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Proposition 61: State Prescription Drug Purchases, Pricing Standards. Initiative Statute.

The California Labor Federation does not take a stance on this measure.

Click here to download California Labor’s 2016 Endorsements & Ballot Measures Analyses

A YES vote on this measure means:

State agencies and entities that purchase drugs on behalf of the state would pay no more than the prices the U.S. Department of Veterans Affairs pays for prescription drugs.

A NO vote on this measure means:

No change would be made to the prescription drug purchasing of state agencies

Official Secretary of State Ballot Summary:

  • 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.

Background:

The state of California purchases, or is the ultimate payer, for prescription drugs for a number of state programs and entities, such as Medi-Cal, Department of Corrections, state hospitals and others. The state also pays for prescription drugs by providing health coverage to state workers and retirees through CalPERS and other public employee trust funds. State and federal law requires that consumers get medically necessary drugs—this applies to Medi-Cal managed care and the PERS plans that are state regulated. From 2014-15, the state spent more than $4 billion on prescription drugs.

The state has a number of different prescription drug purchasing arrangements. For Medi-Cal, the Department of Health Care Services negotiates contractual agreements directly with drug manufacturers for supplemental rebates in exchange for removing prior authorization requirements for the rebated drugs. The Department of General Services negotiates for five state departments that purchase drugs. CalPERS contracts with a pharmacy benefits manager to purchase and manage prescription drugs for members enrolled in several different health plans. CalPERS also has contracts with health plans, such as Kaiser, who purchase drugs for members.

At the federal level, the U.S. Department of Veterans Affairs (VA) purchases prescription drugs directly for enrollees. Studies have found that the VA pays 40% less than Medicare plans for prescription drugs, and significantly less than most other federal programs. However, the VA also maintains a very narrow formulary and restricts the drugs that they offer. The VA formulary includes an estimated 59% of the 200 most popular drugs, compared to Medicare’s formulary which includes 85% of those same drugs. The limited number of drugs on the VA’s formulary creates an incentive for drug manufacturers to offer greater discounts in order to place their drugs on the formulary and access VA enrollees.

Prescription drug pricing has captured the public’s attention in the last year. News media widely reported drug price increases of 500 to 5000% for drugs made by Turing and Valeant. New drugs, such as Sovaldi and Harvoni, entered the market with a price tag of $1000 a pill. The Governor’s 2014-15 budget included an additional $300 million budget item just to cover state costs for hepatitis C drugs, including Sovaldi and Harvoni. Prescription drug prices are rising faster than other sectors of the health care industry and are projected to continue increasing at faster rates through the year 2020.

This measure would prohibit state purchasers of prescription drugs, including those who purchase on behalf of the state or those that purchase where the state is the ultimate payer, from paying more than the federal Veterans Administration price for a drug. The measure exempts Medi-Cal managed care plans from the prohibition, but includes Medi-Cal fee for service. The measure does not apply to private purchasers of prescription drugs unless the ultimate payer is the state. The measure allows for amendment by a two-thirds vote of the Legislature and signature of the Governor, therefore it would not have to return to the voters to address workability.

Legislative Analyst and Director of Finance estimate of fiscal impact: 

The fiscal impact of this initiative is unknown due to: a lack of transparency around what prices the VA pays and uncertainty around how manufacturers might alter prescription drug prices as a market response to this initiative.

Support and Opposition:

Supporters include the AIDS Healthcare Foundation, California Nurses Association and others. They state that this measure is a remedy for excessive prescription drug prices. The goal of the initiative is to strengthen government’s negotiating position for prescription drugs and save taxpayers money. They say that it could lower drug prices for at least 5 million Californians and would save the state money that would otherwise go to pay for prescription drugs. They also say that this is the most comprehensive drug price reduction initiative in more than a decade and comes at a time when pharmaceutical price increases are in the headlines.

Opponents include the Pharmaceutical Research and Manufacturers of America, the State Building and Construction Trades Council and many drug companies. They argue that the initiative will increase the prices of prescription drugs sold to veterans and many California consumers and will also limit the drugs available. They also contend that this measure will cost taxpayers millions more in state bureaucracy and lawsuits because it will be virtually impossible to implement. They also argue that many groups are left out, including Medi-Cal managed care and private purchasers, which could result in cost-shifting to those purchasers. They also contend that this measure is unworkable, since the VA price is confidential and the state would not know if they were violating the measure.

Prior Positions:

The Labor Federation supported Proposition 79 in 2005 that would have created a new state drug discount program for low-income Californians and would have made prescription drug profiteering illegal. We opposed Proposition 78, a similar, competing ballot measure that was supported by the pharmaceutical industry that same year. Both measures failed.


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