Today’s Managing Health Care Costs Number is 61
California will vote on Proposition 61 tomorrow; the ballot initiative would mandate that California pay no more than the Veteran’s Administration (VA) for pharmaceutical prices. This would apply to $3.8 billion in drug spending by Medical (California’s Medicaid program), state workers, and retirees. It’s an unworkable proposal –but still could achieve its goals.
Health Affairs has a blog post explaining the measure, which is being opposed by the Pharma industry (over $100 million in expected spending), and promoted by the California Nurses Association, the AIDS HealthCare Foundation, the California AARP and others. It’s also opposed by the LA Times and the SF Chronicle,
The measure is unworkable because
1. The VA has a limited formulary – so can negotiate lower prices. Medicaid rules prevent the state from having a limited formulary for non-managed Medicaid.
2. There are NO VA prices for the drugs not in its formulary –so the measure would fail to control the prices of those drugs.
3. The state doesn’t have the ability to force drug companies to sell their products at the mandated price, which could lead to shortages or drugs being unavailable.
The measure is economically unwise because mandating a “most favored nation (MFN) price generally increases the price for all purchasers. When Medicaid MFN was introduced in the Omnibus Reconciliation Act of 1990, it raised the overall price of drugs by about 4%- because having to give a rebate to Medicaid whenever a private payer struck a good deal helped the pharmaceutical companies enforce price discipline. Here’s a link to a 2010 blog post on this subject .
But still.
This ballot initiative puts pressure on pharmaceutical companies to keep prices lower, and puts pressure on the state as a purchaser to negotiate hard. Its authors might realize the measure would be almost impossible to enforce –but are looking to draw public attention as part of a campaign to control drug prices.
There is an analogous example about how the initial“Romneycare” health care reform was passed in Massachusetts. Unions and the advocacy group Health Care for All had the support to place a constitutional amendment on the ballot to guarantee access to affordable comprehensive health care. The health care reform that passed was much more acceptable to the system stakeholders than this ballot initiative – and so reform moved forward.
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