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A Reason for Every Regulation (Gwen Moritz Editor’s Note)

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When I arrived at a legislative hearing on pharmacist complaints about pharmacy benefit managers on Jan. 31, I knew just enough about PBMs and legislative procedure to be dangerous. But I didn’t have to be an expert on anything to read the mood in Room A at the Big Mac Building.

“I have little experience at legislative committees,” I tweeted, “but I’m starting to think these pharmacy benefit managers are about to talk themselves into being a regulated industry in Arkansas.”

I spent the next four weeks reading and talking and emailing and calling and interviewing — and waking up in the middle of the night thinking about the pharmaceutical supply chain. The result is the package of stories, Stuck in the Middle: Regulating PBMs. If you make it through 3,000 words on PBMs, you deserve a medal. You certainly don’t deserve to have to read more about them in this space.

But the fact that Arkansas — deep red and “open for business” — is ready to be the first state in the country to put the hammer down on the mysterious middlemen of the prescription drug supply chain should be top of mind every time we hear our president bragging about how many regulations he has done away with.

Regulation is no more a bad word than law or education or religion — or media, for that matter. Regulations are a way that our society, through our elected government, levels out playing fields and creates transparency and protects the weak from abuse by the strong.

Regulations are in place for a reason. They are invariably a response to an identified problem.

The Sarbanes-Oxley Act of 2002 was a response to Enron, WorldCom, Tyco and the other accounting fraud scandals that seem like such a distant memory. Why? Because the regulations have worked. Yes, they have been expensive — and perversely profitable for the accounting industry that had failed to prevent the frauds — but at least investors and competitors can have a measure of confidence in the earnings results announced by public companies.

Enron also wiped out any real appetite for deregulating electric utilities.

Glass-Steagall was a response to risky banking activities in the run-up to the Great Depression, and widespread bank failures were unthinkable until the housing meltdown of 2008, which was facilitated in part by the repeal of Glass-Steagall. (In between there was the collapse of the savings and loan industry. A big factor in that was — you guessed it — deregulating the kind of loans S&Ls could make.)

I am not arguing that all regulation is well-crafted, or that all regulations should remain in place eternally. But deregulating for the sake of deregulating is no smarter than regulating for the sake of regulating. And while our attention may be distracted by unprecedented turnover on the White House staff or by payoffs to porn stars, one of the things the Trump administration is doing very efficiently is rolling back regulations.

And while every relaxed regulation will immediately benefit someone, or some industry, the underlying problem that led to regulation in the first place will still be there. And sometimes it takes a while for that to play out.

That’s why I’m happy to see serious negotiations in Congress over changes to the Dodd-Frank Act, the bank regulation law that was a direct response to the financial crisis of 2008. It’s hard to argue that it has been a disaster — economists were expecting more good jobs and unemployment news on Friday — but there’s no question that it has been most burdensome on the smallest banks, which were no threat to the broader economy.

The image of a pendulum swinging too far in either direction is a cliche; I prefer to think of regulation as a leash that can be made longer and shorter. Because, as even our heavily Republican Legislature seems to have concluded, lack of regulation can be bad for business.

Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.
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