Bill removes predatory pricing shield from medical expenses

A proposed state law would remove prescription drugs and other medical goods from coverage under the state’s Unfair Sales Act. But a lawmaker skeptical of the proposal says it would weaken consumer protection.

The Unfair Sales Act was originally enacted in 1939 to prevent large competitors with extensive resources from moving into a market; discounting prices and selling goods at a loss until they drove out independent local retailers who couldn’t afford to cut their prices; then raising prices higher, ultimately hurting the consumer.

For many products, the law requires retailers to mark up the price of their goods by a certain percentage over the wholesale price, giving rise to its common nickname, “the minimum markup law.” For prescription drugs, the law doesn’t set a minimum markup, but instead forbids the retailer from selling the product below the cost that the retailer paid.

Testifying at a public hearing Tuesday before the Senate Committee on Governmental Operations, Legal Review & Consumer Protection, Rep. Adam Neylon (R-Pewaukee) said while that sort of protection might have made sense in the Great Depression, it was no longer applicable in a global economy populated by online discounters.

“Removing health care-related merchandise from the Unfair Sales Act promotes competition and prevents consumers from paying artificially inflated prices,” said Neylon, who is the lead sponsor for the Assembly version of the bill (AB-358).

“Passing legislation that removes roadblocks to help lower medical costs is the right thing to do,” added Sen. Duey Stroebel (R-Saukville), lead sponsor for the Senate version (SB-357).

Neylon argued that the change would help local businesses by allowing them to discount prices just as online competitors are already doing. “Wisconsin should not prohibit home-grown businesses from competing with widely available e-commerce sites, thus encouraging consumers to opt for out-of-state online shopping instead of buying locally,” he said.

Although they didn’t offer testimony at Tuesday’s hearing, lobbyist filings show that Walmart and WPS Health Insurance have registered in favor of the legislation. Walmart ranks No. 5 nationally in its share of the prescription drug market, according to the consumer data firm Statista.

The only other hearing witness, a lobbyist who represents pharmacies like the ones that Neylon implied would be helped by the law, testified against the bill.

“Some companies could use the changes proposed by this bill to sell below their cost for some time at the expense of other pharmacies in the area,” said Danielle Womack, representing the Pharmacy Society of Wisconsin. “Not only is this bad for the stability of the pharmacy business environment, but by their nature loss leaders encourage consumers to shop around and in this case fractionate their treatment amongst multiple pharmacy providers.”

Her trade association “strongly encourages consumers to select one pharmacy,” Womack said. “Buying a medication at one pharmacy and another medication from a pharmacy across town or over the internet leads to a patient splitting up their prescription drug record, creating the possibility for drug interactions and other health care complications.”

Sen. Kelda Roys (D-Madison), a committee member, was unconvinced by the testimony in favor of the legislation. “I’m not inclined to weaken consumer protection,” Roys said in an interview after the hearing.

The Unfair Sales Act has been the subject of several repeal attempts driven by various groups, largely on the right, who contend that it interferes with the free market. So far those efforts have failed.

Stroebel emphasized that the new bill is narrow in its scope. “This bill is targeted towards any product that counts as a qualified medical expense,” he said. “Nothing more, nothing less.” Qualified medical expenses are those that are payable through flexible spending accounts or health savings accounts under Internal Revenue Service rules.

But Roys, with an eye toward Wednesday’s Senate debate on the 2021-2023 state budget, contrasted the GOP proponents’ pitch for the legislation as a tool for cutting health care costs with the Republicans’ rejection of Gov. Tony Evers’ health care proposals in his original budget.

Those included expanding Medicaid with a federal subsidy and saving Wisconsin $1.6 billion, or creating a state-run health insurance marketplace under the Affordable Care Act that would include a public option for people to enroll in BadgerCare, she observed.

In light of those actions, “it’s hard to see this as a serious attempt to solve one of our most pressing problems,” Roys said. “Every other action [the Republicans] have taken has made it harder for people to get health care.”

Asked about Neylon’s assertion that removing medical expenses from the Unfair Sales Act’s protection would help small, in-state businesses, she added, “I’m prepared to hear that argument. But we should be hearing it from the businesses themselves.”