States vs. drug prices

Squeezed between declining revenues and expanding numbers of poor and uninsured residents who need medical care, the states have become laboratories for experiments in drug cost containment. As a result they are developing policies that could play major roles in shaping the economics of the biopharmaceutical industry, either by imposing explicit or implicit price controls that curtail incentives for innovation or, more optimistically, by creating markets that reduce spending on me-too drugs and free funds to spend on breakthrough products.

Although the drug industry's great fear is universal, single payer healthcare, the initial experiments will not occur in the general population, but among recipients of Medicaid, the state-based health care programs for the indigent. Nevertheless, these experiments are likely to serve as the blueprint for broader healthcare plans at both the state and national level. As such, the states right now are the place to watch...