As we discussed in a recent note on the Medicare Part B Drug Demo, the political environment for the pharmaceutical industry is less than perfect these days. Taking advantage of recent trends are drug price activists in two states, Ohio and California. Californians for Lower Drug Prices (funded mostly through the AIDS Healthcare Foundation) and Ohioans for Fair Drug Prices have initiated ballot measures that would require their respective states to pay no more than what the Department of Veterans Affairs pays for prescription drugs.
As we also noted in the context of a discussion on the Medicare Part B Drug Demo, controlling drug prices just isn't that simple. The ballot initiatives further prove that point. Below is a brief explanation of each initiative and our thoughts on likely outcomes.
California. California has a reputation for being the hot house for citizen driven initiatives that spread east. Certainly, it was in California in 1978 that the "no new taxes" fervor kicked off with the passage of Proposition 13 limiting property tax increases. The "tough on crime" period of the 1990s began in earnest with California's adoption of the "three strikes" ballot initiative. When it comes to health care issues, Californians are not nearly as cutting edge. A 2005 ballot measure would have created a prescription drug discount program for people earning 300 percent or less of the federal poverty threshold. The effort had the support of the pharmaceutical industry but failed miserably, 58.5 percent to 41.5 percent. More recently, Proposition 45 on the November 2014 ballot would have imposed health insurance rate regulation. It was defeated soundly with almost 60 percent casting "no" votes.
On the November 2016 ballot will be another citizen driven effort called the "Drug Price Relief Act." According to the ballot summary provided by the California Attorney General the measure:
Prohibits state agencies from paying more for a prescription drug than the lowest price paid for the same drug by the United States Department of Veterans Affairs. Applies to any program where the state is the ultimate payer for a drug, even if the state does not purchase the drug directly. Exempts certain purchases of prescription drugs funded through Medi-Cal.
The petition drive to get the measure on the ballot was spearheaded by the AIDS Healthcare Foundation which provides care and advocacy for AIDS patients in 36 countries. The object of AHF's ire appears to be Gilead whose Hepatitis C drug, Sovaldi has contributed to increased drug spending in state Medicaid programs. AHF has also been critical of GILD's development of other AIDS therapies. AHF's advocacy style tends toward the inflammatory and theatrical. A recent protest at the Goldman Sachs Global Healthcare Conference featured "a hearse, a double-deck bus and 25+ cars outfitted with ‘Gilead Greed Kills’ banners and placards as well as a small plane towing a Gilead Greed Kills banner" according to the organization's website.
There a number of problems with Drug Price Relief Act. Chief among those is that no one knows exactly what the "lowest price paid" by the VA is. There are two caps set in legislation that limit the maximum price the VA pays for a drug. They pay either the best commercial price net of certain discounts and rebates or the average price paid by pharmacies minus a large statutory discount, whichever is lower. VA receives additional discounts if drug prices rise faster than general inflation (which they have generally done). The VA negotiates further discounts with drug makers for the drugs included on its formulary (or list of preferred drugs), and in return steers its enrollees to use those drugs. According to some reports, the VA pays about half the commercial rate for some drugs.
Other than those restrictions, we know little about what the VA pays for which drugs. The California Legislative Analyst's Office which is responsible for estimating the fiscal impact of the effort could not do so due to lack of price data from both the VA and the State of California. The California Medicaid Agency, Medi-Cal has publicly asserted that they believe they pay as little as or less than the VA for drugs already.
Another problem with the ballot proposal is that it applies to any program that gets state aid to purchase drugs which would include certain grant-funded entities but not all. A number of health care providers - rural clinics and Ryan White clinics, for example, receive funding from federal rather than state sources. This provision would somehow - and no one knows how - insert the state into the price of drugs to be administered by private non-profit providers to which it supplies grant support.
AHF's ballot measure has been met with stiff resistance from the pharmaceutical industry, to no one's surprise. Interestingly enough, the measure has also failed to garner much in the way of support from the highly organized, very effective AIDS/HIV organizations in California whose constituencies have been hard hit by the cost of specialty drugs used to treat HIV and associated conditions. In fact, Peter Staley, the legendary AIDS/HIV activists and former leader of ACT-UP has taken to Facebook to criticize AHF and its leader Michael Weinstein regarding the ballot measure. Anne Donnelly of the San Francisco-based Project Inform which advocates for HIV and Hepatitis C patients was quoted in April as saying "there is a possibility for some unintended, very harmful consequences.”
Opponents to the effort have raised about $60 million - most of it from the pharmaceutical industry. Proponents have raised about $5 million and hit the airwaves Tuesday, June 7, with two TV ads. The Stop Pharma Greed Facebook page appears oftentimes to almost be a proxy for the Bernie Sanders for President campaign suggesting less than enthusiastic support from Clinton supporters in the future. Poorly researched and drafted, the Drug Price Relief Act has a lot of opposition and little organized support from the groups that, at least in theory, would most benefit. Although opposition to high drug prices polls well, at this point we believe the chances this ballot measure is successful are around 40 percent.
Ohio. Ohio is an indirect initiative state. Proponents of a ballot measure submit signatures to petition the Ohio General Assembly to consider a change to law. The General Assembly can approve, reject or revise the measure. If they reject or revise in a manner unacceptable to proponents and a sufficient number of signatures are gathered, the matter can be put to the voters in November. On Feb. 5, 2016, the Secretary of State sent the proposed law to the Ohio General Assembly. The legislature chose not to act thus triggering another petition drive last Friday. The proponents will need to gather about 91,000 signatures before July 6, 2016 to qualify for the November ballot.
The Ohio Drug Price Relief Act is essentially identical to the California measure and so the same problems identified above apply here. Unlike the California effort, the Ohio initiative does not appear to be as well organized or funded. In Ohioans for Fair Drug Prices' last election campaign finance report filed at the end of January, they reported $815,000 raised, $700,000 spent and about $15,000 cash on hand. This is a paltry amount compared to the $4 million raised by AHF and the $60 million the pharmaceutical industry plans to spend in California. We have not been able to identify either a Facebook page or a Twitter account for Ohioans for Fair Drug Prices. Most of the campaign effort appears to be directed out of Los Angeles by AHF.
With little organization, less time and almost no money, we estimate the probability for voter approval of the Ohio Drug Price Relief Act to be about 40 percent, assuming it is approved for the ballot. We are very skeptical Ohioans for Fair Drug Prices will be able to meet the July deadline for submission.
It is early in the game so we will keep you up to date on changes to the landscape for both these efforts.