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California Proposition 61: Drug Prices

California Proposition 61: Drug Prices

by Hannah Rosenblatt

From the editor: Welcome to Part 2 of our 2016 election mini-series. (If you missed Part 1: voter resources, check it out here.) Today’s election issue breakdown: drug prices. Why does this hit close to home? A huge number of biology PhD holders go on to work in the lucrative biotech business, much of which involves drug discovery. Drug discovery is lucrative precisely because pharmaceuticals cost so much, but what does that mean for consumers who need medication to stay healthy? And what does that mean for our health care system as a whole? Without further ado, here’s Hannah’s take on Prop 61.

 

Proposition 61: The California Drug Price Relief Act

Prescription drug prices are highly variable and can shift directions rapidly based on the impulses of someone with the right leverage. Proposition 61 attempts to limit random price inflation of drugs sold to the state, by stating that California will not pay more for prescription drugs than the United States Department of Veterans Affairs, which often receives more stable and discounted prices (full text here). This limitation of acceptable prices would only occur at the state level, where California is acting as a customer to pharmaceutical companies, which means it could ultimately affect prices and supplies of drugs in pharmacies statewide.

 

The Arguments

YES to Prop 61

Supporters of Prop 61 argue that California refusing to pay higher rates for the same drugs sold to other government bodies will force pharmaceutical companies to give them prescription drugs at dependable, reasonable prices.

It’s no secret that pharmaceutical companies are very very good at making very very large sums of money. In fact, the proposition itself states that “charging inflated drug prices has resulted in pharmaceutical company profits exceeding those of even the oil and investment banking industries.” However, the processes that companies use to market and regulate their products are extremely well-kept secrets. We mainly catch glimpses of their internal workings when a company does something dramatic or ridiculous enough to warrant government investigation (such as the recent EpiPen and Daraprim price hikes) but even in those cases, executives involved usually demonstrate remarkable knowledge of their fifth amendment rights. Privatization of the industry makes it difficult for the government to regulate or even know about practices or prices. However, demanding reasonable and consistent prices on such a large scale could give government bodies the means to hold drug companies accountable for unreasonable inflation.

 

NO to Prop 61

People against Prop 61 argue that the act will have adverse effects on consumers as pharmaceutical companies retaliate or refuse to sell discounted drugs.

The positive effects of this act ultimately depend on the pharmaceutical companies’ response to California’s demand for lowered/consistent prices. Opponents of the act believe that many companies - remaining true to their lucrative natures - will either refuse to sell certain prescriptions to the state, or raise the prices they have previously guaranteed the Department of Veterans Affairs in order to maintain higher marketing prices for California. These responses could either decrease the availability of certain prescriptions in statewide pharmacies, or raise prices for prescriptions made to Veterans. There is definitely high variability in the actual impact that Prop 61 will have on immediate drug costs and supplies, with its projected fiscal impact simply being the “[p]otential for state savings of an unknown amount.” If the act doesn’t pass, different state programs would continue to negotiate drug prices individually and come to an agreement with the pharmaceutical companies, instead of risking not being able to buy certain prescription drugs.

 

Funding and Support

Campaigning efforts for Prop 61 have received an absurd amount of funding for a local ballot initiative, with proponent funds totaling at just over 14 million, and opponent funds reaching almost 87 million dollars.

  • Major donors to the “Yes” campaign include the AIDS Healthcare foundation and the California Nurses’ Association, and campaign efforts include a special 30 second soundbite of Senator Bernie Sanders.
  • Major donors to the “No” campaign include a long list of pharmaceutical companies (not surprisingly), but other supporters include the California Medical Association, and several other smaller health organizations.

 

How It Could Go Down

California is basically threatening to boycott pharmaceutical companies that refuse to provide reasonably priced drugs at a consistent price. This could lead to some immediate negative effects but also is one of the only ways to begin government regulation of the pharmaceutical industry.

Aside from deprivatization, the only way the government can hold stricter standards for drug prices is by holding stricter standards for how governmental bodies (as large, valuable customers) purchase drugs. For actual regulation, the government would have to strong-arm companies into deflating prices in order to maintain a consistent revenue source. However, it is unclear what the repercussions will be for California, since it is acting as a single state.

The pharmaceutical industry might be threatened enough by the loss of California’s business to agree to offer the consistent, lowered prices. However, it also might be strong enough to simply deny product supply or just generally stop offering any discounts at risk of losing some business. Additionally, drug pricing inconsistencies and undisclosed discounts for the Department of Veterans Affairs could make it difficult to determine what prices the states should negotiate in order to comply with the act. Overall, passing of Prop 61 would force the US into the fire of the pharmaceutical industry battle, fighting for fair prices by setting a significant, albeit risky, precedence.

 

Additional Resources

From the Web: Election Edition

From the Web: Election Edition

Voter Information and Resources

Voter Information and Resources