New approaches to control state pharmaceutical costs are needed.1 This issue is particularly critical in California, the state with the largest pharmaceutical expenditures in the country.1 A controversial California ballot initiative aimed at reining in prescription drug expenditures was defeated on November 8, 2016 by a 54% to 46% margin.2The California Drug Price Relief Act, also known as Proposition 61, sought to limit Medi-Cal (California’s Medicaid program) and other state health programs from paying more for medications than the US Department of Veterans Affairs (VA), which receives a federally mandated 24% discount from manufacturers, the steepest discount in the country.3 The measure—which fueled a national debate over ways to counter serial price hikes for EpiPens and other lifesaving medications—drew support in early polls, but lost traction in the days prior to the election.2 Public advertisement for the Proposition was $19 million, while $109 million, the majority of which was from the pharmaceutical industry, was spent against the measure.2 The measure, while soundly defeated, sends a strong message that the status quo is unsustainable. Angst over rising medicine costs will undoubtedly prompt further legislative efforts in California and beyond.
California’s Proposition 61: Pros and Cons
Prescription drug spending, at record price levels throughout the country, is growing faster than overall health care spending. In 2014-2015, California spent $3.8 billion on prescription drugs, excluding pharmaceutical spending by Medi-Cal managed care plans.4 Proposition 61, if adopted, would have applied when California is the last payer, such as health care payments under Medi-Cal for inmates in the prison system, and for current and retired state employees. In total, Proposition 61 would have applied to 12% (7 million) of Californians.4
Proponents of the initiative argued that Proposition 61 would combat skyrocketing drug prices.4 By capping prices and consolidating drug purchases currently dispersed across numerous state agencies, Proposition 61 purportedly would have saved California more than $4 billion over 10 years.4 Of course, the magnitude of these savings would have been dependent on the drug industry’s reaction. Proposition 61 had many supporters, including many state employee associations, the American Association of Retired Persons, the California Nurses Association, and numerous county-level Democratic organizations.4
However, many veterans and consumer groups opposed Proposition 61.4 They argued that Proposition 61’s price mandate would cause drug manufacturers to raise VA prices to avoid providing larger discounts to others. They argued that Proposition 61 could increase VA prices by $3.8 billion per year nationally, a cost that would be passed onto veterans, some of whom are homeless and disabled.4
Analysis
Despite potential benefits, Proposition 61 was largely a flawed messaging initiative and would probably not have realized the claimed benefits. Proposition 61 would have done little to reverse the tide of rising drug prices. Instead, it essentially would only have pegged prices to underlying VA prices, which the initiative offered no mechanism to maintain or even reduce.
Proposition 61 was limited in scope. It would not have applied to the privately insured, the largest population in California. Medi-Cal programs already benefited from deep pharmaceutical discounts of 23.1%, with further discounts possible if Medicaid negotiates additional discounts or if drug prices increase faster than inflation.4Proposition 61 would have affected only the fee-for-service portion of, but not the much larger managed care portion (75%) of Medi-Cal.4 Also, it was unlikely that any Medi-Cal enrollee would have seen a change in their prescription drug spending at a personal level.
Furthermore, VA does not make public its purchase prices, making it unclear how California agencies would have made pharmaceutical purchasing decisions based on unknown prices. It is uncertain whether the VA could legally be compelled to disclose their purchase prices. The Legislative Analyst’s Office, California’s fiscal and policy advising body to the legislature, noted that “courts might allow the state to pay for drugs at a price not exceeding the lowest known price paid by the VA, rather than the actual lowest price, to allow the measure to be implemented”—but this outcome would not be certain, given the way the Proposition was worded.
Conversely, there is precedent showing increases in costs to veterans following changes to the public purchasing price structure. In 1990, VA prices experienced two- to threefold increases after efforts to benchmark Medicaid prices to VA prices.4 The California Public Employees Retirement Systems (CalPERS) identified increased costs to veterans and decreased access for CalPERS members as a potential consequence of Proposition 61. The Legislative Analyst’s Office was unable to determine any potential savings from Proposition 61 because it could not predict “how implementation challenges [would be] addressed” and how drug manufacturers would respond to the initiative.4
Moreover, if Proposition 61 had passed, the Legislative Analyst’s Office argued that it potentially could have triggered federal regulations to require VA-level prices at all Medicaid programs nationally.4 If so, this would represent over 20 million new beneficiaries eligible for reduced VA prices.4 Pharmaceutical manufacturers would unlikely have accepted such a result without resistance.
To read this article in its entirety please visit our website.
-Y. Tony Yang, ScD, LLM, MPH, Brian Chen, JD, PhD, Charles L. Bennett, MD, PhD, MPP
This article originally appeared in the August 2017 issue of The American Journal of Medicine.
