California should not get into the drug manufacturing business
In an attempt to lower Californians’ prescription drug costs, lawmakers just passed a bill that would allow the state government to contract with pharmaceutical manufacturers to produce generic drugs. Gov. Gavin Newsom’s signature is all but guaranteed before the end of the month.
Golden State politicians aren’t the only ones looking to get the government into drug manufacturing. Back in June, Sen. Elizabeth Warren and Rep. Jan Schakowsky, a Democrat from Illinois, introduced a bill that would direct the government to manufacture not just drugs but some kinds of medical devices.
The government has no business getting into this line of work. Any efforts to do so will fail to lower drug prices and will waste millions of taxpayer dollars in the process.
The California bill would siphon off $1 million to $2 million in taxpayer money to set up a new state-run generic drug company and then spend hundreds of thousands of dollars a year operating it. The hope is that a state-owned company that doesn’t need to make a profit could offer the lowest-priced generics on the market.
But there’s not much room for generic prices to come down. Across 4 billion generic drug prescriptions filled in 2018, the average copay was $5.63. About 95% of generic prescriptions cost less than $20.
A state-run generic manufacturer may have to sell its drugs at a loss in order to compete in this market. And it could be starting out in the red, as the cost of filing an application with the U.S. Food and Drug Administration to make generic drugs has climbed to as much as $15 million.
Generics account for 90% of all prescriptions but just 22% of total drug spending. A state-run generics firm won’t be able to drive that latter number down much further. But it would almost certainly find a way to light millions of taxpayer dollars on fire.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on Twitter @sallypipes.