On November 8th citizens in 35 states vote on 163 ballot initiatives. They cover a wide range of subjects (e.g. marijuana, minimum wage, taxes, gun control). To my mind, initiatives in three states—California on reducing drug prices, South Dakota on revamping its political system, and New Mexico on the inequitable use of bail– stand out as having a potentially broad national impact.
California Takes on Big Pharma
Californians will vote on a ballot initiative that requires state agencies to pay no more for any prescription drug than the lowest price paid by the U.S. Department of Veterans Affairs (VA) for the same drug. It would apply to more than 1 million state and public university employees as well as 3 million Medicaid patients (although it would exclude 10 million Californians on managed care Medicaid plans.)
Pharma Exec magazine warns its readers, passage of Proposition 61, “would shake the rafters of every single state drug program in the nation, as well as the federal Medicaid and Medicare programs.” It’s a warning well with heeding. Federal law entitles all state Medicaid programs to the lowest prescription drug prices available to most public and private payers in the U.S., excluding the VA. Medicaid discounts ordinarily are in the 20 percent range, but VA discounts can be as high as 42 percent. Thus the California measure could extend the VA’s low drug prices to Medicaid programs serving tens of millions of additional people nationwide.
As of October 20, pharmaceutical companies had spent more than $109 million to defeat the measure compared to just $15 million for supporters. Nevertheless, the initiative appears headed to victory.
The pricing of drugs has become a national disgrace. Horror stories abound. Turing Pharmaceuticals purchased the rights to a generic AIDS drug and promptly raises its price from $13.50 to $750 a pill. According to Forbes, prices increased by 100 percent or more between 2013 and 2014, in 222 generic drug groups. Specialty drugs have become astronomically expensive. Reuters reports that in 2014, annual medication costs of 139,000 Americans exceeded $100,000, nearly triple the number who reached that level a year earlier.
The pharmaceutical industry is astonishingly profitable. Median return on assets is more than double the rest of the Fortune 500, according to Alfred Engelberg. The industry is awash in cash. Pfizer holds $74 billion in unrepatriated profits overseas and Merck holds $60 billion, enough to fund their respective annual research budgets for l0 years.
While the industry reaps the financial benefits, the taxpayer bears much of the financial cost. Some observers calculate that direct and indirect government support is such that private industry pays only about a third of R&D costs. Pouring salt in he taxpayers’ wounds, the government gifts these largely publicly funded drugs long-term patent protection. Which is one reason, as the Washington Post reports, drug companies focus on marketing, often spending $2 for marketing for every $1 spent on research.
Despite repeated scandals, the federal government has been unwilling or uninterested in stepping in. Congress hoots and hollers about the outrageous price hikes but specifically prohibits Medicare from negotiating with drug companies for price discounts. Federal law allows the government to unilaterally lower the price of drugs developed with government funds when a company is gouging customers, but the Administration so far has refused to wield this power. The government could also allow the import of less expensive equivalent drugs, but the Administration has refused to exercise this authority either.
Which leaves it up to the people to assert their own authority, in those states where this is possible. That’s what Californians have done. Continue reading