Prop 61, a prescription drug purchase and pricing initiative: Major drug manufacturer opposition

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Proposition 61, titled by its drafters as “The California Drug Price Relief Act,” and on the ballot as “State Prescription Drug Purchases. Pricing Standards. Initiative Statute,” seeks to cap prices state agencies pay for prescription drugs to the lowest price paid by the U.S. Department of Veterans Affairs.

VA generally pays the lowest prices under mandatory discounts under federal law. Tying prices state agencies pay for prescription drugs to VA prices is intended to reduce prescription drug spending for the populations state agencies serve through their health-care programs.

Typically, state agencies pay for prescription drugs under programs that provide health care or health insurance to certain defined populations — low-income residents, through the state’s Medi-Cal programs; current and retired state employees; and prison inmates. In 2014-15, the state paid $3.8 billion for prescription drugs, with the largest amount, $1.8 billion, going to Medi-Cal low-income residents; $1.3 billion to public employees, dependents and retirees (Public Employees’ Retirement System); $334 million to University of California students, clinics and hospital patients; $211 million to inmates; $57 million to underinsured individuals who are HIV positive; $8 million to developmental center residents; and $4 million to California State University students.

Medi-Cal operates comprehensive health coverage to low-income residents through two delivery systems: the fee-for-service system serving 25 percent of Medi-Cal recipients and the managed care system which that 75 percent of recipients. Under terms of Prop 61, were it to pass, the managed care system comprising 75 percent of recipients would be exempted from any drug price relief tied to VA caps. As the California Legislative Analyst notes, “The measure exempts a portion of the state’s largest health care program from its drug pricing requirements,” thereby reducing the pool of potential beneficiaries of drug-price reductions.

The LA’s Office also notes there are many end runs drug companies could make that might diminish actual prescription drug savings should the measure be enacted:

• The VA does not publish the lowest prices for some of the drugs for which it has negotiated lower fees because of confidentiality agreements with the drug manufacturers. Consequently, it would be impossible to determine “lowest price” for some drugs because the VA information is restricted.

• In order to maintain current levels of profitability, drug manufacturers could raise VA drug prices.

• Drug manufacturers might decline to offer the lowest VA prices to state agencies for certain drugs. In such cases, those drugs would be unavailable to most state agencies and the state residents their programs serve.

And while the bill’s sponsors correctly note the rapid rise of prescription drug prices (an 800-percent increase in prescription drug spending from 1990 to 2013), there is no enforcement provision in the measure to prevent drug manufacturer tactics that could vitiate the measure’s effectiveness in actually reducing drug prices.

The California Department of Health Care Services is obligated under federal law to offer most FDA-approved prescription drugs to Medi-Cal and other recipients. Failure to offer an approved drug, because of drug manufacturers’ refusal to offer lowest VA prices to the state, could result in loss of federal funding.

The prescription drug industry is fighting this measure, spending more than $70 million to oppose, and making this one of the most expensive ballot measures in this election.

In short, although aimed at curbing rampant price rises state agencies pay for prescription drugs, tying them to a federally agreed VA “lowest price,” the measure’s outcome and effectiveness are unclear, according to the LAO. The analyst notes outcomes are unclear because there is no enforcement provision and there is a continuing likelihood of drug company actions that could reduce the measure’s effectiveness.

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