Residents of Maine don't usually like being lumped with Canadians. Which has us wondering why the state is trying to so hard to emulate its northern neighbor's failed prescription drug policies.

The U.S. Supreme Court on Monday gave Maine a tentative green light to proceed with a controversial drug-discount scheme that is a backdoor route to price controls and rationing, a la Canada and Europe. The Court didn't endorse the program, so much as say it wasn't its job to stop it. We'd have to agree, since there's still no Constitutional ban on bad ideas.

In short, the 6-3 decision puts responsibility for this turkey back with the Maine politicians who devised it. Under the program, called Maine Rx, the state takes on the role of drug dispenser for anyone who lacks coverage. It then requires drug makers to give it the same rebates that companies already give for Medicaid drugs -- about 20% off retail prices. Any company that refuses to play ball will find its products shut out of the significant state-bought portion of the Maine drug market.

While the press keeps referring to Maine Rx as "innovative," this is really as old as "Marcus Welby, M.D." -- and not nearly as entertaining. In Europe and Canada, government health-care programs long ago became monopoly drug buyers and pushed down prices to 40% to 60% of U.S. levels. These price controls caused Europe's once-thriving drug industry to wither, or flee to America. U.S. consumers have been subsidizing drug research for the entire world ever since.

Now Maine wants consumers in the other 49 states to foot the bill, while it gets a pass. But where does it end? Maine isn't the only state feeling a budgetary squeeze from rising Medicaid costs, and already some 18 others have legislation in the works for Maine-like price controls. Congress is also still enthused with a Medicare prescription drug program that will lead to the same sort of limits.

All of these programs will only end up hurting American consumers, who'll pay the price in fewer drugs and life-saving treatments. Pharma companies have survived in the U.S. only because it has remained a relatively free market with patent protections that allows firms to make a return on their investment. On an annual basis, the U.S. research-based industry invests $32 billion in research.

But every dollar that Maine squeezes out of the industry for Rx will be one less of the $32 billion that goes toward finding a cure for cystic fibrosis or lung cancer. The market understands this, which is why the Supreme Court ruling sent the Dow Jones U.S. Pharmaceutical Index (see chart) falling more than 6% since Friday. Meanwhile, on Monday Genentech's stock rose 45% on encouraging results from its new cancer drug, Avastin. Perhaps even some Maine residents will want to use Avastin someday.

If Congress and Maine really want to try something innovative, they might get Medicare and Medicaid out of the price-control business, and instead help seniors and the uninsured purchase health insurance packages that include drug coverage. It isn't a quick-fix, like poaching from pharmaceutical companies. But in the long run it beats extending the Canadian border a few hundred miles south.
 

Updated May 21, 2003