The Interim Joint Committee on Licensing and Occupations turned down the proposal Monday by a vote of 19-1, with four abstentions, The (Louisville, Ky.) Courier-Journal reported.
The Kentucky Horse Racing Commission voted to eliminate the ban in graded and listed stakes races June 13.
Gov. Steve Beshear can still decide to issue an override of the action to keep the ban in place, at least temporarily until the next legislative session opens in January.
Supporters of giving anti-bleeding medications on race day say it's a humane treatment that reduces bleeding in a horse's respiratory system when the animal runs at full speed.
Opponents say the drugs are bad because they enhance performance, raising doubts among international buyers that offspring of the horses can win in countries where the drugs are banned because the tendency to bleed can be inherited.
Rep. David Osborne, a horse owner who opposed the bill, said he wanted to eliminate cheaters from horse racing, but that "the people that are playing by the rules are the ones" who would be hurt by the ban.
The lone senator who voted for the bill, Damon Thayer, was undeterred by the vote.
"Those who are on the side of not cleaning up the drugs in the sport of horse racing are going to find themselves on the wrong side of history," he said.