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November 2, 2017 The Editorial Board 1Comment

Government price-controls do not work.

November 7th is Election Day in Ohio. On the ballot will be mostly local races for trustee, school board, and judges. Ohioans will also have the opportunity to vote on Issue 2. Unlike many ballot issues, the text is actually very simple:

Require the State of Ohio, including its state departments, agencies and entities, to not pay more for prescription drugs than the price paid by the United States Department of Veterans Affairs.

Establish that the individual petitioners responsible for proposing the law have a direct and personal stake in defending the law; require the State to pay petitioners’ reasonable attorney fees and other expenses; require the petitioners to pay $10,000 to the State if the law is held by a court to be unenforceable and limit petitioners’ personal liability to that amount; require the Attorney General to defend the law if challenged in court.

Issue 2 is what’s called a price control. Price controls are antithetical to the principles of free-market capitalism as they disrupt supply-and-demand prices levels, which is probably why Socialist Senator Bernie Sanders has endorsed the ballot measure. While proponents of Issue 2 claim that this is a chance for Ohioans to take on the greed of the pharmaceutical industry vicariously through the ballot box, it will only serve to harm Ohioans’ future healthcare prospects.

Issue 2 only directly affects state-operated health programs, such as Medicaid. It does not directly affect the price of drugs obtained through private insurance plans (roughly 7 million, or 2/3 of Ohioans). However, assuming that the ballot measure has the intended effect (which is a huge assumption), then it is more than likely that the prices go up slightly — that rise cuts access and/or quality and those who need the pharmaceuticals have less of a choice. The goal of Issue 2-supporters is noble, but lowering the price of medicine for 1/3 of Ohioans at the expense of 2/3 of Ohioans is not the answer. Not to mention it doesn’t actually reduce the cost of pharmaceutical production, it merely distributes the cost-burden onto other parties. This will restrict access to the latest-and-greatest medicines on the market for those on state-run insurance.

“Price controls are antithetical to the principles of free-market capitalism as they disrupt supply-and-demand controlled prices.”

Another complication is that Issue 2 may be entirely unenforceable. The Issue aims to use the VA’s price-points as its basis, but the VA does not disclose the prices it pays. If the VA does not agree to give this information (and it is under no obligation to do so), then this law will be impossible for Ohio not to break. Why put a law on the books that we know we won’t be able to abide by? Furthermore, even if the VA does provide the State of Ohio with these prices, who is to say that the drug companies will agree to these prices in Ohio? If pharmaceutical companies decide that they can’t make a profit at this government-set price, then they may refuse to sell certain drugs in Ohio outright and, potentially, face legal repercussions.

Price controls interrupt free-market forces which drive an increase in quality and innovation while decreasing cost. If Issue 2 is implemented, then pharmaceutical companies will be squeezed out by government price controls while giving the pharmaceutical companies little-to-no no incentive to provide Ohioans with better, more affordable prices. If Ohioans identify the maximum price they are willing to pay,rarely will they charge less than that price. And even if the price is occasionally lower that the ceiling, the cost that accompanies it is not insignificant.  This is a terrible negotiating position for the Ohio taxpayer.

Issue 2 proponents — along with Bernie Sanders — believe that any product’s price can be lowered simply through legislation. However, the function of a business, even a pharmaceutical company, is to make money for the owners and the employees. When the government starts mandating lower prices, companies will fulfill their purpose in one of two ways: they will offset the cost by passing on the cost onto other consumers (the 2/3 of Ohioans on private insurance), or they will lower production cost by reducing product quality, service, and employment.

In order to protect Ohioans as a whole from higher drug prices, from restricted access to certain medicines, and a lengthy and costly legal battle (which the taxpayer must foot the bill for), the Cincinnati Republic urges you to vote “No” on Issue 2.

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  • TZ

    What a joke this nonsense is.

    There are no ” principles of free-market capitalism as they disrupt supply-and-demand prices levels” in the prescription drug market.” Can you barter for the price of your life saving medicine? Or is it what the market will bear pricing? The market for prescription drugs is completely captured by the suppliers and your silly little free market economics theories are a pipe dream.

    This is not a price control measure. Nothing forces the big-pharma sell at a price. What it does do is force the the suppliers to negotiate a price for a large group of customers. You use the words “price controls” to misrepresent what the law is actually doing: forcing a negotiation over price by using the advantage of group buying power. This is exactly what private insurance companies do. And how exactly would Big-Pharma force private insurers to accept the price increase? Just because you say it will happen doesn’t mean it will. This whole argument is a childish view of how the world works pushed by Big-Pharma.

    If big-pharma refuses to sell in Ohio, which is very doubtful, then they would be abandoning the market, make it completely obvious that they regularly violate anti-trust laws and would be proving that there is no such thing as a free market. If the demand is there for drugs in Ohio, why wouldn’t some other supplier step in an fill the void?

    Clearly, Big-pharma will try to go to court and prevent the will of the people from being implemented. That is exactly why the proposal anticipates this, forces the AG to defended the duly enacted law, and also provides for the promoters of the law to have standing to defend the law. If they win the lawsuit, their legal bills will be covered by the state. If they lose, then they eat the costs of the lawsuit. Sounds like a real good idea.

    Currently, Big-pharma has no incentive to lower drug prices for Ohio consumers. If they do retaliate against Ohio consumers by raises prices then they can be subject to predatory business practices lawsuits. Some Ohioans can easily go elsewhere for prescriptions. Mail-order prescriptions can be taken advantage of. Possibly other solutions as well. what you suggest is that we Ohioans are helpless to fight against our corporate masters so we should just bend over and take it. What a cowardly viewpoint!

    This entire article is nothing but lies and misdirection about how a marketplace works and the laws that govern the state of Ohio. The Cincinnati Republic is nothing but a corporate shill for Big-Pharma.

    Vote yes on Issue 2. Call Big-Pharma’s bluff!