The Supreme Court ruled Monday that Maine can essentially set the prices its residents pay for prescription drugs. The confused court decision—justices issued four different mutually conflicting opinions—allows the Pine Tree State to require that pharmaceutical companies offer their drugs to qualifying citizens at the same discounted prices that Maine Medicaid recipients receive.
Ostensibly the cheaper drugs would be available only to the uninsured. In reality, it would be a mug's game for insurance companies to offer coverage that charges a higher price for prescriptions than what you could get by not bothering with insurance at all.
How does Maine Rx work? State Medicaid programs, which buy drugs in bulk quantities, negotiate low volume discount prices with pharmaceutical companies. Of course, private managed care companies do the same thing for their customers. The low-priced drugs are then included in the plans' formularies—that is, in the lists of drugs that doctors participating in the plans generally prescribe. These kinds of volume discounts are justifiable because the Medicaid programs and the managed care companies are spending money from their own budgets. In the Maine system, however, the state is not negotiating how to spend its own money, but rather how other programs and individuals should spend their money.
Under the Maine Rx program, the state penalizes pharmaceutical companies that refuse to offer their products at Medicaid discount prices to all qualified state residents. The program does this by requiring that doctors obtain special permission from a state agency each and every time they want to prescribe any of the medications sold by drug companies that refuse to go along with Maine's demands. Obtaining this "prior authorization" is so onerous and time-consuming that doctors often choose to prescribe drugs that don't require it. This of course means that Medicaid recipients often don't get the drugs that would have been their doctors' first choices. Maine Rx uses the language of negotiation, but there is nothing to negotiate, since the statute requires drug companies to go along or else suffer the consequences of prior authorization.
The Pharmaceutical Research and Manufacturers of America (PhRMA) contested the Maine system on grounds that it violated the interstate commerce clause of the Constitution. Justice John Paul Stevens rejected this argument in favor of the public health rationale that Maine could set drug prices because it has an interest in protecting the health of its uninsured residents. This stretches the definition of public health way beyond the conventional notions of providing medical information, controlling communicable diseases, applying sanitary measures, and monitoring environmental hazards. If mandated lower prices are a public health measure, surely requiring doctors and hospitals to provide health care for free can be construed to be so, too. That would definitely save states a lot of money.
Another rationale supported by some of the justices is that some low-income Maine residents would be kept off Medicaid if they had access to discounted drugs. Perhaps. But that argument could be used to justify nearly any similar government intervention. Surely some single mothers could be kept off the welfare rolls if they had access to reduced-cost condoms. Indeed, some poor Mainers would be kept off welfare if they had access to state-mandated discounts on groceries, apartments, clothing, and so forth. It is not the duty of condom makers, grocers, landlords, and clothiers to provide for Maine's poor in order to reduce the state's budget deficit. Neither is it the duty of drug manufacturers to provide cheap medicines to achieve the same goal. Setting ceilings on drug prices will no doubt have the same beneficial effects on the supply of medications that rent controls have had on housing markets.
The drug companies are by no means run by saints. They are, for example, using shady legal manuevers to try to extend their patents beyond the existing 20-year limits. But the fact is that America's innovative pharmaceutical industry leads the world in developing new drugs. Consider the news from this week alone: One powerful new cancer drug (Avastin, for treating colorectcal cancer) was announced and another (Velcade, for treating multiple myeloma) was approved by the Food and Drug Administration. This week also saw the preliminary FDA approval of Xolair, a potent new biotech drug to combat allergic asthma.
The pipeline for these and other amazing new medicines is financed by, you guessed it, pharmaceutical company profits. Last year, the private drug makers spent over $32 billion on research, easily outstripping the National Institutes of Health total budget of $23 billion.
"Suppose we seize all pharmaceutical profit," suggested Sidney Taurel, CEO of Eli Lilly & Co., in a speech three years ago. "Drugs are just 8 percent of total health care. To simplify the arithmetic, let's stretch and say [profits are] 20 percent of sales. Twenty percent of 8 percent equals just 1.6 percent of total health care costs." Cutting out pharmaceutical profits might make today's drugs slightly more available to people, but it would also certainly make sure that tomorrow's newer, vastly more effective cures are a very long time coming. In other words, cheaper drugs today, mean more disease, disabilty and death tomorrow.
There is still hope. According to Justice Stevens, the U.S. Secretary of Health and Human Services could rule that Maine Rx is an impermissible amendment to its Medicaid plan, in which case it would likely be eliminated. But will the Bush Administration have the courage to make such a decision in this campaign season of drug-benefit pandering?
The old political maxim is, "As Maine goes, so goes the Nation." For the sake of a healthy future for most Americans, let us hope not.