Learn the Lesson From Minnesota: Price Controls Don’t Work

 In 2006, when Congress was negotiating the Medicare Modernization Act, Rep. Henry Waxman, D-Calif., proposed that a $41 per month cap be placed on premiums for Medicare Part D, the prescription drug benefit.

He worried insurers might offer a low entry rate, get customers hooked, as it were, then raise the rates to the point they were unaffordable. The proposal was rejected. Premiums opened at about $22 per month on average. Even today, 17 years later, they stand at about $32.  

That has made Part D the rare government program that does its job for less than expected. Part D expenditures are down about a third from projections, and the Centers for Medicare & Medicaid Services says nearly all those savings resulted from the clause in the Medicare Modernization Act that forbids the federal government from being involved in drug negotiations.

Americans have saved billions of dollars because a top limit price control was not enacted. Millions have been saved or given better quality of life by drug makers being incentivized to create new and better products rather than settle for a hefty payday from the government.

Lawmakers may not have learned the lesson behind what happened with Part D, but drug makers have. That’s why, in Minnesota, they are scrambling to influence the legislature to accomplish what Waxman could not and place a series of price restrictions on prescription drugs.

The proposal, HF 17 in the Minnesota House and SF 168 in the state Senate, is to create a seven-member Prescription Drug Affordability Board, appointed by the governor and leaders of the state House and Senate, along with an executive director and staff. It also calls for a 12-member Prescription Drug Affordability Council, appointed by the governor, to represent stakeholders, including patients, health care providers and, of course, pharmaceutical companies.

The Prescription Drug Affordability Board would review the prices of brand-name drugs, biologics, generic drugs and biosimilars based on the wholesale acquisition costs of those drugs within certain time periods or introductory prices. If the board determines a drug is priced too high, it would have the authority to set an upper limit at which insurance companies will have to pay, effectively disincentivizing pharmaceutical companies from ever trying to become more efficient or otherwise take action to lower the price.

Prices should not be based on wholesale acquisition costs, which essentially is a list price and does not come close to reflecting what patients actually pay for drugs after negotiations among pharmaceutical companies, pharmacy benefit managers, insurers and pharmacists. Locking in this higher price as the point of comparison will make Minnesota’s drug program significantly more expensive.

States spend more on health care than they do on higher education, roads, police or corrections. Only welfare payments and schools take bigger bites out of their budgets. So it’s doubly puzzling why Minnesota’s legislature would want to create a two-headed bureaucratic monster that will only make its third-leading expenditure more expensive.

Unless, that is, one considers who supports this measure. State Rep. Carlie Kotyza-Witthuhn, who led the hearing on the legislation in the House Commerce Committee, is the wife of Rory Witthuhn, senior director of actuarial consulting at United Health Group, one of the state’s largest health insurance vendors.

Two other Democratic-Farmer-Labor cosponsors in the House – Kristin Bahner and Steve Elkins – worked for Optum and Optum Technology, respectively. Rep. Jessica Hanson has worked for Anthem, a major insurer in the state, for 14 years. Another, Rep. Liz Reyer, worked for nearly 20 years at Blue Cross/Blue Shield.

Since 2017, employees at United Healthcare and Optum have given more than $25,000 to current sponsors of this legislation.

Two other groups that prominently support left-leaning health measures also are involved – AARP and the National Academy for State Health Policy. Both have conflicts of interest that aren’t mentioned in these debates. The state policy group receives funding from insurance companies and from Arnold Ventures, which funds Civica RX, a prescription drug non-profit attempting to produce its own generics to compete with other drug companies.

AARP receives more than a third of its income from United Health Group and Optum, two of the primary proponents of this measure.

The people who sell us our pharmaceuticals are all for this because they understand what Henry Waxman did not – that fixed prices are higher prices and the customers who are forced to rely on them do not benefit. The drug companies are doing fine. Time for Minnesota’s lawmakers to take care of the people instead.