Boosters of California’s Proposition 61 are no doubt well-meaning. Yet as the clamor over high drug prices and greedy pharmaceutical companies reaches a fever pitch, California voters should beware a solution that promises an easy fix.
Prop. 61 treats California’s drug prices as if they existed in a silo, unaffected by national regulations and immune to national consequences.
Prop. 61 is simple in theory, but complex in practice. With the exception of Medi-Cal’s managed care plans – about 80 percent of Medi-Cal recipients – the measure would prohibit state government agencies from paying any more for a prescription drug than the price paid by the Department of Veterans Affairs.
Yet this is not as straightforward as it seems: Both CalPERS analysts and the Legislative Analyst’s Office have both noted it is impossible to predict drug spending under the proposal because it places no controls on drug makers.
Consider the outcome for California taxpayers if drug manufacturers refused to offer common medicines at VA prices to CalPERS beneficiaries. This could lead to CalPERS dropping these drugs from its coverage, narrowing available medicines to more expensive alternatives – and leaving taxpayers on the hook for the bill.
Another potential outcome would be a direct increase of VA prices from manufacturers. This is just what happened in 1990, when the federal government attempted to tie the prices paid through Medicaid together with a host of other federal programs, including the VA. The result: Average prices at the VA nearly doubled, and the prices for dozens of drugs rose by over 300 percent.
Good intentions or not, putting America’s veterans in line for higher drug prices hardly seems a desirable outcome.
If enacted, Prop. 61 would also mean slower growth and investment in California’s vital biotech industry. California’s ecosystem of leading universities, experienced venture-capital firms and large life-sciences companies makes it a magnet for venture-capital investment.
In 2015, California attracted $4.8 billion in biotech and medical-device venture funding, more than double that of the next highest state, Massachusetts. If America’s medicines industry became significantly less profitable – the explicit aim of Prop. 61 – it would weaken financial incentives for supporting entrepreneurship and innovation among the Golden State’s many start-up biotech companies, which depend on venture funding to develop their technologies.
No one doubts that patients with high-deductible plans are seeing higher out-of-pocket costs for some high-priced medicines, but Prop. 61 offers no help to patients with these types of private plans. Rather than target straw men, California’s legislators should lower health care inflation by reducing the incidence and impact of chronic illness: 40 percent of California residents report having at least one of five major chronic illnesses (asthma, diabetes, high blood pressure, heart disease, or severe psychiatric distress), and the Centers for Disease Control estimates that chronic illness is responsible for 86 percent of U.S. health care spending.
Fixing problems for those patients requires a national response geared at increasing competition among drug makers, driving insurance contracts that link prices to patient outcomes and holding everyone – including doctors, hospitals and drug companies – accountable for producing better health at lower total cost. That is a strategy that can help keep medicines affordable for patients, while slowing runaway health care inflation – and it’s not something that can be shoehorned into a ballot initiative.
Prop. 61 treats California’s drug prices as if they existed in a silo, unaffected by national regulations and immune to national consequences. It should not be surprising that newspapers all across California have expressed skepticism about the measure, while not a single major paper has come forward in its defense.>
Californians have every right to be concerned about the costs of important drugs. Yet that concern should manifest itself as a search for serious solutions, not as a silver bullet answer for complex problems.
This piece originally appeared in the Orange County Register
Paul Howard is a senior fellow and director of health policy at the Manhattan Institute. Follow him on Twitter here. He is author of “Higher Prices, Fewer Choices: Why California's Prop. 61 Will Not Bring Drug-Price Relief.”