The federal housing bill that became law this summer underscores what is among the top points of bipartisan consensus in American politics these days, which is that more housing is needed in order to bring down costs for both buyers and renters. That the supply of housing units must increase in order to meet rising demand lest prices rise will strike many as basic economics, and it is. However, politicians face pressure from influential stakeholders to ignore the basic principles of supply and demand.
Some free market conservatives have welcomed the emergence of “Abundance Democrats” who at least pay lip service to bringing down housing costs by removing regulatory impediments that inflate prices. Others have questioned the viability of such a supply-side movement in a party dominated by green groups and labor unions. Yet even in some of the reddest states, including those considered by many to be models of conservative governance, Republicans have been inconsistent in their recognition that growing supply alleviates costs and that restricting supply drives up prices.
Take Arkansas, a GOP-run state that has been a national leader in conservative reform, particularly when it comes to income tax rate reduction and the expansion of school choice under Gov. Sarah Huckabee Sanders (R). Last year, legislators in Little Rock passed a bill barring pharmacy benefit managers (PBMs) from also operating a pharmacy in the state, making Arkansas the first state with such a prohibition.
“I have no problem with big business,” Arkansas Rep. Jeremiah Moore (R), who sponsored the bill, told the New York Times. “But I believe in competition, and when organizations, such as some of the P.B.M.s, don’t fight fair, I believe that there are occasions for the government to step in and ensure a level playing field.”
While Arkansas lawmakers continue to work toward matching Tennessee’s zero percent income tax rate, Tennessee lawmakers took action this year to emulate Arkansas. Tennessee lawmakers did so by passing House Bill 1959/Senate Bill 2040, legislation that bars companies that own or operate a PBM from owning a pharmacy in Tennessee.
HB 1959/SB 2040 opponents warned Tennessee lawmakers that prohibiting PBMs from having any financial stake in a Tennessee pharmacy will lead to a state-mandated reduction in Tennesseans’ pharmacy access. That, coupled with growing demand, translates into higher consumer costs.
It’s not just the national pharmacies and PBMs warning that implementation of HB 1959/SB 2040 will lead to higher consumer costs. State officials sounded the same alarm and were also ignored by legislators. In fact, the Tennessee Department of Revenue commissioner and a director for TennCare, the state’s Medicaid program, both testified on the increased costs that SB 2040 would impose on Tennesseans and state government.
The Department of Revenue and TennCare officials explained to lawmakers that the pharmacies that would be forced to close as a result of SB 2040 are those that offer drugs at a lower price on average. The additional costs that taxpayers would have to bear did not deter lawmakers from passing SB 2040.
As Tennessee Senate Finance Committee Chairman Bo Watson (R) pointed out during a March hearing on SB 2040, the cost increase projections that TennCare and the Department of Revenue spoke to “are not really reflected in the fiscal note.” When asked to explain this discrepancy during the hearing, Fiscal Review staff told lawmakers that Fiscal Review disagrees with the pharmacy closure assumptions incorporated into the analyses conducted by TennCare and the Department of Revenue.
Though HB 1959/SB 2040 was enacted this spring, it remains to be seen whether it will ever take effect. That’s because a legal challenge seeking to overturn the new law was filed shortly after the bill was signed. While the outcome of that lawsuit remains to be seen, what is already clear is that the spirit of Orwell is alive and well in Nashville, where lawmakers backing SB 2040 spent the spring arguing that state suppression of competition is needed in order to promote competition.
Tennessee lawmakers promoted competition in the health care market this year by repealing Certificate of Need mandates and they have made the education market more competitive through school choice. However, the same legislators who approved those reforms uncharacteristically and inconsistently supported SB 2040, which will stifle competition in the pharmaceutical care market.
Legislation similar to the PBM bills passed in Arkansas and Tennessee has been introduced in eight other states and federally. The New York Times reported that federal bills pending in Congress, such as the Break Up Big Medicine Act, “have not gained much traction,” adding that “backing the breakup legislation are Democrats like Sen. Elizabeth Warren (D-MA) of Massachusetts and Rep. Alexandria Ocasio-Cortez (D-NY) of New York, and prominent Republicans like Sen. Josh Hawley (R-MO) of Missouri and the president’s son Donald Trump Jr.”
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If the PBM restrictions in Tennessee and Arkansas survive legal challenge, the New York Times asserts without evidence that “the companies would most likely not break up their businesses.” The outlet’s reporters insist that “they would probably close or sell dozens of pharmacies, which are not crucial to their bottom line.”
The White House is making great strides in reducing waste and fraud in Medicaid, prosecuting criminal fraudsters and conducting a 50-state audit that could lead to billions in savings. Unfortunately, the anticompetitive prohibition on pharmacy ownership enacted in Arkansas and Tennessee, unless struck down in court, will counteract those savings with the imposition of higher Medicaid costs. Other states would do well to avoid following suit.
Patrick Gleason is vice president of state affairs at Americans for Tax Reform, an organization founded in 1985 at the request of President Ronald Reagan, and a senior fellow at the Beacon Center of Tennessee, a Nashville-based think tank.