Drug prices latest CA ballot battle

pillsResponding to a growing sense of alarm among state officials and the general public, the AIDS Healthcare Foundation has secured approval for a ballot initiative that would coercively reduce the cost of prescription drugs.

The California Drug Price Relief Act, as it was dubbed, “would impose price controls on prescription drug purchases funded — directly and indirectly — by the state,” as California Healthline reported. “The proposal would mandate that the state pay the same as or less than the rates paid by the Department of Veterans Affairs for prescription drug purchases. California currently pays billions of dollars for prescription drugs — both directly, such as for prison health care, and indirectly, such as for Medi-Cal and CalPERS managed care plans.”

Pharmaceutical companies swiftly rallied in opposition to the would-be law, reaching into their pockets to fund messaging around what they call its misleading pitch to voters. “It will increase the prices of prescription drugs sold to veterans and many California consumers and will reduce the number of drug choices available to Californians all while costing taxpayers millions more in state bureaucracy and lawsuits because it will be virtually impossible to implement,” said Kathy Fairbanks, spokeswoman for the campaign, according to the Sacramento Bee.

But a new round of sticker shock at CalPERS, the state employee retirement system, fueled concerns that pharmaceutical companies were setting prices at unsustainable rates. In a new report, CalPERS announced that specialty drug costs set it back $438 million — a rise last year of 32 percent. “Despite being less than 1 percent of all prescriptions, specialty drugs accounted for nearly a quarter of the pension fund’s $1.8 billion in total drug costs,” the report observed, according to the Los Angeles Times. “Prescription drug costs increased nearly 8 percent overall at CalPERS for 2014.”

Spiraling expenses

The Golden State has not been alone in struggling with drug affordability. Nationwide, over the past decade, even the cost of common drugs has outpaced the rate of inflation. “Prices rose faster than inflation for 22 percent of top generic drugs reviewed between 2005 and 2014,” Modern Healthcare reported, citing a recently released report authored by by the Office of the Inspector General at the Department of Health and Human Services. “Had those generic drugs been subject to the same requirement that branded drugs face — where manufacturers pay additional rebates to Medicaid when the price of a drug increases faster than inflation — Medicaid would have pulled in $1.4 billion in rebates for the top 200 generic drugs.” CalPERS drug expenses would be included in the rates the CDPRA would try to push down.

OIG had issued its report in response to an inquiry by Congress into the way rising drug prices had affected budgeting in both Medicaid and Medicare, Modern Healthcare noted. But OIG held off on drawing any policy conclusions, “noting that that the two-year budget deal recently passed by Congress would extend the rebates to generics starting in 2017,” according to Modern Healthcare. “In a previous, similar report, OIG had recommended CMS consider seeking legislative authority to broaden the rebate program.”

Perverse incentives

Despite the populist appeal of taking on the drug companies, critics have cautioned that some of the same incentives the CDPRA would seek to punish would simply flourish in another, harder-to-tackle form. “The initiative would create an incentive for drug companies to hike the prices they charge the VA given it would have a ripple effect. State officials told Southern California Public Radio that they even don’t always know what the VA pays for drugs,” noted Steven Greenhut at U-T San Diego.

Echoing that concern, Jeff McCombs, a health economist with the Leonard D. Schaeffer Center for Health Policy & Economics at USC, told Southern California Public Radio “that Congress attempted a similar strategy with a 1991 law that required drug companies to give Medicaid the same deep discounts they gave other big customers. But rather than forcing down Medicaid drug prices, the law spurred pharmaceutical companies to raise prices for their other big customers, including the Department of Veterans Affairs.”

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