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Proposition 61 – Prescription Drug Pricing

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Official Title:

State Prescription Drug Purchases: Pricing Standards: Initiative Statute

Overview:

In recent years, much concern has been expressed about the rising costs of prescription drugs, and the impact that these prices have on state and federal health care systems and programs.

Proposition 61 would prohibit state entities from paying more for any prescription drug than the lowest price paid by the United States Department of Veterans Affairs (VA) for the same drug.  The proposition applies both to direct purchases by the state and where the state is the ultimate payer of the drug.

The State of California is a large purchaser of prescription drugs.  Specifically, the state purchases or pays for prescription drugs in a number of programs, including for low-income individuals through the Medi-Cal program and by providing health care to the state's inmate population.  The state also pays for prescription drugs by providing health coverage to state workers and retirees.

In 2014-15, the state spent more than $4 billion on prescription drugs.

The federal government has established discount programs that place upper limits on the prices paid for prescription drugs by selected federal payers, often resulting in lower prices than those available to private purchasers.  In addition to these discount programs, the federal VA regularly negotiates additional discounts from drug manufacturers that lower its prices below what other federal departments pay.  Manufacturers provide these discounts in return for placement on the VA’s formulary—the list of drugs that VA doctors may prescribe.  The VA’s formulary is relatively narrow, giving manufacturers an incentive to grant price concessions in exchange for their drugs being made available to VA health care consumers.

Proposition 61 would prohibit state entities from paying more for a prescription drug than the lowest price paid by the VA for the same drug (if the VA has paid for that drug) after all rebates and other discounts are factored in for both California state entities and the VA.  Proposition 61 would extend this price ceiling to both direct purchases by the state and where the state serves as the ultimate payer of the drugs.

In situations where the state does not purchase drugs directly from manufacturers, the measure would require that the state, when necessary, establish additional rebate-like programs whereby drug manufacturers make payments to the state until the cost of each drug equals the lowest price paid by the VA for that same drug.

Fiscal Impact:

According to the Legislative Analyst Office (LAO) estimating Proposition 61’s effect on state prescription drug spending is challenging due to uncertainty around (1) whether the lowest prices the VA pays for prescriptions drugs are publicly available and (2) how drug manufacturers would respond in the market if this measure were enacted provided that the lowest effective VA prices can be identified.  Both areas of uncertainty lead to difficulty assessing the measure’s impact on state drug spending under a range of plausible scenarios.

CCC Position:

No position

Support:

Supporters of Proposition 61 include the California Nurses Association/National Nurses Organizing Committee, AARP California, and the California Democratic Party. 

Supporters argue that this proposition, The California Drug Price Relief Act, fights back against the drug companies’ price gouging by requiring California to negotiate with drug companies for prices that are no more than the amounts paid for the same drugs by the U.S. Department of Veterans Affairs (VA).  The VA is empowered by federal law to use its bargaining power to negotiate the prices of drugs used in the agency’s provision of health-care services to veterans.  As a result, data show that the VA pays on average 20-24 percent less for drugs than other government agencies.  Supporters argue that, ultimately, California could save billions in healthcare costs. 

Opposition:

Opponents of Proposition 61 include the Veterans of Foreign Wars, Department of California; the Latino Diabetes Association, and the California Association of Rural Health Clinics. 

Opponents claim that this measure only covers an arbitrary group of patients in certain state government programs.  More than 88 percent of Californians are excluded, including more than 10 million Medi-Cal low-income patients, 20 million Californians with private health insurance and MediCare, and millions of others.  Opponents also state that Proposition 61 could result in eliminating special discounts on prescription drugs and increasing prescription drug prices for veterans.  According to opponents, leading health groups oppose the measure because it will result in a new bureaucratic prior approval process that would interfere with patient access to needed medicines.  Lastly, Proposition 61 will result in the elimination of drug discounts the state currently receives, increasing state prescription costs by tens of millions annually.  

 

Reflections on Church Teaching:

Competition, to be sure, is not to be excluded from commerce, but it must be kept within those limits which make it just and fair and therefore worthy of man. —Pope Paul VI, Populorum Progressio #61 (1967)

Those responsible for business enterprises are responsible to society for the economic and ecological effects of their operations.  They have an obligation to consider the good of persons and not only the increase of profits.  Profits are necessary, however.  They make possible the investments that ensure the future of a business and they guarantee employment.  Catechism of the Catholic Church, no. 2432 

Individual initiative alone and the mere free play of competition could never assure successful development. One must avoid the risk of increasing still more the wealth of the rich and the dominion of the strong, whilst leaving the poor in their misery and adding to the servitude of the oppressed. -Pope Paul VI, Populorum Progressio #33 (1967)

The demands of the common good are dependent on the social conditions of each historical period and are strictly connected to respect for and the integral promotion of the person and his fundamental rights[349]. These demands concern above all the commitment to peace, the organization of the State's powers, a sound juridical system, the protection of the environment, and the provision of essential services to all, some of which are at the same time human rights: food, housing, work, education and access to culture, transportation, basic health care (underline added), the freedom of communication and expression, and the protection of religious freedom [350].  Compendium of the Social Doctrine of the Church [166]

Visit http://www.cacatholic.org/health-care for more information on Health Care issues in California.