Health & Human Services

Drug Companies Score a Big Election Victory

The industry spent millions of dollars to keep voters in California from passing a first-in-nation law that was meant to cut the soaring cost of prescription drugs.
by | November 9, 2016
Backers of Proposition 61 rally in downtown Los Angeles. (AP/Alicia Chang)

Read all of our coverage on 2016 ballot measures at governing.com/ballotmeasures.

Drug manufacturers give states discounts on prescription drugs sometimes, but it's not always as big as the one they give veterans.

Californians wanted the same deal as the military, but it isn't looking like they are going to get it.

Voters weighed in on a measure that would have made California the first to require health agencies to pay the same for prescription drugs as the U.S. Department of Veterans Affairs, which gets a 24 percent discount off manufacturers' average prices.

With 92 percent of precincts reporting, 54 percent opposed it and 46 percent supported it.

Proposition 61 would have applied to more than 1 million state and public university employees as well as 3 million Medicaid patients. (It would have excluded, however, the 10 million Californians on managed-care Medicaid plans.)

Drug prices plague states' and patients' pockets throughout the country.

Last year, California alone spent $3.8 billion on prescription drugs. In just one year, nationwide Medicaid spending on prescription drugs increased 24 percent from 2013 to 2014. That rise can be attributed to many things: the soaring price of new lifesaving drugs, the unregulated pharmaceutical industry, and in some states, an influx of Medicaid patients.

“Californians have to act because it has become painfully obvious we can’t expect relief from Sacramento or Washington,” wrote Margie Keenan, board member of the California Nurses Association, which supported Prop. 61, in the Long Beach Press-Telegram.

States have tried to control these costs but largely had little success. California's latest effort was a novel one.

Supporters said the initiative would have saved $5.7 billion over 10 years. But Amber Didier, an analyst with the state's Legislative Analyst’s Office, said it's impossible to predict the fiscal impact because it depends on how pharmaceutical companies would have reacted if Prop. 61 passed.

Pharmaceutical companies, which spent millions of dollars to defeat the measure, warned that in order to make up for any lost revenue, they may have made everyone's prescriptions more expensive or stop offering certain drugs to government agencies altogether.

But Michael Yee, a financial analyst with RBC Dominion Securities, argued that Prop. 61 shouldn't have significantly hurt companies' revenue. It would only start to hurt big pharma, he said, "if this initiative were passed in all 50 states."

So the threats about limited access and higher prices, said Yee, are likely in part to dissuade other states from taking up a similar measure.

The initiative proved to be one of the most expensive in California history. The opposition campaign, backed by several powerful pharmaceutical companies, had an arsenal of more than $100 million. The supporters, whose loudest surrogates include the AIDS Healthcare Foundation and U.S. Sen. Bernie Sanders, raised just $17 million.

Despite the opposition's huge fundraising advantage, pollsters predicted a close race. A poll released in September showed 50 percent would vote yes, 16 percent would vote no and 34 percent were undecided. It appears that the undecided ended up filing into the 'no' camp.

The opposition camp included more than just pharmaceutical companies.

Not a single newspaper in California had come out in support of Prop. 61. The Los Angeles Times, San Francisco Chronicle and Orange County Register all opposed the measure, calling it the wrong solution. In addition, several health associations believe the measure was flawed because of its limited scope and financial uncertainties.

“We have a higher percentage of older, sicker people, and we do think it could potentially reduce the access of certain drugs,” said Gail Nickerson, executive director of the California Association of Rural Health Clinics, which opposes the measure along with the California Medical Association and the California Chronic Care Coalition.

This isn't the first time California has tried to do something about the price of prescription drugs. Last year, the state became the first in the nation to cap the monthly cost of a lifesaving drug at $250. This year, however, a bill that would have required more notice of price hikes failed in the Senate.

Read all of our coverage on 2016 ballot measures at governing.com/ballotmeasures.

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