The War on Drug Prices

The War on Drug Prices

Alexis ChapmanSunday,1 May 2016

This November Californians and Ohioans will have the chance to make prescription drugs cheaper. Both states will have initiatives on their ballots (The California Drug Price Relief Act and the Ohio Drug Price Relief Act) that would mandate that the states couldn’t pay more for a drug than the U.S. Department of Veterans Affairs (VA). Because the VA buys a lot of drugs and is allowed to negotiate directly with drug manufacturers, they frequently pay some of the lowest prices for prescription drugs. In both California and Ohio if the laws pass they would apply to any drug for which the state ultimately pays, even if it wasn’t directly purchased by a state agency.

These initiatives came about partly as a response to Turing Pharmaceuticals’ attempt last year to increase the price of one medication from $13.50 a tablet to $750. After widespread public outcry about the sheer evilness of price gouging people for life saving medication, Turing ultimately backed down and didn’t jack up the price of the drug by 5000% as they had wanted. But this was actually not an isolated incident in the pharmaceutical industry. Prices for drugs are often increased by huge margins and the options are to figure out a way to pay or switch to cheaper, possibly less effective treatments. The California and Ohio initiatives are also coming amid revelations that insurance companies and Medicare waste about $3billion a year on cancer drugs because pharmaceutical companies only sell them in containers which hold more than almost anyone needs. It’s becoming increasingly obvious that allowing the free market alone to determine prescription drug costs is not the best option if we really want to live in a country where people don’t die because they can’t afford medicine and don’t go bankrupt because they got sick.

The VA does not pay for all drugs. Currently their formulary covers about 59% of the top 200 prescriptions, so it seems that even if these initiatives pass, there will be a lot of drugs that California and Ohio are still paying high prices for. And of course these are only 2 state initiatives that won’t even affect most of the country. But if they do pass they’ll likely serve as an example for other states and as a test for possibly allowing Medicare to negotiate directly with drug makers.

Some 38 million Californians and 11 million Ohioans paying less for drugs could be bad for drug companies, but it’s most likely the thought of Medicare being able to negotiate lower prices that really has pharmaceutical industry freaked out. To be precise, in California they’re currently freaking out at a cost of $67 million — that’s how much they’ve raised so far to fight the initiative. Combining that with the $4.3 million raised by the authors of the bill, the Aids Healthcare Foundation, will likely make this one of the most expensive ballot measure battles in recent memory.

In order to try and stop the initiatives, pharmaceutical lobbyists have argued that this would make drugs more expensive for veterans. Unfortunately this is a possible unintended negative consequence of the initiatives. If these pass and drug makers know that when they’re negotiating prices with the VA they’re also negotiating de facto prices for California and/or Ohio, that’s a big incentive for manufacturers to insist on higher prices for the VA. Whether prices go up, and if so by how much will depend on each party’s negotiating power and it’s hard to predict exactly how much of a problem this would be for the VA and how to address it.

The drug industry has also trotted out their old favorite argument that lower prices will stifle new drug development. Sara Radcliffe, president and CEO of the California Life Sciences Association has said that the initiatives “…will limit the resources that are available for innovation by our member companies.” She didn’t seem to elaborate as to why any profit loss would necessarily come out of drug companies’ research and development budget as opposed to CEO salaries or advertising (the U.S. is one of only two countries where it’s legal to advertise drugs and a lot of people don’t think it’s a good idea). In Europe and other places governments negotiate directly with pharmaceutical companies and end up paying much less for prescriptions than we do in the U.S. and this hasn’t seemed to prevent pharmaceutical innovation, so this argument seems weak at best. But be prepared to hear it a lot more as November nears because this fight is just getting started.

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Image Credit: Chris Potter on Flickr

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