Editor’s Note: A guest post by Thomas Jones.
We all agree that drug prices are too high. The drug manufacturers have raised list prices time and time again, reeking havoc on state budgets, consumers and employers alike. While it is important to examine the entire drug supply chain, the state has recently missed in legislating at the wrong target. The Louisiana state legislature recently passed Senate Bill (SB) 41, which adds burdensome, big government regulations on the one entity that is actually working to drive drug costs down, pharmacy benefit managers (PBMs). The bill passed both houses without opposition and has been signed by Governor Edwards.
When legislation sails through like this one did, it can be tempting to assume that everyone agrees and that there’s nothing but upside to the bill.
The problem is that there are virtually always issues or unforeseen problems when laws are changed— let’s call them “unintended consequences.” And it’s both smart and a conservative principle to take a step back and examine what some of those unintended consequences could be, particularly if they have the potential to cost taxpayers money.
First, it’s important to lay the groundwork—namely, let’s take a look at what PBMs are and what they do.
PBMs partner with health plans to secure lower prices on prescription drugs. They also serve with this same functionality for self-insured companies, i.e. unions, and municipalities. PBMs work as navigators—experts with industry knowledge who know where to look for savings and how to go about securing them while also improving the safety and security of drug delivery and increasing adherence to medication. The bottom line is that PBMs have a history of saving patients money on drug costs and helping to improve health.
What SB 41 does is insert the government into this relationship through a heavy handed regulatory process, so once again, what we have is government picking winners and losers. This overregulation will dictate how PBMs (which again, are private businesses) can operate, rather than allowing the free market to work.
When this happens, costs will necessarily increase—for PBMs, certainly—but it’s also likely that compliance costs will fall on the employers, unions, and municipalities that use PBMs as well. These costs will then be covered by end users, which in this situation are patients who will see the prices they pay for prescriptions go up.
SB 41 also contains a provision that at best is anti-competitive and could even raise antitrust concerns—the first part of the law to go into effect on June 30. The bill requires the creation of an advisory council to oversee and regulate PBMs, comprised of pharmacists.
The problem with this, clearly, is that you can’t have marketplace participants (pharmacists) regulating service providers (PBMs), especially when those service providers have sensitive pricing data, as PBMs do. It sets up a situation where there is a very real potential for conflicts of interest, so much so that this board as created in SB 41 could violate FTC antitrust regulations.
Louisiana isn’t alone. Similar bills are popping up in states across the country. Denying the effectiveness of the free market system isn’t a risk-free choice, and this bill will make it more expensive for businesses to operate in Louisiana, stifling the business climate and causing businesses that were considering moving here to think twice about that choice. All this while driving up costs for consumers.
Even the most innocuous-sounding legislation can have a real financial impact. As taxpayers and critical consumers of information, it’s important for us to be clear-eyed about all of a bill’s potential costs. Unfortunately, for Louisiana, it seems too little too late. The hope is that the state can correct this mistake and other states will not succumb to the same fate.