What you need to know about California Drug Price Relief Act
IS THE PRICE OF YOUR MEDS MAKING YOU SICK?
Fight Back Against The Drug Companies’ Price-Gouging
by voting for Proposition 61, the California Drug Price Relief Act of 2016
Greedy drug companies are overcharging California taxpayers and consumers by billions of dollars each year for life-saving medicines, putting profits over people.
You’ve no doubt seen the headlines — drug prices skyrocketing for no apparent reason. And you or a loved one have probably experienced personally the sticker-shock of co-pays for long-time drugs spiking literally overnight.
Now, you have a way to fight back against the unconscionable profiteering of the drug companies. Proposition 61, the California Drug Price Relief Act, is a 2016 ballot initiative that will require the State of California to pay no more for prescription drugs than is paid for the same medication by the U.S. Department of Veterans Affairs, which negotiates drug prices with the pharmaceutical companies — and pays 20-24% less on average for drugs than other government agencies, and 40% less than even Medicare.
Prop. 61 would utilize California’s bulk-purchasing power to secure lower drug prices for prescription drugs, saving taxpayers and consumers billions of dollars. And it will be an important blow against the monopoly pricing power and profit-driven arrogance of the pharmaceutical industry.
Prop 61 Frequently Asked Questions
What is Proposition 61?
It is a measure that will be submitted to the voters for their approval on the November 2016 ballot that will make a start on getting the exorbitant prices of prescription drugs under control – and, save California taxpayers billions at the same time.
How would it work?
If voters pass the measure, the State of California would be required to pay no more for prescription drugs than is paid for the same medication by the U.S. Department of Veterans Affairs. It could also negotiate for prices below those paid by the Department. This would encompass all drug purchases in which the State is the ultimate payer, whether it purchased the drugs directly from the pharmaceutical companies or not.
Why use the Department of Veterans Affairs as the standard for drug pricing?
Because unlike some entities of the federal government – Medicare, for example – the Dept. of Veterans Affairs is empowered by law to use its bargaining power to negotiate the prices of drugs used in the agency’s provision of health-care services to veterans. As a result, data show that the Department pays on average 20-24% less for drugs than other government agencies.
The Dept. of Veterans Affairs even pays 40% less for drugs than Medicare Part D (the prescription-drug program for seniors). When Part D was established by the George W. Bush Administration, Medicare was specifically banned by law from using its huge bargaining power to negotiate for lower drug prices for seniors – a huge and unconscionable giveaway to the drug companies.
In addition, Drug Companies cannot exorbitantly raise the price of drugs the VA provides due to the Veterans Healthcare Act of 1992, which placed a series of limits on Big Pharma in regard to VA prices. This happened because in the early 90’s drug companies were doing the same thing to Veterans as they are to every day Californians now. It works for the VA, and it will work for California.
Who will benefit from this initiative?
Ultimately, millions of Californians would benefit if this proposal passes. The millions of income-tax payers would see the state save billions of dollars on drug purchases – freeing up funds to redirect to other critical health-care needs. Taxpayers would also save directly because their tax dollars pay the drug costs for the 112,000 inmates in California state prisons. The nearly five million Californians who are non-HMO participants in Medi-Cal, and who are members of CalPERS, and the 31,000 participants in the AIDS Drug Assistance program (ADAP), could also benefit from lower co-pays and deductibles for drug purchases. In addition, this proposal could ultimately force the drug companies to moderate price increases across the board, based on public pressure and the lowered prices of state-purchased drugs.
Why are Medi-Cal managed care plans exempted from the initiative?
Medi-Cal managed-care organizations already negotiate with drug companies on prices, and pay for the drugs themselves out of premiums. Medi-Cal has both a managed-care component and a fee-for-service component. As well as directly affecting the fee-for-service prices, this initiative will ultimately lower drug costs in the Medi-Cal managed-care programs, too.
Medi-Cal pays managed-care providers based on the cost of care in the fee-for-service program, so as drug prices decline for fee-for-service patients, Medi-Cal will pay lower costs on the managed-care side as well. The taxpayers will save money in both parts of Medi-Cal. Why should United Healthcare, Kaiser, and other companies be allowed to negotiate lower drug prices, but not the State of California?
How much money will the state save by negotiating drug prices?
In 2013, the Center for Economic and Policy Research estimated that California could save “between $3.3 and $7.8 billion over 10 years,” or $330 million to $780 million per year, if the federal government were allowed to negotiate lower prices for prescription drugs in the Medicare program. When Medicare Part D, the prescription drug program, was established by the George W. Bush Administration in 2003, Medicare was specifically banned by law from using its huge bargaining power to negotiate for lower drug prices for seniors – a huge and unconscionable giveaway to the drug companies.
The estimate of savings by CEPR is based on California paying the same drug prices as Canada, while the higher savings estimate is based on Danish price levels. Canadians pay about 23% less for prescription drugs than Americans, though on some popular prescriptions the discount is much steeper. Danes pay about 54% less. Countries in which governments negotiate drug prices typically pay half of what U.S. consumers do, though there is a large range.
Unlike some entities of the federal government – like Medicare – the Dept. of Veterans Affairs is empowered by law to use its bargaining power to negotiate the prices of drugs used in the agency’s provision of health-care services to veterans. As a result, data show that the Department pays on average 20-24% less for drugs than other government agencies. The Department even pays about 40% less for drugs than Medicare Part D.
By extrapolating from the figures dealing with Medicare, certain projections can be made about the potential savings to the state by purchasing drugs at the prices paid by the U.S. Department of Veterans Affairs. For example, CalPERS spent $1.86 billion on drugs in 2014. Assuming that figure held steady over 10 years (which it won’t; specialty drug costs alone went up 62% for the agency between 2012 and 2014) CalPERS would spend $18.6 billion on prescription drugs over the next 10 years. Estimating a 20-24% savings in the purchase of these drugs under this initiative would save CalPERS alone nearly $4 billion over 10 years.
Projecting a 40% savings, the state’s drug costs just through CalPERS would amount to $7.5 billion over 10 years – and that doesn’t take into account state-funded drug purchases for Medi-Cal, the AIDS Drug Assistance Program, the state prison system, and other entities for which the state directly or indirectly buys prescription drugs.
Although Big Pharma has attacked the Drug Price Relief Act from every angle, including making all sorts of threats, one thing it has not and cannot allege is that the state would not save money if the initiative were passed. In fact, this is the apocalyptic language the industry itself has used about the measure in a trade publication for Pharma executives, which called the California ballot fight “ground zero” in the fight for lower drug prices:
“If the voters of California approve this proposition it would establish an incredibly deep, mandatory discount – in essence a ‘price control’ – for the public purchase of prescription drugs in America’s largest state. Such an action would no doubt cause an immediate demand for the same VA discount rate to be made available to other states, the federal government, and likely private entities, as well. In short adoption of VA pricing by the State of California would be a pricing disaster for the entire U.S. drug industry.” [Emphasis ours]
Pharma Exec, Dec. 16, 2015
Would implementing this initiative require federal approval or a waiver from the federal government?
No. The State of California is already allowed under the law to negotiate discounts off federal Medicaid drug prices.
Will this initiative result in drug companies pulling medications from the California market, or limiting access to high-cost drugs?
This is an outrageous scare tactic by Big Pharma. California represents the biggest market for the multi-billion-dollar pharmaceutical industry – we have more people than Canada and Australia, and the eighth-largest economy in the world. We’ve heard all this before. When California began mandating the catalytic converter in automobiles, there were dire threats that the auto manufacturers would stop selling their cars in California. The profit-obsessed drug companies are no more likely to stop selling drugs here than Ford or Chevy was to stop selling cars here. The market is simply too big and too lucrative. In addition, the drug companies already sell drugs to the Dept. of Veterans Affairs at the lower prices negotiated by that agency. Have they gone broke? No, they are recording record profits.
Will this increase the price of drugs for people in the private sector, who are not in a government-sponsored health-care program? Aren’t you asking employers and California’s insured in the private market to pick up more costs for Medi-Cal?
To the contrary, this initiative makes drug pricing more transparent and accountable and builds pressure on the multi-billion-dollar pharmaceutical industry to sell their products at a fair cost. Everyone will benefit if this measures succeeds.
Would passage of the initiative jeopardize the rebates Medi-Cal and other programs already receive from pharmaceutical companies, thereby putting poor people at risk?
Quite the opposite. This initiative will prevent Medi-Cal from paying exorbitant drug prices, saving billions of taxpayer dollars that can be spent on care for seniors, veterans, people with disabilities, and families with low incomes. Lower-income people are at risk at dying of treatable diseases because they can’t afford medicine under our current distorted system – or are not taking the prescribed doses in order to save money and make the prescription last longer.
Seven other states—Delaware, Louisiana, Maine, Maryland, Montana, New York and Vermont—have limited the amount private patients pay for prescription drugs. There is a growing call to let the federal Medicare system also negotiate drug prices. There is a national movement building. The industry knows that if California voters fight back against drug price gouging, other states will follow. This is why they are ready to spend an unlimited amount to stop this vital initiative.
Who is funding this measure?
The Los Angeles-based AIDS Healthcare Foundation (AHF), the largest provider of HIV/AIDS medical care in the U.S, has taken the lead in funding the collection of signatures to place the measure on the ballot. Far more signatures than required were submitted in November. A very diverse coalition of individuals and organizations will come together to support the measure.
Would the AIDS Healthcare Foundation itself be exempt from this initiative, since it is also a Medi-Cal managed-care provider?
No, AHF provides care to Medi-Cal patients through both fee-for-service and managed-care programs. This initiative will lower drug costs for patients in both programs. Medi-Cal pays managed care providers based on the cost of care in the fee-for-service program, so as these costs decline, Medi-Cal will pay lower costs on the managed care side.
How will you compete with the tens of millions of dollars the pharmaceutical industry likely will spend to defeat this measure and protect their profits?
We will win because the public is on our side. The campaign to pass the California Drug Price Relief Act took a survey showing overwhelming public support for the measure, with 76 percent of respondents saying they would vote for it. After being read arguments both for and against the measure, fully 81 percent supported it.
The survey also demonstrated deep public resentment toward the drug companies, with 85 percent of respondents saying they would be more likely to vote for the measure if they knew the pharmaceutical industry was campaigning to defeat it by spending millions of dollars.
Many other surveys over recent years have increasingly found that exorbitant prices for prescription drugs is a top concern of Americans. Americans are aware that they pay the highest drug prices in the world—and the main reason is that other countries and governments negotiate drug prices. The pharmaceutical industry put $10 million into an account to fight this initiative before the petition signatures were even filed. This gives a sense of the kind of inflated profits they are trying to protect.
The money the industry spends will remind the public about their financial power and the high prices consumers and the State pay to keep a system that is unfair to sick patients. These companies are fighting against a free market and in favor of a system that artificially inflates their profits, and exacts a significant cost in terms of the health and finances of the people of California.
Won’t the drug companies have trouble in this campaign defending or explaining their price-gouging to the public?
Yes! Witness the public outrage at Turing Pharmaceuticals executive Martin Shkreli, who raised the price for the generic drug his company had acquired by 5,500% overnight, and quickly became labeled “The Most Hated Man in America.” Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, noted “prices don’t rise 5,500 percent overnight in a functioning market.”
The current drug market is heavily distorted in favor of the drug companies, and people know it. According to the results of a Kaiser Health Tracking Poll released in June:
- 73% of respondents said drug prices are “unreasonable.”
- 76% percent of those people said that’s because pharmaceutical companies set prices too high.
- 74% blamed inflated pharmaceutical industry profits
- 54% cited marketing costs
- 53% said there are not enough limits on pharmaceutical prices
- Only 12% said there was too much government involvement in regulating the drug market
In addition, the drug companies’ own integrity and reputation are already seriously damaged given the billions upon billions they have been fined for making false and misleading statements about their products, as well as outright fraud. (See the chart below for a list of just the 20 largest settlements reached between the U.S. Department of Justice and pharmaceutical companies from 1991 to 2012.)
Won’t this initiative reduce the amount of money available for the drug companies to spend developing and testing new break-through medications and treatments?
No, although that is certainly one of the specious arguments that Big Pharma will make. Here is the undisputed fact: The pharmaceutical industry spends 19 times as much on advertising and marketing in a typical year as they do on research and development. In fact, universities or biotech companies, not pharmaceutical companies, developed half of all new drugs approved in the U.S. between 1998 and 2007. Not only are pharmaceutical companies gouging taxpayers, they are often doing so with drugs developed at taxpayer expense.
If the drug companies were as serious about finding new drugs as they are about marketing their existing drugs – including drugs purchased from other drug companies or that the government has helped develop — to consumers who don’t necessarily need them, and for some supposed diseases that no one has ever heard of except in drug-company ads, they wouldn’t be making this argument.
It’s difficult to watch TV for even half an hour without seeing two or three ads for prescription drugs – “Ask your doctor about Anavax,” “Ask your doctor about Zendifil” – while a voiceover intones all the serious potential side effects, including death. The pharmaceutical companies are largely marketing companies and drug pushers, not developers of new drugs.
The prestigious American Medical Association, representing the nation’s physicians, just came out for a ban on direct-to-consumer marketing of prescription, say the massive ad campaigns by the drug companies were fueling higher drug costs and driving demand for higher-priced drugs when lower-cost remedies were available.
No country in the world pays the inflated drug prices that Americans face. Even if you believe the industry argument, the current system forces Americans to pay for the development of drugs sold for much less in other counties. This is not fair, and it cannot last.
Have other countries limited what drug companies can charge for vital drugs and medications?
Yes, every other industrialized country in the world negotiates drug prices. Americans pay the world’s highest drug prices. Other countries spend healthcare dollars more efficiently than we do, not less. The industry tries to hide behind free-market rhetoric, but they are demanding government interference in free markets on their behalf at the expense of American citizens.
Drug prices rose 12% during 2014 alone. Both major Democratic presidential candidates have introduced plans to lower prescription drug costs; both include the controversial idea of letting people buy drugs from Canada. The onus is on the pharmaceutical industry to make an argument as to why the economics don’t work—something they have so far failed to do.
Can this initiative be tied up in court by the drug companies?
Any initiative can be subject to legal challenge. And the possibility of baseless lawsuits being filed by the pharmaceutical companies cannot be dismissed. But like so many of the other phony arguments the industry makes, legal action to overturn a measure such as this passed by the voters would just further expose patients and State taxpayers to the reality of Big Pharma’s greed.