The Price to Life

By Megan Stamm*

Thanks to people like Martin Shkreli and Heather Bresch, prescriptions drug prices have dominated American news. Most notably, Martin Shkreli was responsible for raising the price of Daraprim, an HIV/AIDs medication, from $13 per pill to $750 per pill.[1] This left thousands of Americans unable to purchase lifesaving medication.[2]  This is a huge public policy concern. Thankfully, states took responsive action.[3] Twenty-three states are currently re-evaluating their drug pricing regulations by proposing bills that will regulate price hiking.[4]

The state of Michigan is one of these twenty-three states fighting price gouging.[5] The Michigan Senate and House Democrats are proposing legislation to create a new “consumer protections” board[6] and new legislation that would require pharmaceutical companies to provide this new board with explicit documentation and reasoning as to why the companies are raising the wholesale price of drugs.[7] If the board finds prices are unjustified, the board will ask the Michigan Attorney General to investigate the matter.[8]

Whether this board will be effective or not depends on a few things. The board will determine whether price increases are justified,[9] but it is unclear what standard or test the board will be using to analyze the cases.

Additionally, it is unclear how knowledgeable the board will be. As of right now, the board will consist of thirteen members.[10] These members will be comprised of consumer advocates, drug purchasers, and state department heads.[11] Although the board members who were drug wholesale purchasers will be familiar with the price system, it is unclear whether consumer advocates or state department heads will have the expertise in drug pricing to make an informed ruling. Without the proper expertise, it will be difficult for the board to decide whether the justification from the drug companies is reasonable or not. If the board does not have the expertise, then it will not know what is a reasonable justification or not.

Another cause of concern is how much enforcement power the board will have. As stated previously, if the board does not think a company’s drug price increase is justified, the board may request, not order, the Michigan Attorney General to investigate the matter.[12] It is completely possible that the Michigan Attorney General will choose not to investigate the request.[13] This will undermine the purpose of this proposed legislation. If drug companies are not investigated for their price gouging, then it will be very difficult to regulate drug prices and eventually lower drug prices in general.

One power of the board is the power to fine the drug companies.[14] If a drug company does not come in front of the board to explain the reasoning behind the price increase of a drug, the board may impose up to $100,000 in fines.[15] Although smaller pharmaceutical companies will see $100,000 as a large fine, larger pharmaceutical companies will not.  Smaller pharmaceutical companies will not want to automatically assume the risk of having a $100,000 fine thrust upon them, so these companies will most likely come before the board to justify their increases. Larger companies, on the other hand, may use this fine for an efficient breach. $100,000 may be a reasonable price to pay to not go in front of the consumer protections board and justify the price increase. Larger companies may prefer to pay the $100,000 fine if it allows the company to move forward with their price increases on pharmaceutical drugs.

Michigan is one of a number of states that are proposing drug transparency bills.[16] Unfortunately, all of the proposed bills from other states are too new to know the impact they are having on the rising prices of pharmaceutical drugs. With that said, these bills are a start in the right direction.

* Megan Stamm is an Associate Editor on MJEAL. She can be reached at mestamm@umich.edu


The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.

[1] James Hamblin, Pharma Bros the Face of U.S. Health Care, The Atlantic (September 23, 2015), https://www.theatlantic.com/health/archive/2015/09/martin-shkreli-in-the-mirror/406888/.

[2] Id.

[3] Roni Shye, What Do Drug Transparency Laws Mean To You? GoodRx (October 12, 2017), https://www.goodrx.com/blog/what-do-drug-pricing-transparency-laws-mean-for-you/.

[4] Id.

[5] Id.

[6] Trever Flynn and Jerin Philip, Lowering Drug Costs: Transparency Legislation Sets Off Flurry of New State Approaches (August 12, 2017), http://www.housedems.com/article/house-senate-dems-take-excessive-prescription-drug-costs-1.

[7] Jonathan Oosting, Dems Pitch Prescription Drug Price Transparency Plan, The Detroit News (August 21, 2017), http://www.detroitnews.com/story/news/2017/08/21/democrats-drug-board/104819362/.

[8] Kathleen Gray, Drug Price Gouging in Michigan Targeted; Dems in House Unveil Board Plan, Detroit Free Press (August 21, 2017), http://www.freep.com/story/news/politics/2017/08/21/democrats-prescription-drug-cost-hikes-michigan/585726001/.

[9] Flynn & Philip, supra note 6.

[10] Id.

[11] Id.

[12] Oosting, supra note 7.

[13] Id.

[14] Flynn & Philip, supra note 6.

[15] Id.

[16] Lydia Ramsey, ‘More is Possible:’ A Bunch of States are Taking on High Drug Prices, and It Could Start Hitting Drugmaker Profits, Business Insider (June 4, 2017), http://www.businessinsider.com/states-with-drug-pricing-transparency-bills-2017-6/#maryland-is-tackling-generic-drug-price-hikes-1.

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