A rash of controversial drug price hikes has triggered protests and sparked calls by Hillary Clinton, lawmakers and consumer groups for regulatory action as early as next year.
But the first important test will come on Nov. 8 when Californians vote on a controversial ballot initiative that would impose limits on drug prices for the first time.
The California Drug Price Relief Act, or Proposition 61, would limit the price that any state agency or health care program pays for prescription drugs to what the U.S. Department of Veterans’ Affairs pays for the same pharmaceuticals.
Congress prohibits Medicare and most other agencies from negotiating prescription drug prices, with the notable exception of the VA, a behemoth of an agency which purchases drugs for an estimated 6.6 million patients. Federal law insures that VA medical facilities across the country obtain a discount of at least 24 percent off prescription drugs list prices, and in many cases officials obtain much larger rebates.
If Proposition 61 were approved, the VA price list would apply when the state directly purchases drugs, as it does for its prison system, or when it is deemed the “ultimate payer” for drugs provided to certain state health care programs, including Medicaid.
The stakes couldn’t be higher for the two sides. Advocates of state agencies and health care programs are seeking to limit their exposure to future prescription drug price hikes that will further drain state resources. Meanwhile, major pharmaceutical companies could lose billions of dollars a year in profits if their price lists are tethered to the VA drug formulary.
The pharmaceutical industry, fearing a setback at the polls, has pumped more than $100 million into the campaign to defeat Proposition 61. That is the largest war chest ever assembled to battle a referendum issue in the state.
The vote will also test the political clout of Sen. Bernie Sanders of Vermont, an ardent supporter of the ballot initiative who has vowed to curb unscrupulous drug price increases as part of his “revolutionary” political agenda. Recent polls suggest that more than half of Californians support the measure, and Sanders’ intervention may well seal a victory for Proposition 61.
California, with its long history of ballot initiatives, has frequently served as a bellwether of major changes in the nation, dating back to the anti-tax rebellion in the late 1970s. With the pharmaceutical industry engendering so much hostility over its marketing strategies, a victory for Prop 61 could well trigger similar action by other states and the next Congress and president.
Sanders said last week during a rally in Los Angeles that the drug companies “are getting nervous” because they understand that “if we win here in California, other states in the country will be following very, very quickly.”
Sanders and other critics of Big Pharma’s pricing practices have had much to complain about during the past year and a half. Notable examples include Turing Pharmaceutical’s 5,000 percent increase in the price of the anti-parasitic drug Daraprim, Gilead Sciences’ massive markups of drugs that treat the hepatitis-C virus, and Mylan’s gradual six-fold price increase on EpiPen sets used to treat life-threating allergic reactions in kids.
Last week, Ariad Pharmaceuticals prompted renewed public outrage after it raised the price for the fourth time this year of Iclusig, a drug used in the treatment of chronic myeloid leukemia, to $199,000 for a year’s treatment. Sanders and Rep. Elijah B. Cummings of Maryland complained in a letter to the company’s CEO recently about “outrageous sales tactics.”
The drive for passage of Proposition 61 is pitting the seniors’ group AARP, the AIDS Healthcare Foundation and other health advocacy groups reeling from soaring drug costs against Pfizer, Gilead, Amgen and other major drug companies that have poured huge sums into the campaign.
The network of proponents and opponents in this battle is complex and diverse – with some veterans’ groups, AIDS activists, physicians and leading newspaper editorial pages siding with the drug industry against the proponents. And there is considerable conflicting analysis over how many Californians would actually benefit from the new measure and precisely how much in savings the state would gain.
Polling in recent months shows that more than half of voters are inclined to support the ballot initiative. Jamie Court, president of the liberal non-profit Consumer Watchdog, predicted that it would be approved next month – especially with Sanders, the democratic socialist who unsuccessfully challenged Clinton for the Democratic presidential nomination, championing the measure.
“The polls are very good, the public is ready for this and the drug companies that have spent up to $109 million haven’t really been able to make a dent in the support,” Court said in an interview Tuesday.
“So I think this is going to pass and I think it’s going to be the first shot in a revolution led by Bernie Sanders against the drug companies that sweeps across America to control the pharmaceutical prices,” he said.
Kathy Fairbanks, the chief spokesperson for the drug industry in California, said in an interview that there are strong arguments against the measure, including the possibility it would actually lead to higher prices in the long-term.
Industry experts have argued that the proposed caps are impractical to implement, could cut into revenues essential to drug research and development, and might even inadvertently lead to higher prices for Californians.
For example, some drug companies might balk and refuse to sell their drugs to California state agencies at dramatically reduced prices. State agencies then would have their backs to the wall to find replacement sources of drugs that might not include generous rebates.
Another problem: The VA purchases a relatively narrow roster of drugs, as few as a third of the more than 4,000 drugs available to Medicare patients in 2006. Figuring out discounted prices of those thousands of other drugs not used by the VA could be a nightmare for California officials. Also, the VA’s pricing information is proprietary, which could make it difficult for the state to obtain that information.
It is far from clear how many Californians would actually benefit from the proposed new law: Opponents say no more than 12 percent, or 4.4 million people, would be covered, while supporters say it is closer to five million to seven million.
Moreover, there are no reliable numbers on the actual cost savings to California. The state spends more than $4 billion annually on the purchase of prescription drugs, according to the Legislative Analyst’s Office, which is California’s equivalent of the Congressional Budget Office.
Proposition 61 potentially could save state taxpayers up to $5.7 billion over 10 years, according to proponents. However, the Legislative Analyst’s Office said in a detailed report that the financial impact of Proposition 61 was “highly uncertain.”
While many low income Medicaid beneficiaries, prison inmates, state employees and retirees would be favorably affected, the proposed new law would not affect those with private health insurance or the 10.4 million people covered by California’s biggest health care program, Medi-Cal managed care, according to a recent Los Angeles Times analysis.
The editorial board of the Los Angeles Times earlier this month urged voters to reject Proposition 61, saying that "the underlying problem of fast-rising drug prices needs to be addressed comprehensively and nationally, so that relief for some doesn't come at the expense of others."