Vermont Senator and former Democratic Presidential Candidate Bernie Sanders has something to say to the pharmaceutical industry, and it's not friendly. Over recent weeks, he has lambasted drug makers for high treatment prices, appearing at rallies and on televisions across California encouraging viewers that it's time to fight back.
"People are dying because they can't afford the medicine they need just so these companies can make outrageous profits," Sanders said in one ad, which was paid, in part, by the nonprofit healthcare provider AIDS Healthcare Foundation.
The foundation is also the principle agent backing Proposition 61, an initiative on California's November 8 ballot that seeks to curb the amount state agencies spend on pharmaceuticals. "Proposition 61 is a very, very important step forward," Sanders continued in the commercial. "It will be great for the taxpayers of California, and it will be a real blow against this greedy industry that will reverberate all over America."
Those claims, however, are in dispute. Some civil rights, medical personnel and health organizations believe the legislation makes up for the inaction seen in the state and federal legislatures, and has the potential to inspire additional drug pricing regulations. Meanwhile, other groups – from labor unions to veteran's organizations to the big drug manufacturers the initiative takes aim at – argue the proposition would not only miss its goals, but could actually cause drug prices in the state to go up.
What is Prop 61?
Proposition 61, also called The California Drug Price Relief Act, is a ballot initiative that would prevent agencies in the state from purchasing drugs at prices higher than those paid by the U.S. Department of Veterans Affairs.
That might seem like an arbitrary ceiling, but the VA often receives some of the least expensive pharmaceuticals in the country because federal laws require drug makers to give the VA at least a 24% discount from the average price offered to non-federal workers. Moreover, the department can negotiate those charges down further, though the exact amounts aren't routinely disclosed.
The legislation would apply to anyone for whom the state is the "ultimate payer" for medicine. Presumably, that means it would affect prison inmates, professors and employees at University of California or California State University schools, current and retired workers under the California Public Employees' Retirement System (called CalPERS), and the nearly 2.9 million covered by the state's Medi-Cal Fee-for-Service program.
Yet, there is some disagreement on exactly who would be eligible.
The initiative's main opposition, the No on Prop 61 campaign, estimates it would apply to just 4.4 million people, about 11% of California's 38.8 million population. That's a slight departure from the ballpark 5 million people projection made by the campaign's pro-initiative counterpart. But the number of people this applies to isn't the real issue.
The real dispute is the amount of money the initiative would save. Yes on Prop 61 approximates it could save taxpayers between $4 billion and $7.5 billion over the next 10 years just from the patients covered under CalPERS alone. But critics are saying there's no way of knowing an actual figure because Prop 61 is based on prices the VA negotiates with pharmaceutical companies, many of which the companies don't announce.
Perhaps most importantly, the opposition argues, is that unlike federally-protected negotiating powers given to the VA, Prop 61 doesn't have enough clout to ensure drug companies comply with its mandated price ceiling. And if they did comply, there's nothing standing in the way of them upping their prices for everyone else in order to offset the new discounts.
"The problem is that nothing in Prop 61 prevents drug prices from going up," said Kathy Fairbanks, spokeswoman for No on Prop 61. "They don’t have to come to the game, and CalPERS is actually worried they won’t be able to negotiate the price. And if that happens, nothing in Proposition 61 protects veterans or patients or taxpayers or families from being negatively impacted from those higher costs."
Roger Salazar, spokesperson for the Yes on Prop 61 campaign, agrees there are many unknowns regarding big pharma negotiations with the VA and that efforts will need to be made to iron out that information. But he contends that, while there is nothing explicitly forcing pharmaceutical suppliers to entertain the initiative, they'll be motivated to comply given California's size and the recent public backlash from price hikes.
"What we're counting on is that the state of California currently purchases about $4 billion of prescription drugs every year," he said. "This is not a market that they're just going to throw their hands up and walk away from."
In any case, industry followers are watching the measure closely.
"The formula for drug pricing is very complicated and a price restraint like Proposition 61 is very aggressive," Martin Dix, a partner at Akerman LLP specializing in healthcare law, wrote via email. "Solving one issue will likely impact other sections of the drug distribution system, including the private sector. This has the potential to shift costs to private sector programs – taxes go down and insurance premiums rise."
Follow the money
Prop 61 is one of 17 ballot initiatives facing Californians this fall, but it has raised by far the most money—nearly $125 million from both sides, according to the data compiled by Ballotpedia.
Such large contributions have been a telling sign—especially for advocates of the initiative—that this could actually be a threat to pharmaceutical companies.
"Do you think they're worried about prices going up? Or are they concerned this might actually cut into their obscene profits and encourage others to follow suit?" Charles Idelson, spokesman for the California Nurses Association, the second largest donor to Yes on Prop 61, said via phone.
Only a small chunk has been raised by the Yes side of the battle: the AIDS Healthcare Foundation and the CNA's PAC have given the largest donations, $14.7 million and $55,430, respectively, as of October 27. Organizations such as the Los Angeles Urban League, the California Environmental Justice League and the California branch of the AARP also support the legislation.
Meanwhile, Big Pharma has put its might behind opposing the initiative: Merck, Pfizer and Johnson & Johnson have contributed more than $9 million each, while AbbVie, Sanofi, AstraZeneca, Allergan, Novartis, GlaxoSmithKline and Amgen have contributed another $50 million together. In total, No on Prop 61 has gathered $109 million from the industry through its association Pharmaceutical Research and Manufacturers of America (PhRMA) as of November 2.
"If we want drug pricing reform … we should do something that would be fair to everyone and at the same time [reduce] the drug cost for patients and consumers and this doesn’t do it," Jerry Hill (D–13th district), who represents the district home to Gilead's headquarters, told BioPharma Dive.
Jeff Stone (R—28th district), who serves on the state's budget subcommittee on health and human services, said the spirit of Prop 61 was right, but it's a "wolf in sheep's clothing" when it comes to addressing the real issue of drug pricing and big pharma revenues.
"Without these drug companies making a profit, we're not going to see breakthroughs in treating many diseases that are commonplace today," Stone said. "They're not nonprofit organizations, they're businesses like we all run and they're trying to make money to succeed."
While the Los Angeles Times found in a survey that 66% of California voters supported Prop 61 as of early September, other pollsters have started to see that base shrink. Results from a Hoover Institution Golden State poll released Tuesday revealed 51% of the state's voters supported the initiative and 24% opposed it.
The domino effect
Should proposition 61 pass, the ramifications would likely be far reaching, according to industry followers.
"If the voters of California approve this proposition it would … no doubt cause an immediate demand for the same VA discount rate to be made available to other states, the federal government and likely private entities, as well," wrote Tom Norton, principal at the pharmaceutical industry-focused communications company NHD Smart Communications, in a PharmaExec op ed.
But those actions may already be underway. Massachusetts legislators, for example, have been pushing a bill since April 2015 that would require drug companies to disclose how they established the price tags for some of their most critical products, though the bill has not made it out of committee. What's more, the AIDS Healthcare Foundation is looking to get an initiative that mirrors Prop 61 passed in Ohio. That legislation will be voted on in November of next year.
"Whether [Prop 61] wins or loses, I think it does set the stage for actions in other states, and for further discussions on the hill," Lee Rosebush, partner at Baker & Hostetler, said in an interview.