California price control referendum

Drug makers spend big to fight California price control referendum

The industry is expected to pour $100 million into an effort to squash the November ballot initiative.

By Nancy Cook and Sarah Karlin-Smith

Donald Trump and Hillary Clinton give drug makers the jitters when they talk about Medicare negotiating the prices of prescription drugs. But the biggest near-term threat to the industry comes from a California ballot initiative that would test a version of that idea in the most populous state.

That ballot initiative “is a grenade being rolled into the conversation, and it is being taken very seriously,” says a Republican drug lobbyist in Washington, D.C.

Drug companies are expected to pour $100 million into an effort to squash the referendum in what will be a test of the industry’s strength at a time of growing consumer backlash against drug prices. The initiative would require the state to pay no more for prescription drugs than the U.S. Department of Veterans Affairs — one of the few federal agencies allowed to negotiate drug prices.

From the industry’s perspective, California could set a dangerous precedent. Besides having an economy the size of many small countries, the liberal bastion is often a laboratory for new ideas that take root and then spread east. That’s even more likely given that the presidential front-runners are pushing the federal government to negotiate drug prices for Medicare.

“This is the crack in the door” on drug pricing, said Jamie Court, president of Consumer Watchdog, a California nonprofit devoted to consumer protection issues. “If any Democrat in America wants bulk purchasing in Medicare, it will start with bulk purchasing for the most liberal state government in America.”

Which is precisely the intention of the initiative’s sponsor, Michael Weinstein, CEO of the Los Angeles-based AIDS Healthcare Foundation. “If we win, we hope it will start a national prairie fire,” he said.

Weinstein pursued the ballot measure after years of in-your-face activism on AIDS and after watching the California state legislature fail to do anything about drug prices — a big concern to people with HIV/AIDS who may be taking costly drugs for the rest of their lives.

Drug companies have easily trounced such opponents in the past, but the California battle comes at a particularly perilous moment. Public anger at drug prices is at an all-time high, driven by headlines about executives who unapologetically jacked up prices 5,000 percent. That is happening against the backdrop of a campaign cycle in which Americans are bucking the establishment in favor of insurgent candidates like Trump, Sen. Ted Cruz and Sen. Bernie Sanders. It is not a coincidence that the industry is fighting a related referendum in Ohio, suing to try to keep it off the ballot.

“PhRMA is an easy target right now,” said Larry Levitt, a senior vice president at the nonprofit Kaiser Family Foundation. “In the past, drug companies have had pretty good public reputations. They make money but also produce something that saves people’s lives. Lately, drug companies have fallen down a few notches in the public's opinion, which makes them more vulnerable."

The industry is not taking any chances. Well-known brands like Johnson & Johnson, Bristol-Meyers Squibb, Pfizer and Bayer have already raised roughly $67 million to assemble a crack California team to make sure the proposal loses.

By comparison, the AIDS Health Care Foundation has raised $4.3 million — roughly six percent of the drug makers’ war chest.

The industry is also recruiting unconventional allies, such as patient advocacy and civil rights groups, raising alarms about potential economic harm to consumers and sowing doubt about the sponsors. It has already signed up roughly 30 groups to oppose the measure, including veterans’ organizations, the California NAACP, the Bonnie J. Addario Lung Cancer Foundation, the Lupus Foundation of Southern California and the California Chamber of Commerce.

Several of those groups receive donations from the industry — for instance, the Lupus group gets roughly $1,000 a year from drug companies out of an annual budget of $80,000, says Hollaine Hopkins, the group’s executive director.

Kathy Fairbanks, the political consultant leading the pharmaceutical companies’ campaign, also has been trying to recruit California-based HIV groups — rivals to Weinstein’s AIDS Health Care Foundation. So far, all have declined.

“The drug companies only win if voters don’t know it’s them, and they are looking for beards,” said Court of Consumer Watchdog, a group supporting the ballot measure.

Pharma has been trying out different messages, according to documents circulated to potential allies and obtained by POLITICO. A one-page flier cast Weinstein as a “controversial activist.”

In bold, red letters, the flier runs through the litany of potential problems with the ballot measure — increasing bureaucracy, more paperwork for physicians, a “chilling effect” on research and development for new drugs. It even argues that it could hurt veterans by raising the cost of the drugs they receive.

The flier does not mention the ballot measure’s potential effect on the pharmaceutical industry’s bottom line.

The drug industry’s major trade group, PhRMA, and multiple drug makers, including Bayer and Merck declined to comment directly on the ballot measure except through identically worded statements. “Amgen has serious concerns about this poorly written measure and its impacts,” said Kelley Davenport, an Amgen spokesperson. “We are part of a growing coalition of groups opposed to this November 2016 ballot measure in California because it will negatively impact millions of Californians.”

Backers of the initiative dispute the measure would harm consumers — indeed, they say anywhere from three to seven million residents enrolled in several state-supported health programs would get access to far lower-cost drugs. Specifically, the measure says that state-funded programs such as the California Public Employees' Retirement System, the Medicaid fee-for service outpatient drug program and California’s AIDS Drug Assistance Program must pay no more for prescription drugs than the Department of Veterans Affairs.

The VA is held out as a model because unlike most federal health programs, it can negotiate drug prices and gets, at least, the lowest price the drug companies are paid by any commercial client. In exchange for those discounts, the agency puts the medication on the list of drugs VA doctors can prescribe.

The outcome of the VA’s negotiations with drug companies aren’t made public, but a 2005 Congressional Budget Office report found that the VA generally pays less than other federal, state and private health programs.

But the pharmaceutical industry says the VA is not a good model for the rest of the country because the prices it pays are not public, making it impossible for California to replicate.

Drug makers also say the ballot measure may leave people with less access to certain types of drugs, since the VA gets preferential prices by covering only some prescriptions. They also argue that regular folks could pay more because drug companies would shift more of their costs onto the commercial market — and even onto veterans. Drug makers argue that the discounts the VA receives would not be sustainable, if they were extended to a wider swathe of people.

“This is just flawed policy,” Fairbanks said. “It should be defeated.”

If the measure does somehow pass, Fairbanks said drug makers and others are likely to sue — which would cost taxpayers more money.

It’s too early to say how much support either side is really drawing. But ballot initiatives are largely won or lost based on the marketing of a big idea, not the minutia of policy details. Only 30 to 40 percent of these measures typically succeed in California, and opponents’ best tactic is to just cast doubt on the cost or feasibility of an idea.

“The status quo is really the default option for most people,” said Mark Baldassare, president and CEO of Public Policy Institute of California, which studies ballot measures.

If history is any guide, the measure’s backers have a tough climb ahead. The pharmaceutical industry has handily squashed past state-based campaigns, including a 2005 California ballot initiative which would have created a state drug discount program for the poor.