Earl Lui

Friday, 30 September 2005 06:08

CON: An empty promise

You have probably seen the ads on television. How could you miss them?

The pharmaceutical industry is bankrolling a $72 million campaign to confuse voters about two competing prescription drug measures on the November ballot. But there shouldn’t be any confusion about which measure stands the best chance of bringing more affordable drug prices to Californians struggling to fill their prescriptions.

Prop 78, sponsored by the pharmaceutical industry, is a smokescreen designed to block Prop 79, a real discount solution put forward by consumer, health and senior organizations.

No smart businessperson would ever negotiate a deal that depended on the other party to voluntarily comply and allowed it to walk away from the agreement at any time. But that’s precisely what the pharmaceutical industry is asking California voters to accept.

Prop 78 relies on drug manufacturers to voluntarily lower their prices and does not allow the state of California to enforce these discounts. The last time California tried this approach was in 2001 under the Golden Bear State Pharmacy program. More than 500 drug manufacturers were invited to participate, but they didn’t exactly rush to volunteer. Only 14 offered to provide discounts, and Gov. Schwarzenegger ended the program.

So why should California voters suddenly believe that the drug companies will line up to provide voluntary discounts if Prop 78 is approved? Under Prop 78, no drug companies would be required to provide discounts, and the program could end at any time if too few manufacturers voluntarily lower their prices.

Voluntary drug discounts have failed across the country. For example, in Ohio, the discounts voluntarily offered by drug companies have resulted in only $1 million in savings for consumers. Of that amount, only 10 percent, or just $100,000, came from the drug companies. The rest of the savings were provided by pharmacies.

About half as many people would be eligible for discounts under Prop. 78 compared to Prop. 79, and the drug industry’s measure excludes many uninsured Californians, such as those with catastrophic medical bills and the chronically ill with inadequate insurance coverage. The discounts offered by Prop. 78 are based on the “lowest commercial price” set by the drug companies. These discounts could be from 15 percent to 40 percent, significantly less than Prop. 79’s discounts.

Fortunately, California voters have a better choice. Prop. 79 would provide enforceable prescription drug discounts to twice as many Californians, who would stand to save significantly more than under Prop. 78. Most important, Prop 79 enables the state to use its market clout as a big purchaser of drugs to negotiate a good deal that provides real discounts for Californians who can’t afford to pay retail prices.

California currently buys more than $4 billion worth of prescription drugs through the state’s Medi-Cal program and uses this massive purchasing power to negotiate discounts of 50 percent and more on many drugs. If a drug company refuses to meet the asking price, the state can shift business away from that company and buy more from others that offer acceptable discounts. That’s simply a good negotiation tactic. It’s what any business would do — use its bargaining power rather than leave itself at the mercy of the other party in the negotiation. Under Prop 79, the state would be empowered to use this same leverage at the bargaining table to negotiate drug discounts for an estimated 8 million to 10 million Californians who are uninsured, underinsured or have high health care costs.

Prop. 79 also could help reduce employers’ health premiums by authorizing a new purchasing pool to reduce drug prices for employer-paid coverage. As most employers are well aware, rising prescription drug costs are one of the biggest reasons premiums for health insurance have increased by double digits in the past several years.

The pharmaceutical industry has pledged to spend whatever it takes to defeat Prop. 79 because it wants to make sure drug discounts stay voluntary. But if drug companies were interested in providing voluntary discounts, wouldn’t they have lowered their prices a long time ago? California deserves a better deal.

About the author
Earl Lui is a senior attorney for Consumers Union’s Prescription for Change campaign, which seeks to give all consumers access to safe, effective and affordable prescription drugs. He has worked on a variety of health care policy issues at Consumers Union, including improving quality of care, managed care reform and access for the uninsured. Lui holds a law degree from the University of Michigan and a bachelor’s degree in economics from the University of California, Berkeley.

About Consumers Union
Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization, serving only the consumer. Consumers Union is a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition and other consumer concerns. Since 1936, Consumers Union’s mission has been to test products, inform the public and protect consumers.