The Blog

Prop 61 -- California's Fight Against Outrageous Drug Prices

If approved, Prop. 61 would require California state government to pay no more for drugs than what the U.S. Department of Veterans Affairs (DVA) pays for the same drugs.
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In the run up to the Affordable Care Act, the pharmaceutical industry's annual lobbying efforts steadily increased to a peak of $273 million in 2009. Along with private negotiations between then Pharmaceutical Industry President Billy Tauzin and the White House, the ACA was written without any consideration towards making prescription medications more affordable. On the contrary, the ACA continued to prohibit Medicare from negotiating drug prices and outlawed the importation of cheaper drugs from Canada or Europe. The pharmaceutical industry also received increased patent protections and as a result drug prices are escalating at a much faster clip today than ever before, becoming the fastest growing aspect of all medical costs. Sadly, it is the American consumer who continues to pay the highest drug prices in the world.

As state governments from New York to Montana struggle to protect consumers from drug company price-gouging, California is taking a leadership role in these efforts with Proposition 61, the measure on the Nov. 8 ballot to put a cap on prescription drug prices, the leading cause of skyrocketing health care costs.

Seven states have passed laws to ease the burden of drug costs on their citizens by limiting the out-of-pocket payments of patients in private health plans.

Californians have explored reforms to control drug industry price-gouging as spending on prescription drugs has been increasing nationally at a rate twice as fast as overall health care spending.

But even the most temperate reforms have hit a wall of resistance from a drug industry hell-bent on protecting its profits. Look at what happened with Sen. Ed Hernandez' bill, SB 1010. It simply called for greater transparency in drug pricing. It was gutted so badly by the drug industry's allies and lobbyists that its author unceremoniously yanked it off the table.

It turns out that the pharmaceutical industry did not become one of the most powerful interests on Capitol Hill or in Sacramento with campaign contributions alone. For every $1 the industry spent on contributions during the last election cycle, $7 were spent on lobbying in 2014. Between 1998 and 2016, the pharmaceutical industry spent over $3.3 billion on lobbying. It is clear that they have a clear interest in maintaining the political status quo.

More ambitious still is Prop. 61, the California Drug Price Relief Act. It has made California ground zero in the fight to control drug prices with the industry planning to spend at least $100 million campaign to defeat Prop. 61 with a barrage of misinformation and fear-mongering.

Prop. 61 is endorsed by Democratic presidential candidate Bernie Sanders, former U.S. Secretary of Labor Robert Reich, the Rev. Al Sharpton and scores of progressive organizations, including the California Nurses Assn., AARP California, the Urban League, the Courage Campaign, and Physicians for a National Health Program CA.

If approved, Prop. 61 would require California state government -- as the ultimate buyer of drugs used by approximately 5 million Medi-Cal (aka Medicaid) patients, current and retired state employees and prisoners -- to pay no more for drugs than what the U.S. Department of Veterans Affairs (DVA) pays for the same drugs. Typically DVA pays 20-24 percent less than market rate for its drugs. Passage of the law would be - so to speak - a difficult pill for Big Pharma to swallow.

But, not to fear, these companies will continue to reap giant profits as Big Pharma relentlessly prioritizes its profits above all, and its greed will not be easily tamed or shamed. This was recently exemplified by the infamous likes of "Pharma Bro" CEO Martin Shkreli of Turing Laboratories and Heather Bresch, the CEO of Mylan, the EpiPen maker.

As an oncologist, I have personally seen the increased financial burden of out-of-pocket spending on my patients as overall spending on cancer drugs increased by 18% in 2015 to $39 billion alone, according to IMS Health, a consulting firm that collects data for the drug industry. And some critical cancer drugs cost 600 times more in the United States than in other industrialized nations.

The drug companies have threatened to make Californians miserable if Prop. 61 wins. If approved, the drug companies warn they will 1) initiate cost-shifting (charging other customers more to make up for the revenues lost in selling to California state government); 2) cut their R&D budgets to make ends meet and thus damage their ability to design a new generation of wonder drugs; and/or 3) boost the prices they charge the DVA to nullify the benefits of the California reform measure.

But California voters should not be intimidated by drug company bullying.

The fact is that when Kaiser which currently insures nearly 25% of all Californians uses its marketshare to negotiate drug discounts, it is considered good free market business savvy, but when either Medicare or the state of California attempts to do the same, it is considered government interference.

If there's going to be price-shifting it will only happen because of drug company greed, not because of drug company need. Big Pharma is rolling in dough and are not going to collapse if some reasonable price controls are enacted in California.

The drug companies' claim Prop. 61 will force them to slash their R&D budgets to make ends meet is also phony. In fact, drug companies spend less than two percent of their revenues to create new drugs and as much as 80 percent of the cost of basic drug research is taxpayer-funded anyway. Just recently, a new prostate cancer drug called Xtandi, which was discovered using taxpayer-funded grants, was sold by UCLA to big Pharma for over $1 Billion and already costs patients $129,000 a year.

Finally, Big Pharma's veiled threats to hold veterans hostage to protect itself from Prop. 61 is morally revolting. And it's an empty threat. Federal law is clear: the drug companies cannot arbitrarily raise the prices they charge DVA. But, in reality, the VA drug formulary is relatively limited and Medicaid-HMOs will not be excluded, so Prop 61 is really more of a small overall step to address our grossly broken system.

So, why are the drug companies so scared and desperate? They understand that the only prescription that can break the stronghold of their lobbying efforts is when citizens bypass their beholden legislators to pass an initiative. Thus they fear passage of Prop. 61 in California will spark a "prairie fire" of reform that will spread across the nation. We hope they are right.