Taking the initiative in healthcare: Will California voters cap drug prices?

Public anger at perceived price-gouging by drugmakers has fueled calls for lawmakers to take action. State legislators in California tried, pushing two bills aimed at shedding more light on prescription drug pricing. Both of those efforts died before the end of the session.

In California and many other states, however, legislators aren't the only ones with the power to make law.

The Los Angeles-based AIDS Healthcare Foundation circulated petitions to get an initiative on the Nov. 8 ballot that would cap what state agencies pay for drugs at the price negotiated by the U.S. Veterans Affairs Department. And polls suggest the proposal, Proposition 61, has a strong chance of winning.

It has won the support of Hillary Clinton's populist primary challenger, Sen. Bernie Sanders of Vermont.

Opponents are spending more than $100 million to defeat it, with most of that money coming from the pharmaceutical industry.

The AIDS Healthcare Foundation backed a similar Ohio initiative, but the drug industry's largest trade group, the Pharmaceutical Research and Manufacturers of America, won a legal challenge to keep it off the ballot.

The VA's discounts are believed to range from 24% to 40%, but healthcare providers and even some patient advocates argue that the measure, the California Drug Price Relief Act, wouldn't do much to rein in costs. Its opponents include the California Medical Association, California Association of Rural Health Clinics, California Association of Neurological Surgeons and several veterans groups. All of them say the proposal could just as well lead to higher prices and less access to needed medications for veterans and consumers.

Even advocacy groups for HIV and hepatitis C patients have expressed concern that the measure would provoke drugmakers to raise prices.

The state of California spent nearly $3.8 billion on prescription drugs in its 2014-15 budget year. The Yes on Prop 61 campaign claims the measure could save the state “billions of dollars.” But the state's nonpartisan Legislative Analyst's Office (PDF) was unable to determine the fiscal impact because the VA doesn't disclose prices and it's hard to predict how pharmaceutical companies would respond.

Still, the cause appears to have struck a chord with voters. Opponents, backed by the pharmaceutical industry, have outraised supporters 6-to-1. But an August poll showed voter support for the initiative at about 70% for every region, ethnic group and age group of California. Its supporters include AARP and the California Nurses Association.

Physicians who have spoken out against the measure say they're worried drugmakers will retaliate by raising prices on nongovernment purchasers. Dr. Steven Larson, immediate past president of the California Medical Association, called Prop 61 “deeply flawed and unworkable.” If drug manufacturers do raise prices, Larson said, it's likely that payers will stop covering certain high-cost drugs and force physicians to spend more time seeking prior approval for medications. Larson, an infectious disease physician, treats HIV patients, many of whom struggle to pay for their expensive treatments. Roger Salazar, a spokesman for the Yes on Prop 61 campaign, said physicians' opposition is rooted in their “financials ties” to the drug industry. Salazar also sought to counter opposition from groups representing veterans who say the measure is likely to undermine their discounts. The law would apply to most state agencies that ultimately pay for a drug regardless of whether they're the direct purchaser. That includes California's Medi-Cal fee-for-service outpatient drug program and its AIDS Drug Assistance Program. But it excludes Medi-Cal managed-care plans, which cover about 75% of the state's Medicaid population. Oddly, critics have questioned the exclusion of managed-care plans, noting that the not-for-profit AIDS Healthcare Foundation, the initiative's primary sponsor, operates one of those excluded plans. The law would affect drugs purchased for about 4.4 million people, or 12% of California's population, said Kathy Fairbanks, a spokeswoman for the No on Prop 61 campaign. Katherine Hempstead, a senior adviser at the Robert Wood Johnson Foundation, said it's unclear how the measure, if passed, would affect prices. The prescription drug supply chain is complicated, so it would be hard to parse the impact of the new regulations. And even though patients are upset about high drug prices, Hempstead said, they want to see something that affects their pocketbooks immediately. “What people care about in the end is what the price is,” she said. “They don't want to go down some rabbit hole about what your price structure is.”

—with Shannon Muchmore