Louisiana - Oppose HB 243

April 12, 2018

Louisiana House of Representatives
State Capitol
Baton Rouge, La. 70804

Dear Representative,

You may soon consider HB 243, a bill that would impose price controls, burdensome requirements, and excessive fines on generic prescription drug manufacturers in an ill-advised effort to lower drug costs.  Generic drugs represent almost 90 percent of all prescriptions, yet account for only 26 percent of total prescription drug costs.  Targeting generic firms and subjecting them to extreme penalties is misguided and will ultimately harm patients.  If HB 243 should become law, it would aggravate the very problem the legislature is trying to solve and that is to drive up costs, not lower them.  On behalf of the 18,480 members and supporters of the Council for Citizens Against Government Waste (CCAGW) in Louisiana, I urge you to oppose HB 243.

The proposed legislation aims to lower drug costs by preventing generic drug manufacturers from “price gouging,” which is defined as increasing the price of an essential drug by more than 50 percent if a thirty-day supply, or course of treatment, costs more than $100 at the drug’s average wholesale acquisition cost (WAC).  This is a price control, which always causes market disruption and shortages; discourages new participants from entering the market; hampers competition; and leads to higher prices.  The legislation utilizes other amorphous phrases such as “unconscionable,” “excessive,” and “not justified.” 

Utilizing the WAC to determine “price gouging” is ill-advised.  The WAC is essentially a list price and does not include the discounts and rebates that are negotiated among manufacturers, wholesalers, payors, pharmacy benefit managers, and pharmacists.  Generic drugs behave more like commodities with fluctuating prices based on supply and demand, and they are generally low enough that it would be easy to reach the 50 percent trigger.

HB 243’s transparency requirements are burdensome, forcing a generic pharmaceutical manufacture to produce within 90 days reams of paperwork to “justify” the price increase.  These requirements would do nothing to lower costs.  If anything, they would increase the company’s costs due to the lawyers and accountants needed to produce the data in a timely manner, since failing to do so would result in a $10,000 fine for violating any provision in the bill.  While the bill states any confidential commercial material would not be subject to public disclosures, governments are notorious for leaking information, which would hurt future negotiations and help competitors.

Furthermore, the attorney general gets to decide what is a “justified” increase, and that could change in a future administration.  If a manufacturer should be found guilty of “price gouging,” it would be forced to provide the drug to all Louisiana citizens at the previous price for one year.

The legislation raises constitutional issues with interstate commerce because it would affect commerce outside of Louisiana.  A similar bill that became law in Maryland is under a court challenge.

Generic drug manufacturers already face huge hurdles, including patent litigation, to get their pharmaceuticals approved by the Food and Drug Administration (FDA).  These companies do not have the deep pockets of brand companies, and the FDA backlog of 4,158 abbreviated new drug applications (ANDAs) is enough to discourage some generic firms from investing the funds needed for a drug’s approval, especially if it has a relatively small market.  Bills such as HB 243 would only exacerbate this problem and discourage many generic companies from selling their products in Louisiana.

The price of prescription drugs generates much attention and controversy, and it is understandable that legislators, government officials, and consumers are expressing their concern.  But the best approach to lowering drug prices is an environment that fosters competition.

A better way to increase competition and lower prices for Louisiana’s citizens is for state legislators to ask their U.S. congressional delegation to continue to hold the FDA’s feet to the fire to make sure the backlog of 4,158 ANDAs is cleared.  The agency is receiving $493.6 million annually until 2022 (adjusted for inflation) in generic drug user fees.  There are no more excuses for not reducing ANDA approval times.  This would be a far more effective way to lower prices than passing this counterproductive price control bill.

Sincerely,

Thomas A. Schatz

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