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Drug Price Gouging and the Steps Being Taken to Eliminate It

Dom Pedersen

BUSN 85

Professor James Kelley

2 February 2018
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In Maryland, a collective known as the Maryland Health Care for All! Coalition

announced a proposal of theirs to make prescription drugs more affordable for Maryland

citizens. This plan comes after the passing of a law last autumn to combat price gouging

in the generic drug industry, an industry where many believe price gouging has become

out of control. According to a study done by AARP Public Policy Institute, p​rices of

specialty drugs rose by nearly 10 percent on average between 2014 and 2015. The law

preventing price gouging was opposed by drug companies as they called it

unconstitutional, and they filed a suit in an attempt to block the measure. The federal

judge in charge of the suit refused to block the policy and the law was enacted in

October of last year. Building off the success of that law, the Maryland Health Care for

All! Coalition hopes to make brand name and specialty drugs much more affordable.

The article quotes a Maryland resident who has Parkinson’s disease and founded the

Movement Disorder, Education & Exercise, which is a company that helps citizens of

the state cope with movement disorders. He tells his story of how he was unable to

afford the two major drugs that would assist him. The article also quotes a senator and

the state’s Attorney General on the matter. They both voice their complete support for

the law, unlike the governor of Maryland, who did not sign last year’s bill, stating in a

letter that although he supports ensuring essential health care needs, he thinks that the

legislation raises “legal and constitutional concerns.” The president of the coalition

requested that Governor Hogan simply look past his concerns and focus on the spirit of

the law.
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I appreciate Hogan’s stance on this matter, refusing to make the easy decision

and give into sensationalism by signing his name to the legislation. He understands the

good that this measure would do, but also understands the legal ramifications of such

regulation of the free market. The author of the article is clearly attempting to persuade

readers to side with the coalition using the sob story of Larry Zarzecki (man with

Parkinson’s) as a tool. The author would have the readers throw contemplation to the

wind and desire the passing of a law without properly considering the legal

ramifications. It is clear that many drugs are extremely overpriced and many drug

companies have exercised subpar corporate social responsibility within recent memory.

However, I think that limiting the profit a company may earn in exchange for its

inventions and discoveries in turn limits the innovations that come from the company.

Not to mention that it also opposes the capitalistic, free market values that have stirred

the incredible amount of innovation we have seen in this country.

Price controlling in any industry is a slippery slope. The government does

exercise price control measures in monopolistic industries like energy, but this is the

first time that price control legislation is being applied to a competitive industry with a

wide array of vying companies. I am not heartless, and would love for everybody to get

the drugs they need for a price that works for them, but I worry about the precedent that

is being set with this law. If government price controlling in a competitive industry is

legal, then that opens the floodgate for the government to intervene much more than

they already do in order to control other industries. This goes against the capitalist

nature of American innovation and threatens the entire economy.

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Numerous economists have argued that consumer demand drives the rapid

technological revolution. Consumers pick the best product and vote with their dollars.

Any company that fails to attract customers either improves their product somehow or

fizzles out. Competition forces companies to innovate and/or become more competitive,

whether that is lowering their price, improving their product, or simply becoming more

efficient. If a company has a ceiling to the profits it can earn for a drug, then they are

much less likely to invest in innovating and improving the product. Even though

astronomically high pharmaceutical prices appear to be hindering the healthcare system

in the US, I believe that the competition present in the industry will allow new, better

drugs to come forward as a result of the impending innovations in the name of chasing

profits.

A Supreme Court case that deals with the drug industry is ​Pharmaceutical

Research and Mfrs. of America v. Walsh​. Maine passed a law to establish maximum

retail prices for prescription drugs and the Pharmaceutical Research and Manufacturers

of America argued that it was unconstitutional to do so. The Supreme Court agreed,

ruling in favor of the Pharmaceutical Research and Mfrs. of America and deeming

Maine’s attempt unconstitutional and in violation of the Commerce Clause.

Surely there are drug companies that take advantage of their customers and

show extremely poor character. However, a solution borne from government legislation

when it comes to the economy is not an authentic solution. Taking the step to let the

government control private industry is making a leap towards socialism that hundreds of

years of US precedent and law speak against. This price controlling will not only stifle
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pharmaceutical innovation, but will also set a dangerous precedent that in violation of

the Commerce Clause (as was ruled in 2003).