Confusion in the marketplace
Meddling with the price of generic drugs can be risky business
The Maryland legislature has just sent a bill to Gov. Larry Hogan that will, if he signs it, sow confusion in the state’s generic drug marketplace and subject consumers to considerable harm. It’s bad economics laced with a large dose of politics that begs him to pull out his veto pen and limber up his writing hand.
House Bill 631 is the brainchild of Attorney General Brian Frosh, a Democrat who is thought to be considering a race against Gov. Hogan if the governor seeks re-election next year. If he does he will have a hard climb, and uphill. Mr. Hogan is a bright red governor in a heavily blue state, but according to the polls one of the country’s most popular governors, red or blue (or even purple).
Mr. Frosh is in search of an issue he can hang his hat on, and he is trying to set himself up as a friend to consumers, to protect them from evil, and the greedy gougers who would do them harm. Sir Galahad, come to Maryland.
There have been some problems with certain companies that manufacture generic drugs, but none so severe as to commend price controls (which short of war never work as intended), or meddling by the attorney general in what the legislature prescribed.
According to the U.S. Food and Drug Administration the price of some generics are about 20 percent of name brand equivalents. For those on a fixed income, which includes most Maryland seniors, that’s a big savings. For patients and taxpayers of the nation that comes to $3.7 billion, according to the most recent industry survey. That further includes $700 million of what the state spends on Medicaid.
The bill now moving toward the governor would make it difficult to preserve these savings. Instead it would put the generic industry on guard against state investigators who have new, almost unprecedented power to investigate companies arbitrarily and to impose penalties that would inevitably force prices upward across the industry. Manufacturers of generics have a different business model than companies that invent and produce drugs under a patented name for a fixed number of years.
Generics typically show very low profit margins. Increases in the regulatory burdens like those Attorney General Frosh wants for Maryland could push a number of unprofitable drugs off the shelves of pharmacies everywhere. This would leave doctors and patients with limited options, requiring them to turn to less effective medication, switching to higher priced name brands, or simply doing without which, when a medication is prescribed to save lives, is hardly an option.
The market in generic drugs works reasonably well for doctors, patients, hospitals, and manufacturers. The behavior of a few greedy executives is no excuse for putting the entire industry under the heavy hand of arbitrary scrutiny. If Attorney General Frosh wants to play politics with health care, he should look elsewhere for campaign issue.