I’ve been watching and reading about on Proposition 61 as a result of the ‘air wars’ – principally television ads – pronouncing either the support or opposition to Proposition 61 – also known as ‘The California Drug Price Relief Act’ and officially titled the ‘State Prescription Drug Purchases. Pricing Standards. Initiative Statute‘. For complete analysis, legislative Analysis of the Proposition outlined in the California Voter Guide.

The official title and description notes the intent of the Proposition:

  • Prohibits state agencies from buying any prescription drug from a drug manufacturer at any price over the lowest price paid for the same drug by the United States Department of Veterans Affairs, except as may be required by federal law.
  • Applies to any program where the state agency is the ultimate payer for a prescription drug, even if the state agency does not itself buy the drug.
  • Exempts purchases of prescription drugs under managed care programs funded through Medi-Cal.

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As someone who’s been in the managed healthcare industry since the 80’s (a founding member of management for Preferred Health Network (PHN) a 3rd generation PPO with attorney-in-fact contracting authority and the ability to re-price claims to contract rates in 1984!) I am intimately familiar with serial efforts over three decades to restrain rising healthcare costs and improve both quality and access whether via HMOs, PPOs, direct contracting or other efforts. Since the blitz of the ‘Yes’ and ‘No’ campaigns have begun, I was struck by some of the claims made by the sponsors of the No on Prop 61 campaign.

As is often the case the special interests funding these campaigns always come up with creative titles and associated sound bytes to maximize the appeal of their underlying messaging.

Let’s start with the sponsors of the No on Prop 61 campaign as reflected in the fine print of the ad:

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While an impressive collection of otherwise trustworthy nameplates, i.e., the California Medical Association, a series of state chapter Veterans organizations and many major California newspapers, the effort has been principally funded by PHRMA members Merck, Pfizer, and ‘other companies’ including Gilead.

Further perhaps most offensive and not one No on Prop 61 supporter the sponsors care to draw attention to is the recent commentary from disgraced former Turing Pharma CEO Martin Shkreli, arguably the poster child for unbridled greed inherent in common pricing practices found in the pharmaceutical sector:

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At the end of the day the claims made in this add are supported entirely on ‘unknown’ market responses by the drug manufacturing industry as noted in the legislative analyst’s assessment:

In order to maintain similar levels of profits on their products, drug manufacturers would likely take actions that mitigate the impact of the measure.

…the measure could extend the VA’s favorable drug prices to health programs serving tens of millions of additional people nationwide, placing added pressure on drug manufacturers to take actions to protect their profits under the measure.

…if adopted, the measure could generate annual state savings. However, the amount of any savings is highly uncertain as it would depend on (1) how the measure’s implementation challenges are addressed and (2) the uncertain market responses of drug manufacturers to the measure.

As a result, the fiscal impact of this measure on the state is unknown. It could range from relatively little effect to significant annual savings. For example, if the measure lowered total state prescription drug spending by even a few percent, it would result in state savings in the high tens of millions of dollars annually.

In the commercial or private pay theater it is common practice to leverage group purchasing power to obtain best price and the associated bench-marking to ‘most favored nation’s rates’. The pooling of large numbers is also a best practice of contracting, giving rise to group purchasing organizations (GPOs) leveraging millions of lives on behalf of the health plan or employer to benefit its members. Yet in the public markets, especially Medicare, things are a little different. Current law expressly prohibits the direct negotiation by the Department of Health and Human Services (HHS) or the Centers for Medicare and Medicaid Services (CMS) on behalf of all Medicare beneficiaries favoring the deleveraging or such group purchasing power to individual Prescription Drug Plan (PDP) participants.

The fear and near constant PHRMA advocacy is make sure the ‘law of large numbers‘ group purchasing is NOT extended to prescription drugs anytime soon. The California initiative if passed may set the stage for further extension of direct negotiation by CMS on behalf of 53.8 million Medicare beneficiaries to extract best price.

In the YES on Prop 61 campaign we have the following supporters: Bernie Sanders, the American Association of Retired Persons (California), the AIDS Foundation, the California Nurses Association and VoteVets.

The messaging by Bernie Sanders in support of Prop 61 is presented below:

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And via VoteVets:

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It appears the entire premise on which the No on Prop 61 campaign bases its argument is on the ‘unknown‘ actions PHRMA members ‘may’ undertake to protect their profits, as the legislative analysis notes:

In order to maintain similar levels of profits on their products, drug manufacturers would likely take actions that mitigate the impact of the measure. A key reason why drug manufacturers might take actions in response to the measure relates to how federal law regulates state Medicaid programs’ prescription drug prices. (Medi-Cal is California’s Medicaid program.) Federal law entitles all state Medicaid programs to the lowest prescription drug prices available to most public and private payers in the United States (excluding certain payers, such as the VA). If certain California state agencies receive VA prices, as the measure intends, this would set new prescription drug price limits at VA prices for all state Medicaid programs. As a result, the measure could extend the VA’s favorable drug prices to health programs serving tens of millions of additional people nationwide, placing added pressure on drug manufacturers to take actions to protect their profits under the measure.

For complete details on Prop 61, click here.

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