CA Drug Price Relief: A Hard Pill to Swallow?

One of the earliest measures to qualify for the 2016 California November ballot was the California Drug Price Relief Act, whose supporters submitted more than half million signatures to the Secretary of State in mid-December. The measure, if passed, would require California state agencies to pay the same drug prices as the U.S. Department of Veterans Affairs.

Drug Companies Want to Educate Californians

The measure has gotten the attention of the pharmaceutical industry which has committed to raising at least $100 million to oppose the measure. Kathy Fairbanks, a spokesperson for the drug industry sponsored California Coalition, which is leading the opposition to the proposal notes,” It’s just a very crowded ballot this time around, and California is a big state. So to educate voters, it’s expensive.” In fact, big pharma is so committed to educating California’s voters that it’s estimated that they will spend upwards of $100 million to defeat the measure. This would give the Drug Price Relief Act the dubious honor of having the most money ever spent to defeat a state ballot measure. Six months ahead of the election the drug industry has already raised $68 million to oppose the measure, while proponents have only raised $4.4 million.

This would give the California Drug Price Relief Act the dubious honor of attracting the most money ever spent to defeat a state ballot measure.

Indeed, America’s pharmaceutical industry is so committed to educating America that last year they spent $5.4 billion in direct advertising on TV and consumer ads. This number is on top of the estimated $24 billion spent on marketing to doctors. There are some spoilsports, such as the American Medical Association (AMA) that feel that direct consumer advertising is a disservice to consumers and has called for a halt to such advertising. "Direct-to-consumer advertising also inflates demand for new and more expensive drugs, even when those drugs may not be appropriate," AMA Board Chair-elect Patrice Harris said in a statement. According to Reuters, the United States, and New Zealand are the only two countries in the world that permit direct-to-consumer marketing of prescription drugs.

What Would the Measure Do?

So just exactly would the Drug Price Relief Initiative accomplish that is causing such concern on the part of the pharmaceutical companies. The initiative was designed to restrict the price that any California state agency could pay for drugs by tying it to the cost paid by the U.S. Department of Veterans Affairs (DVA), an organization that falls under special laws regarding drug pricing. A 2005 Congressional Budget Office report stated that the DVA pays about 42 percent of the market price for drugs. The measure would apply where the state ultimately provides funding for the purchase of medications, even if the drugs are not purchased directly by a government agency.

So, when all is said and done, what would be the net effect on Californians? California Healthline tells us that the measure would apply to the following people:

2.7 million non-HMO Medi-Cal beneficiaries

2.2 million CalPERS and California State Teachers' Retirement System members

112,000 inmates

31,000 residents who receive AIDS drugs from government-assistance programs

In other words, out of California’s population of some 38 million, the measure would only apply to about 5 million persons. It seems the drug companies are getting awfully worked up over a bill that would affect less than 15% of the states' population.

Why Are the Drug Companies Nervous?

What makes that U.S. version of Nexium worth 10 times more than what the same drug sells for in Canada?

The answer is that they can get away with it thanks to the cozy relationship that the drug industry has developed with Congress. For years, the Pharmaceuticals/Health Products industry has led the rest of the country in money spent on lobbying Congress. And, they can certainly afford to do so. Last year Pfizer, the world's’ largest drug company, made a profit of $22 billion on sales of $51.6 billion, a mouth-watering profit margin of 42%. Want to hazard a guess who makes the drug Nexium that sells in the U.S. for ten times the amount it goes for in Canada – you got it, the good folks at Pfizer.

The drug companies have proved remarkably resistant to public opinion about their pricing policies and have little incentive to lower prices. According to Time Magazine, total spending on drugs last year rose to $309.5 billion in the U.S. alone and is expected to reach a staggering $610 to $640 billion a year by 2020. Last year there were 4.4 billion prescriptions issued for drugs in the U.S., that’s an average of 14 prescriptions dispensed for each American.

Maybe the Times Are Changing

There are some encouraging signs that the public may be waking up to the shenanigans of the drug industry. A poll conducted by Harvard’s T.H. Chan School of Public Health in May 2016 showed that 57% of the public supports the position of the AMA to ban direct-to-consumer advertising of prescription drugs.

Recent news stories of astronomical pricing for new medicines has created increasing outrage among voters that pharmaceutical companies are engaged in unethical pricing for those that are sick. Bernie Sanders has come out in support of California’s Drug Price Initiative, and both Hillary Clinton and Donald Trump have vowed to “take on the powerful drug companies,” if elected President.

Currently, Maine is the only state that allows residents to buy prescription drugs outside of the U.S. The program is controversial, and many pharmaceutical groups contend that Maine’s practice circumvents federal law. Senators Amy Klobuchar (D-Minn.) and John McCain (R-Az.) have twice introduced The Safe and Affordable Drugs from Canada Act, which would allow all Americans to order 90-day supplies of prescription drugs, but the measure has died in committee.

How about a new ballot initiative that would allow Californians to purchase prescriptions drugs directly from Canada.

A logical follow on to the California Drug Price Relief Act would be to create a new California ballot initiative that would follow the Maine’s law and allow all California residents to purchase prescription drugs from pharmacies in Canada or other designated countries. The size and scope of California’s buying power would make such a law in California impossible to ignore and would likely cause pharmaceutical companies to rethink their pricing nationwide.

Leave a Comment