California's Real Drug Problem

INVESTOR'S BUSINESS DAILY
Posted 8/23/2006

Health Care: Democratic lawmakers and the Republican governor have reached a discount drug deal for low-income Californians. It sounds good on paper and may be an easy sell politically, but it's sure to fail.

Under the deal, more than 5 million Californians, nearly 15% of the state's population, will benefit from rigged discounts on prescription medicines.

Most of the cut-rate drugs will go to families of four or more who earn up to about $60,000 a year, or three times the federally established poverty level.

Another 400,000 who have high medical bills relative to their incomes yet earn a bit beyond that threshold will also be eligible.

The discounts, which the drug industry has three years to negotiate with the state, will cut as much as 40% off brand-name medications and up to 60% off generics.

Companies that don't participate will be penalized by having their medications taken off the list of approved drugs paid for by Medi-Cal, the state's health insurance program for the poor that is a multibillion-dollar market for drug companies.

"This is a huge victory for the needy," said Assembly Speaker Fabian Nunez, a Los Angeles Democrat. "This goes a long way toward correcting the wrong that was done at the ballot box in November."

Oh, yes, the "wrong" done at the ballot box.

Last November, voters overwhelmingly rejected two initiatives aimed at providing discount drugs to Californians. Proposition 78 was opposed by 58.5% of the voters, Proposition 79 by 60.7%.

So much for the will of the people. Californians should just all turn their lives over to Nunez and the enlightened in Sacramento.

And the needy? It's too much to ask bureaucrats to decide who is needy. A measure of income divided by family size is not sufficient. Too many factors — from spending habits to work history to issues of personal responsibility — must be weighed to determine who is truly needy. The government is not up to that task.

The real needy are those — rich, poor and in between — who won't be able to get the medications they need in California because drug makers pulled out of the state rather than sell their products at costs that will hurt their businesses.

The needy are those who will lose their jobs when the drug companies pull out of the state, which is rich in biotech firms, as they inevitably will. The needy are Americans everywhere who would have benefited in the future from the R&D that drug companies had to curtail because their profits fell in the largest state in the country.

All this thanks to discounts coerced by legislative action against the people's will.

The needy are also the taxpayers who will have to pay for the litigation costs that the state will incur to go after drug companies that seek refuge from government coercion.

Don't think it won't happen. It already has in Maine. That state forced drug makers to agree to discounts, and the industry challenged the mandate in court. The drug companies ultimately lost — and so did the people of Maine. The winners? As usual, lawyers who took fees to settle an issue that should have never arisen.

Meanwhile, the California legislation's authors, who will feel good about themselves when they pass the bill before the session concludes at the end of the month, will never have trouble getting the medications they need.

They'll feel even more superior as other states catch the virus of prescription drug price controls. By the time the Maine mandate had been largely settled in court, 18 states had proposed similar drug-discount programs.

Price controls, whether on food, energy or medication, never work out as they are supposed to.
Yet there's never a shortage of lawmakers and activists who think this time they've finally found a formula to make them work. Nor is there ever a shortage of lawmakers and activists who know exactly what price controls will do — and agitate for them anyway.

There will be shortages, however, of whatever good or service the government tags with price ceilings. It's an elementary law of economics: Supplies fall when prices fall. Only those with the most fevered imaginations let themselves think otherwise.