Big drug companies’ Rx for victory

CALIFORNIANS ARE in danger of being rolled by the big drug companies on Nov. 8. On the face of it, the two propositions on the ballot dealing with prescription drug discounts might seem to be different ways to achieve the same goal: lower prices for vulnerable Californians. But in fact, Proposition 78 is a decoy created by the drug companies to draw votes from Proposition 79, which actually would lower prices.

Let’s look more closely at the two propositions.

Proposition 79 would cover uninsured Californians with maximum incomes of $38,000 for individuals or $77,000 for a family of four, and also people at higher income levels if they have medical expenses above 5% of their income. An estimated 8 million to 10 million people would be eligible. It authorizes the state to bargain with drug companies for discounts as steep as those offered to Medi-Cal, which pays the lowest prices in California -- about half what uninsured patients pay. If the drug companies refuse, their drugs could be removed from Medi-Cal’s list of preferred medicines (but only if there are medically equivalent substitutes available). That is a powerful club to wield, because Medi-Cal is the state’s largest purchaser of prescription drugs.

The plan is supported by a broad array of consumer, education and labor groups, including the AARP, Consumers Union and the League of Women Voters. As of the end of September, proponents had raised about $2 million to promote it. All of the top 10 contributors are state organizations.

Proposition 78 would also require the state to administer discounts and rebates on drugs, but here the similarity ends. Company participation would be entirely optional, discounts might be very small because they are not tied to Medi-Cal rates, and there would be no enforcement mechanism, such as Proposition 79’s ability to remove drugs from Medi-Cal’s preferred list. It would also cover about half as many people as Proposition 79 -- uninsured Californians with maximum incomes of $29,000 for individuals or $58,000 for a family of four.

In sum, Proposition 78 is a recipe for a short-lived program of minimal discounts. As if to underscore that fact, there is an explicit provision for the program to end if there are “insufficient discounts” to make it “viable.” Of course, if drug companies really wanted to give Californians a break, they could simply drop their prices; they don’t need Proposition 78 to do that.

Proposition 78 is supported almost entirely by the big drug companies, their trade association and their shills -- ostensible patient or citizen advocacy groups financed by drug company money. As of Sept. 30, they had collected about $80 million to promote it. And why not? The top 10 contributors are all global drug giants with deep pockets, almost all located out of state.

So this is not really a contest between two methods to lower prescription drug costs. It is a contest between citizens seeking some relief from high drug prices and global drug companies attempting to protect those high prices. Americans now pay about twice as much for brand-name drugs as people in other advanced countries, and the gap is growing. According to the AARP, prices of the top drugs prescribed for senior citizens have risen on average two to three times the inflation rate over the last six years.

Don’t worry that Proposition 79 would create a hardship for the big drug companies or curtail their ability to carry out research on new drugs, or that they would have to offset discounts by raising prices for people not eligible. Last year, the top nine U.S. drug companies had profit margins of about 16% of sales, more than three times the median for all of the Fortune 500 companies. Furthermore, according to their own annual reports, that was more than they spent on research and development.

Dreaming up the bogus Proposition 78 was a smart move by the pharmaceutical industry because it almost guarantees confusion, which serves the industry much better than trying to defeat Proposition 79 outright. People can vote for both propositions, but the winner is the one that garners the most votes over 50%.

The issue comes down to this: Do you want to lower drug costs for those least able to afford them? Or would you rather see drug companies continue to charge whatever the traffic will bear and rake in profits far in excess of nearly every other industry? Californians should not only vote for Proposition 79 but against Proposition 78.