| LOS ANGELES
LOS ANGELES Oct 5 A California ballot measure
to limit prescription drug prices for state-run health plans is
gaining popular backing, stoking industry concerns over attempts
to control costs nationwide.
The California Drug Price Relief Act, also known as
Proposition 61, seeks to limit state health programs from paying
more for medications than the U.S. Department of Veterans
Affairs (VA), which receives the steepest discounts in the
country. The first polls ahead of the Nov. 8 vote show it is
favored by up to 66 percent of state voters.
If the VA prices became a benchmark for many more Americans,
"that could lead to a slippery slope whereby lawmakers are
emboldened to try and enact other legislation for Medicare or
other price negotiation strategies" nationally, said Michael
Yee, health industry analyst at RBC Capital Markets.
Yee estimates that pricing limits like Proposition 61, if
approved by all 50 states, would trim 2 percent to 3 percent
from total pharmaceutical company profits. A similar measure
will go before Ohio voters on the 2017 state-wide ballot.
The looming vote on "Prop 61" has begun to rattle healthcare
investors, contributing to a sell-off in healthcare stocks late
last week. The industry has been dogged by concerns
that the government will seek new limits on pharmaceutical
pricing, boosted by public anger over rising out-of-pocket costs
for their medicines.
Democratic presidential candidate Hillary Clinton has
accused drugmakers of "price-gouging" and pledged to cap
consumers' monthly spending, among other measures.
Recognizing the potential threat in California, opponents of
the initiative, led by global drugmakers such as Pfizer Inc
, Merck & Co Inc and Amgen Inc, say they
have raised nearly $87 million to fight Proposition 61.
Supporters, led by the AIDS Healthcare Foundation and AARP,
which advocates for seniors, have raised around $10 million to
defend it. The say the plan could save California taxpayers up
to $5.7 billion over 10 years, although a state legislative
analysis said the financial impact is not clear.
Much depends on whether drugmakers would either reduce
discounts provided to the VA, or raise list prices on their
medicines to recoup lost revenue.
Manufacturers contacted by Reuters would not comment on
their plans if Proposition 61 is approved. Kathy Fairbanks,
spokeswomen for the "No on Prop 61" organization, said the
measure's passage would "jeopardize" discretionary price
discounts that pharmaceutical manufacturers give to the VA.
"This is not free savings and the pharmaceutical industry
will just eat the cost," said Geoffrey Joyce, director of health
policy at the University of Southern California's Schaeffer
Center for Health Policy and Economics. "Prices will go up
In a brief released last month by California's legislature,
the VA warned that its annual costs could rise as much as $3.8
billion if drugmakers cancel supplemental discounts and raise
prices significantly higher when supply contracts expire.
That would represent a 62 percent increase on the agency's
drug spending, spokeswoman Sabrina Owns told Reuters in an
Under federal law, drugmakers are required to give the VA a
24 percent discount off the price paid by other purchasers. The
agency also negotiates with drugmakers for further discounts.
The VA spends some $6.1 billion a year on medicines for 6
million veterans. Proposition 61 would extend those discounts to
around 4.5 million Californians, including certain members of
the state's low-income Medicaid plan, state employees and
retirees, university teachers and prisoners.
The group "Yes on Prop 61," which represents the AIDS
Healthcare Foundation and other backers, says the pharmaceutical
industry would risk further damage to its reputation by raising
prices for the VA.
Both sides have launched ad campaigns featuring veterans as
advocates for their respective arguments.
On the "no" side, veterans say they are worried about being
asked to pay more for drug coverage, while ads from the "yes"
camp say much of the VA's price discounts are mandated by
federal law, and any price increases would represent a choice by
"What does it say about the drug companies if they are
threatening men and women who have served in the military?" said
Garry South, chief strategist for Yes on Prop 61. "The
pharmaceutical companies' biggest fear is if this passes in
California ... every other state in America will demand the same
(Reporting by Deena Beasley; Editing by Michele Gershberg,