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Getting Less for More: Ohio’s Proposed Drug Price Control Policy (a.k.a. “Issue 2”)

Rea S. Hederman Jr. Oct 30, 2017

Next Tuesday, Ohioans will decide whether to enact a policy that would create price controls for pharmaceuticals that are paid for by the state of Ohio. Advocates claim that these price controls can save the state of Ohio money. Opponents argue that these savings are dubious and price controls will create a host of other problems.

Price controls, whether for drugs, housing, gasoline or blueberries are bad policies. They distort the marketplace and create shortages. If price controls worked, socialist governments throughout history would not have seen their economies disintegrate and the supply of goods disappear.

Regrettably, price controls for drugs is not a new idea. Foreign countries around the world have imposed price controls at the cost of denying citizens access to either new drugs or entire classes of drugs. In the United States, the federal government has a system of price controls on drugs available to patients in the Veterans Affairs (VA) medical system. Although some folks might like us to believe that system can be easily transferred to Ohio, it is not that simple.

Beyond the negative impact of price controls that are known to economists around the world, there are other reasons this proposal is bad policy for Ohioans and nearly impossible to implement.

VA Patients Have Access to Fewer Drugs

The consequence of VA price controls is that its patients have less access to drugs compared to Medicare beneficiaries. This is particularly true for access to generic drugs. Almost 100 percent of Part D drugs have a generic equivalent while only half of VA drugs have a generic equivalent. If Ohio adopts price controls, many Ohioans will pay more because they will lose access to their cheaper generics and will be forced to buy the more expensive “name brand” drugs instead.

Ohio Doesn’t Oversee its Own Health Care System

The VA has its own network of hospitals and health care providers, and since it controls its own network, the VA knows which prices it negotiates throughout the system. In Ohio, we have many hospitals, health care systems, and health care providers. And people on a state-funded plan (anyone for whom the state helps pay for health care—from Medicaid recipients to state employees who receive health care through their employer, which is the state of Ohio) see the same doctors and go to the same hospitals as those who pay for their own plans and those whose plans are paid for by private employers.

To complicate this situation further, the VA does not make its entire list of negotiated prices readily available, so frequently Ohio would have no idea what price it should be paying for drugs. That means you could be delayed in getting life-saving medication due to bureaucratic slowness in Washington, D.C., because—under the proposal—the state is not allowed to pay more than the VA price.

Ohio Would Lose Savings it is Already Getting Through its Negotiations

When Ohio negotiates its drug prices, it often receives rebates from drug manufacturers. For example, Ohio pays a pharmacy $1 for an antibiotic pill, but the manufacturer of the pill gives the state a large rebate so the real cost to the state is 80 cents a pill. Like a grocery store manufacturer’s coupon, the rebate goes to the purchaser, the state of Ohio, and not the retail seller – in this case the pharmacist or grocery store.

Under the current proposal, Ohio would pay pharmacists the VA price for the pill with no negotiation. If the pharmacist is no longer receiving $1 a pill, but is receiving 75 or 80 cents a pill, then pharmacists may be losing money on some drugs. And if pharmacists lose money on a certain drug, they may have to stop selling it in order to keep their businesses open. All this for a dubious amount in “savings.”

Many Ohioans Will Pay More for Necessary Medication

If you don’t work for the state and are one of the many Ohioans who has insurance through a private employer, price controls could force you to pay more for the medications you need.

Ohioans on private plans belong to large purchasing groups through health insurers who bargain for cheaper prices through bulk drug sales. This makes drugs more affordable for all members of the buying group. If this proposal (Issue 2) is adopted, Ohioans, who receive health care through state plans, will no longer be allowed to bargain on any drug covered by the VA. That means the purchasing group will be smaller, and those remaining will have less bargaining power. That will result in higher prices for other members in the group.

While price controls seem alluring as an easy way to create savings, whenever they have been tried, they result in shortages, reduced access, and higher prices for some products. This proposed price control policy will be no different and savings to the state will come at the cost of availability of necessary drugs and higher costs to Ohioans.

Rea S. Hederman Jr. is executive vice president at The Buckeye Institute and is an expert in health care policy.