Drug Trials at Ballot Box
Prop 78 vs. Prop 79...
[John R. Graham] 11/7/05
8, Californians will enjoy a rare opportunity to influence
the price of prescription drugs in the Golden State. Both Propositions
78 and 79 aim to lower prescription prices for needy Californians.
The measures offer starkly different visions of the appropriate
relationships between patients, the state, and drug makers.
Only one will succeed.
assumes that patients’ natural advocate is the state,
and that a hostile posture to the pharmaceutical industry is
necessary to get better prices. The measure mandates deep discounts
not only for the needy, but for up to two-thirds of Californians.
This is because it demands that drug companies give discounts
at least as great as Medi-Cal's to Californians who earn less
than four times the federal poverty level – about $77,000
for a family of four. This is far greater than the median income,
which was about $56,000 in 2002.
John R. Graham
R. Graham is director of health care studies at the
Pacific Research Institute, and author of Immediate
Discounts versus Endless Lawsuits, a briefing paper
in Pacific Research Institute’s “Healthy
California” series that compares Propositions
78 and 79.
links drug prices for uninsured patients to prices for Medicaid
beneficiaries. If drug companies refuse to give government-dictated
discounts to uninsured patients, Medi-Cal patients will suffer
too, because the state will likely not provide those medicines
to them. Holding Medicaid beneficiaries hostage in that way
violates federal rules. The drug companies would have little
choice but to take the state to court, and that would stop
the plan in its tracks.
of Prop 79 argue that a similar program in Maine gives discounts
without federal approval, but neglects to note that taxpayers
and pharmacies, not drug makers, bear the costs. Maine tried
a punitive approach in 2000 and fought drug makers in court
for almost four years.
Maine abandoned its attempt to link prices for uninsured patients
with Medicaid access, and launched a more limited program,
Maine Rx Plus, that continues to generate hostility among drug
makers and community pharmacies. Almost half of Maine’s
community pharmacies are boycotting Maine Rx Plus, the number
of eligible patients actually enrolled has dropped almost 14
percent between March 2004 and July 2005, and less than one
fifth of patients enrolled in the program have used it this
will not reduce drug prices, as proponents promise. The measure
demands a discount even for many Californians who have private
insurance. If these discounts are even greater than those currently
enjoyed by Medi-Cal, federal rules would impose them on other
states' Medicaid programs, too.
cost companies a catastrophic amount of revenue, and they will
undoubtedly respond by raising their list prices so that the
bigger discounts do not result in lower actual prices. Research
by the U.S. Government Accountability Office and Professor
Fiona Scott Morton of Yale University describes this effect,
which was first observed after the government started interfering
in prices in 1990.
introduces civil liabilities for “profiteering”,
which any individual can allege. It fails to define these terms
(beyond "unconscionable price" or earning an "unjust
or unreasonable profit."), and leaves unclear whether
the discounts it demands would amount to a defense if offered
by a drug maker.
might wonder what will happen when everyone can sue every drug
maker for the crime of earning money on its products. They
might ponder where new drugs will come from if companies go
out of business. And they might ask how loading unlimited legal
fees onto the cost structure of prescription drugs is going
to reduce prices.
on the other hand, is a workable proposition that avoids most
of these pitfalls. Prop. 78 commits the pharmaceutical industry
to discounts for uninsured patients who earn less than three
times the federal poverty limit (about $58,000 for a family
of four). It institutes a state-recognized "gateway" to
a number of discount programs that already exist. It prevents
the state from interfering with those programs, and keeps Medicaid
out of the picture.
have launched a number of discount programs for low-income
Americans, and the federal government, under the Bush presidency,
has exempted them from restrictive rules. Some programs give
drugs away at very low prices to qualified patients. Prop.
78 facilitates access to these programs, thus offering a real
opportunity to expand enrollment.
measure is perfect, and Prop. 78 is no exception. It erects
a new government bureaucracy and launders rebates through the
state instead of simply giving discounts directly to patients.
Nevertheless, Prop. 78 is likely to be better than the status
quo. It adds another layer of protection from government interference
in drug prices, this time at the state level.
is a big step in the right direction, but there is more to
be done to ensure that needy Californians get the medicines
they need. The next step will be to reduce further the degree
of government intervention by eliminating the state’s
role as middleman for the rebates, and giving the discounts
directly to the beneficiaries. CRO
2005 Pacific Research Institute