State measures to slash drug prices face big hurdles

This weekly column offers opinions on the latest pharmaceutical industry news.

When shopping for a good deal, people usually want the same bargain as the next guy. And a group of AIDS activists is taking this approach in hopes of containing the rising cost of prescription drugs.

In California and Ohio, they’re pushing ballot measures that would require state programs — such as Medicaid or prison systems — to pay no more for medicines than the US Department of Veteran Affairs. Beyond receiving a set 24 percent discount from drug makers, the agency is free to negotiate still lower prices for its 151 hospitals and 800 community clinics that serve millions of vets around the country.

This is in stark contrast to Medicare, the federal health insurance program for older and disabled Americans, which is not allowed to negotiate drug prices. This is a point of contention in the accelerating national debate over the rising cost of medicines. About 7 out of 10 Americans believe Medicare should be able to negotiate, according to a recent poll by STAT and the Harvard T.H. Chan School of Public Health.

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“The goal [of the ballot initiatives] is to obtain lower prices, as well as gain more transparency on industry pricing, which is opaque,” said Ged Kenslea of the AIDS Healthcare Foundation, an advocacy group that also runs clinics and has spearheaded the ballot initiatives. “And we’re hoping these will serve as a catalyst to other organizations or state legislators to enact similar measures in other states.”

Although well-intentioned, the effort may be somewhat quixotic.

For one, the pharmaceutical industry is already fighting back. Although the proposal won’t be on the California ballot until next fall, drug companies have contributed $34 million to a campaign devoted to persuading state residents not to approve the idea. In Ohio, the industry trade group convinced state officials to review signatures needed for a ballot spot, a move that could derail the effort.

Even if the measures succeed — and prompt still other states to consider similar initiatives — lawsuits will almost certainly be filed. Drug makers are likely to run to court to argue that such state laws would be trumped by federal law, which requires state Medicaid programs to accept the so-called best prices offered by companies for their medicines.

“A legal challenge is waiting in the wings,” said Ira Loss, a senior health care analyst at Washington Analysis, a consulting firm. Congress, he explained, wanted to ensure that the VA would fare better than the non-negotiable — and often higher — “best price” discounts that Medicaid is offered by drug companies. “These initiatives seem to undercut that.”

Just the same, there is good reason to look at the prices paid by the VA as a benchmark for publicly funded drug programs, and not only at the state level.

A paper published last July argued that the federal government could save between $15.2 billion and $16 billion annually if it negotiated with drug makers for Medicare Part D medicines and obtained the same prices that are paid by the VA.

They noted that Medicare Part D — even after including any rebates that drug companies sometimes give Part D plans — spends almost twice the median of the amount paid for brand-name drugs in 31 countries in the Organization for Economic Cooperation and Development. And based on other analyses, Medicare Part D pays on average 80 percent more than the VA for brand-name medicines.

A major reason for these discrepancies is that Medicare, as well as the state Medicaid programs, by and large, lack the flexibility to restrict the drugs on their formularies, or list of medicines that are covered. This would undercut their leverage in any price negotiations. The VA, on the other hand, can threaten not to cover a medicine if the cost is too high. Of course, the VA is also more of a self-contained system because the agency buys in bulk and distributes drugs to its own venues.

“The VA is a much better [pricing] model,” argued Dr. Sid Wolfe, one of the researchers on the July article, who cofounded the Health Research Group at consumer group Public Citizen.

The pharmaceutical industry, however, may have a fallback position. If a state Medicaid program in California or Ohio, for instance, pegged drug prices to what the VA pays, drug makers could raise prices that are charged to the VA. This would allow the companies to maintain their sales targets and, ultimately, undermine the goal of these ballot measures.

“These state initiatives might save a fistful of money in the short term and the first states where they are passed will get most of the benefit,” said Kevin Outterson, who directs the health law program at Boston University. “But the companies will find a way to compensate. So it isn’t likely to solve the problem in the long run.”

Still, the state initiatives may yet lead to change, if only because a groundswell of citizen-driven ballot measures might just force lawmakers to pay attention. In the end, getting a better deal might only be a vote away.

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