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California Leads Push to Lower Drug Prices

The state passed the nation's most comprehensive law to make drug prices more transparent. It has also inspired other states to take on the pharmaceutical companies in November.

prescription drug pills covering cash
When California does something, other states pay attention. Not just because it's the most populous state, but also because it's one of the most progressive and has enviably dug itself out of a $26 billion budget hole.

The issue of drug prices doesn't appear to be any different. 

On Monday, California Gov. Jerry Brown signed what many say is the nation's most comprehensive law to make drug prices more transparent. It will likely result in similar legislation in other states. And a 2016 California ballot initiative on drug pricing is being replicated on Ohio ballots this coming November.

The new law requires pharmaceutical companies to notify insurers at least 60 days before the price of a drug is expected to increase by 16 percent or more. This is a major departure from the status quo, in which drugmakers don't have to alert anyone, at any time, about price hikes.

“We’ve been told that the rising price of drugs is a function of their cost. But what evidence we’ve seen is to the contrary,” says Assemblymember David Chiu, a co-sponsor of the bill, citing the fact some drugs are often a fraction of the cost in other countries.

The EpiPen, for example, an injection used to treat life-threatening allergic reactions, saw its price jump from $249 in 2013 to $600 for a two-pack last year. In England, the same injection is $69.  

“If the industry is right," says Chiu, "then this bill will help us understand why.” 

Pharmaceutical companies have few regulations regarding price transparency. That's starting to change.

In addition to California's new law, Maryland passed a law this year requiring health-care officials to notify the state's attorney general if the price of a generic drug is raised by 50 percent or more. (In response, a trade group representing drug companies asked the courts to throw out the law. The lawsuit is still pending.) New York also passed a law that will put drug companies under scrunity when prices are raised.

A prescription drug transparency bill has been introduced in Congress, but it has not gotten serious attention from lawmakers.

"If you take into consideration the inaction from Congress this year, [California's law] will be one of the biggest pieces of health-care legislation in the country," says Ed Hernandez, the California state senator who sponsored the bill. 

"What I really hope is that at the Congress and the U.S. Senate level, they will look at this bill and use it as a blueprint for the entire country so we can have an honest conversation about controlling health-care costs," Hernandez told The Mercury News.

When it comes to actually lowering drug prices, though, California has not had as much success.

When Californians went to the polls last November, they voted on a ballot measure that would have let state health agencies pay the same for prescription drugs as the U.S. Department of Veterans Affairs, which gets a 24 percent discount off drug manufacturers' prices. The pharmaceutical industry put up a multimillion-dollar defense, and it paid off: The measure lost, four percentage points shy of passage.

Undeterred by that loss, Ohio is pursuing the exact same policy.

But it will be an uphill battle there, too. With $16 million in contributions, the opposition -- which includes the pharmaceutical industry -- has more than double the money on hand as the campaign in support of the legislation, which has only raised $6 million.

A poll conducted in August found the majority of Ohioans are undecided on the measure

If passed, proponents of the Ohio Drug Price Relief Act say it would save the state $400 million a year. But former Ohio budget director Greg Browning, who opposes the measure, analyzed the bill and says that the $400 million in savings are grossly oversold because states typically get discounts on drugs anyway. 

“They have made this calculation without taking into consideration the profound fact that these Ohio prescription drug expenditures, which involve 3 million Ohio Medicaid recipients and about 1 million other impacted citizens, already reflect mandatory and negotiated discounts that already rival drug prices paid by the U.S. Department of Veterans Affairs,” Browning wrote in an issue brief. 

But supporters say the VA program has been successful and should be replicated across the country in order to help keep companies in check in the long run.

"The Department of Veterans Affairs has successfully used this program for years since it was first established by President George H. W. Bush and Congress in 1992," Nina Turner, a former Ohio state senator, wrote in the Cincinnati Enquirer. "Don’t be fooled when pharmaceutical companies argue that their pricing strategy is simply based on supply and demand."

Michael Stinziano, a Columbus city councilmember, says the measure is necessary and a priority for citizens.

“A lot of money is being spent on distractions," he says. "But after hearing from so many constituents, it’s important that we keep pushing for change on this issue."

*This story has been updated to reflect Brown's signing of the bill.

Mattie covers all things health for Governing.

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