Bill Smith

Anti-business politicians in the Maine Legislature are at it again, proposing laws to regulate faraway companies that, if applied to Maine’s own industries, would be devastating.

Their latest idea is to make it illegal to raise the price of any prescription drug unless a nonprofit institute in Boston judges that there was “new clinical evidence to support the price increase.”

Some Mainers may say this sounds reasonable: only allow companies to charge more if the product improves. So, let’s apply this principle to other Maine businesses.

Data from the National Association of Home Builders indicate that lumber prices have risen 130% since mid-April of 2020. This has increased the price of building a single-family home by $16,000 on average. Given these outrageous price increases by the forestry industry, why hasn’t Maine’s Legislature banned price increases on forestry products unless a nonprofit environmental group in Boston certifies that the quality of lumber being delivered has improved? Wouldn’t this help middle class home buyers in Maine?

Or, what about lobsters? Let’s appoint a group of celebrity chefs in San Francisco to judge the tenderness and quality of Maine’s lobster meat and, in any year that the quality has not improved, let’s make it illegal for lobstermen to raise prices. Wouldn’t this help many Maine consumers who crave a lobster roll?

Of course, no Maine legislator would propose regulating the prices of timber or lobster in this way because they know it would be absurd. The prices of logs and lobsters are determined by market forces — weather, supply and demand, government regulations — that are not controlled by the timber or lobster industries. Yet, Maine’s solons are perfectly happy to apply absurd pricing regulations to companies outside of Maine.

As with timber and lobster companies, there are a million reasons why drug companies may need to raise prices that are unrelated to improvements in a specific product. Suppose a viral pandemic comes along, and the company needs to plow billions of dollars into finding a vaccine. Would funding that vaccine research justify raising prices on some of their products? Or, suppose a hurricane in Puerto Rico destroys a company’s largest manufacturing plant, as has happened a number of times to pharmaceutical companies. Should the company be permitted to raise prices to fund the rebuilding of their plant?

Supporters of these price controls on medicine may reply that prescription drugs are life-saving products and their prices should not be allowed to spiral “out of control.” This argument is also specious because the authors of this legislation seem not to have noticed that drug prices have collapsed. According to the well-respected consulting firm IQVIA, “Net price increases — after adjusting for rebates, discounts, other price concessions, and patient coupons to reduce out-of- pocket costs — have also moderated from 2.9% in 2016 to 1.7% in 2019.” In short, prescription drug prices are rising at a rate below the general rate of inflation. This makes the Maine Legislature’s price control proposal a solution in search of a problem.

The most troubling aspect of the Legislature’s price control proposal is that it demonstrates a stunning lack of business knowledge. As anyone who has actually run a business knows, price increases are not a happy decision, but sometimes they are necessary. Every restaurateur knows, for example, that if the landlord raises the rent, the prices on the restaurant’s menu may also need to rise.

All companies face unforeseen challenges that require adjustments in their workforce, their prices, their employee benefits, or in their marketing. And, as anyone who has run a business also knows, when politicians start making those decisions, your business will surely end up on the rocks. Given what the nation is enduring with COVID-19, the life sciences industry is one industry that we cannot afford to put on the rocks.

William Smith, PhD, is Visiting Fellow in Life Sciences at the Pioneer Institute in Boston. He heads Pioneer’s New England Life Sciences Initiative.  

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