Ohio Drug Price Initiative Gives Taxpayer Money to Unnecessary Lawyers
September 19, 2017
This article appeared on the Competitive Enterprise Institute’s blog on September 14, 2017.
Lawyers and allied interest groups have long enriched themselves at taxpayers’ expense. But usually, it has been by bringing lawsuits, not defending them.
The Ohio Drug Price Standards Initiative might change that. If passed by voters, it would give its sponsors taxpayer money to hire unnecessary lawyers, if the initiative is later challenged as unconstitutional or preempted by federal law.
The initiative is similar to a controversial ballot proposition rejected by California voters in 2016. It would require state agencies, including Medicaid, to pay the same or lower prices for drugs as the Department of Veterans Affairs (VA). The VA typically pays 20-24% less than other agencies for drugs, according to the organization behind the initiative. Critics argue that the initiative could lead to state agencies losing “access to some drugs,” cut state rebate income, and result in unclear price limits due to the fact that “complete information regarding what drugs the VA purchases and the lowest price the VA pays is not generally available.”
The initiative contains a provision that declares the “committee of individuals responsible for the circulation of the petition proposing this Act” to have a “direct and personal stake” in any such challenge, and thus the right to defend any challenge to the Act, with the state of Ohio indemnifying them for their “reasonable attorney’s fees and expenses.”
There is absolutely no reason why taxpayers should have to pay them to hire lawyers, especially since the Initiative would also “require the Attorney General to defend the law if challenged in court.” Thus, it means taxpayers will have to pay for two sets of lawyers (one in the state attorney general’s office, and one hired by the sponsors of the initiative.).
The cost of defending against a constitutional lawsuit can be substantial. $95 million was reportedly spent on the University of Michigan’s defense of its admissions policies against a constitutional challenge.
Lawyers hired to handle state lawsuits have sometimes received vast amounts of money in the past, but in those cases, they were hired to bring a lawsuit, rather than defend against it. For example, lawyers hired by New York’s attorney general got paid at a rate of $13,000 per hour to handle a lawsuit against tobacco companies. Although a trial judge blocked payment of the rate as being ridiculously excessive, a state appeals court reversed him and upheld it—even though critics argued that New York’s tobacco lawsuit was just a low-risk “copycat” lawsuit mimicking earlier-filed lawsuits by other states.
It is hard to imagine that Ohio courts would allow a similar rate if it were charged to defend the Drug Price Standards Initiative. But defending it against a challenge could still be quite costly to taxpayers.
Many other state attorneys general, such as Mississippi’s Jim Hood and Iowa’s Tom Miller, have hired private trial lawyers to sue out-of-state businesses. The trial lawyers, who included Hood’s cronies, were then paid out of money that the sued entity would otherwise have paid into the state treasury. That circumvented state constitutional provisions giving state legislatures the exclusive authority to appropriate money.
The record for lawyers’ fees is the amount awarded under the 1998 tobacco Master Settlement Agreement. Wealthy trial lawyers across the nation have received more than $15 billion in attorneys’ fees under that 46-state settlement, and they are expected to receive as much as $30 billion by 2028. The costs of that settlement were paid for primarily by smokers, because the settlement was deliberately structured by state officials and lawyers for big tobacco to enable the big tobacco companies to pass on the cost to smokers through market-share-based liability and protections against competition from new tobacco companies. Smokers were soaked with its costs, even though the tobacco settlement resolved lawsuits brought by state attorneys general arguing that smokers had been deceived by tobacco companies about the dangers of smoking.