasoning

There is an unusual amount of irony when you read the background section of the Fiscal and Policy Note for the bill:

“Concerns about the high cost of prescription drugs, including some significant price increases for generic drugs, have prompted calls for action to lower prescription drug costs.”

Will this bill require companies to lower their prices artificially, without market influence? The language of the bill seems to be more about going after the company if the prices rise too sharply.

“At the federal level, the EpiPen controversy prompted calls for approval of more generic versions of common drugs, and the U.S. Food and Drug Administration is under pressure to reduce a backlog of more than 4,000 generic drug applications.”

If there is pressure to encourage the growth of the generic pharmaceutical market, why would the state of Maryland look to pass legislation aimed at punishing the generic pharmaceutical industry?

Bad Bill

As State Senator Steve Hershey thoughtfully laid out in his Op-Ed, I don’t think there is anything nefarious behind HB 631. Nevertheless when I weigh the costs of the bill and the impact it might have, especially if it helps drive generic drug companies out of the state, I struggle to find any redeeming qualities. This is a solution looking for a problem – and I fear that it will create more problems than it solves. I hope Governor Hogan reaches the same conclusion and vetoes HB 631.






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