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.

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.”

Dramatic cuts

Covered California officials portrayed a slate of new budget cuts as evidence that the exchange was prepared to thrive in the absence of federal funding. But as the Los Angeles Times reported, Covered California has fallen some 300,000 enrollments short of its second-year goal. With the exchange charging $13.95 per individual enrolled, the lower figure translates into over $4 million in lost revenue.

According to the Times, officials have settled on a plan that cuts 15 percent from last fiscal year’s budget. Although the budget for marketing, outreach and sales will drop by a full third, it will remain the largest single expenditure, at over $121 million. “The state also would draw on $100 million in federal money in reserves,” noted the Times — “the last of the start-up grant. No further federal funding is expected.”

The exchange also announced an additional enticement for would-be enrollees: a first-of-its-kind cap on payments for so-called specialty drugs. According to the new regime, taking effect in 2016, the typical customer “will pay a maximum of $250 per month for high-end specialty drugs that cost as much as $1,000 a pill on the retail market,” the Sacramento Business Journal reported.

Critics quickly took note of a counterintuitive detail, however. “A group with silver-level plans will pay $150, but those with bronze plans will pay as much as $500 per month until they hit their maximum annual out-of-pocket of $6,500,” according to the Business Journal.

But as Medicare and Medi-Cal participation has expanded separately under Obamacare, the cost of new prescription drugs has become a systemwide burden. “Programs such as Medi-Care and Medi-Cal have struggled with burgeoning health costs in recent years from drugs such as Harvoni, a potential cure for many patients with hepatitis C,” as the Sacramento Bee observed. “The drug has a shelf price of $1,125 a pill, with a typical treatment cost that approaches $95,000.”

Enrollment rates fall

In anticipation of a heavy budgetary lift during the first year of Obamacare, the Affordable Care Act provided generous subsidies to states setting up their own exchanges. Even though an end to the cash was foreseen since the beginning, California and other states have had to scramble to make up the difference.

One bellwether came in the form of decreasing signups during the latest round of availability. The federal exchange set up under Obamacare has seen the same kind of dropoff as the state exchanges, CNBC reported:

“HealthCare.gov signed up 147,000 people in 36 states during a special tax season enrollment period, officials revealed Tuesday. That relatively light level of sign-ups was similar to what was seen in 11 other states and the District of Columbia during their own grace periods. […] The federal exchange’s special enrollment period was open to people who learned they were subject to a tax penalty for failing to have health insurance coverage last year when they were preparing their tax returns.”

Hard choices

Covered California has wound up in perhaps the best position to weather the tough transition to self-sufficiency. Other states haven’t been so lucky. In Hawaii, the state Health Connector exchange has collapsed, unable to attract enough signups by the January 1 deadline this year. A proposed infusion of cash from the state’s general fund couldn’t measure up to projected costs. Yet staying out of compliance risked “about $1 billion in Medicaid funds to serve 330,000 Hawaii residents,” KTIV Channel 4 reported.

As Health Connector Executive Director Jeff Kissel explained, the choices states face in Hawaii’s position can be daunting. “If we use the federal technology, the federal government requires everyone to sign up again,” he told KTIV. “We are scheduled to meet as a board again next Wednesday to consider how we’re going to move forward and face the challenges and overcome[.]”