Concerns about the California Drug Price Relief Act (Initiative 15-0009)

It is unclear whether the initiative would result in cost savings to the state:

  • All of Medi-Cal managed care is carved out of the initiative, which is where the overwhelming majority of drug purchasing in Medi-Cal occurs.
  • It is unclear how the lower reference prices, upon which discounts would be achieved, would actually be established. In fact, the lowest prices paid by the VA for individual prescription drugs are not publicly available. The VA currently administers the National Acquisition Center Contract Catalog Search Tool, which lists the (Federal Supply Schedule) FSS price and the Big 4 price, the ceiling prices available to all Federal purchasers and the Big 4, respectively. While the Big 4 or FSS price would act as a ceiling for the VA, the VA also gets additional rebates for formulary placement of drugs, and individual VA facilities can receive additional discounts. These are not listed on the Contract Catalog Search Tool, as they are not generally available prices for other Federal purchasers.
  • According to a 2005 Congressional Budget Office report, Prices for Brand Name Drugs Under Selected Federal Programs, individual drug purchasing prices appear impossible to determine. This is because the price charged to any one purchaser for a particular drug represents strategic decisions on the part of the manufacturer, and that price would likely change if it was extended to other purchasers through regulation. For example, when prices from the FSS were included in the calculation of Medicaid’s best prices (used to calculate Medicaid rebates), FSS prices rose. Moreover, the relationships do not apply to every drug.
  • Although ADAP is specifically mentioned in the initiative, ADAP uses no state general fund. Consequently, any savings would accrue to the federal government and not the state as rebate dollars must be used in the program prior to using the federal funds.
  • There is no clear evidence that any of the entities cited in the measure, including Medi-Cal and ADAP, are not already getting average prices that are similar to or below the average VA prices. Voluntary supplemental rebates negotiated outside of mandatory federal requirements and/or pricing structures are proprietary, including the VA’s. ADAP and Medi-Cal have been recognized for negotiating substantial rebates and we can only assume that CALPERS and other entities negotiate low prices as well.

Even if the initiative were to result in cost savings to the state, it is unclear whether or not lower prices would be realized for consumers. The initiative does not include any provisions that would lower the cost of prescription drugs for consumers who are increasingly having difficulty accessing treatment, both because employers and insurers are passing on more of the cost to employees and consumers, and because more restrictions to access are being placed on  higher-cost drugs.

In addition, the initiative does not address the actual price of drugs. Instead, the measure focuses on the discounts contracting entities will achieve. Because contracting discounts affect how the pharmaceutical industry decides to price a drug at launch and how much to increase prices over time, this initiative could actually increase the price of drugs in a number of public programs, including ADAP, Medi-Cal, the VA, and California’s prison system.

The language of the initiative could also have the unintended consequence of not allowing the state to enter contracts with pharmaceutical companies if the state agency could not meet a reference price. Since Medi-Cal and other insurers are obligated by law to deliver medically necessary treatments, it is possible insurers could end up paying more for drugs for which they could not enter into voluntary rebate contracts.

In our complex drug purchasing system, public entities are required to get lower prices overall than private entities. However, CALPERS is delivered by a private pharmacy benefit manager (PBM). If this private PBM were given a lower price it would affect public prices as well, not just in California but throughout the country. To counter a strong downward pressure on overall pricing for drugs, the pharmaceutical industry could simply choose not to give VA entities supplemental rebates in order not to artificially lower the prices for the entire US public health system, which would result in the VA system having to pay more for prescription drugs. This raises concern about treatment access in the VA and is of particular concern as the VA just lifted its restrictions on access to hepatitis C drugs to align with The American Society for the Study of Liver Disease and the Infectious Disease Society of America’s hepatitis C treatment guidelines. VA funding is discretionary and it is disallowed from going over its allotted annual budget. If the VA supplemental rebates were revoked it would have to restrict access to the cure for a disease that affects many of its members.

Some of our concerns for the specific programs that serve people living with HIV and hepatitis C include:

  • ADAP negotiates through the ADAP Crisis Team, coordinated by the National Association of State and Territorial AIDS Directors (NASTAD) for all ADAPs in the country. The ADAP Crisis Team achieves extremely generous supplemental rebates on HIV/AIDS drugs and hepatitis C drugs and prices for those drugs would like comply with the intent of this initiative if a reference price could be determined. However, California’s ADAP has about 200 drugs that are not HIV/AIDS or hepatitis treatments but rather treat co-morbidities and/or side effects of treatment, including mental health drugs and diabetes. These other drugs represent a fraction of ADAP’s overall costs, but because ADAP does not have negotiators in California, it is unlikely that the program would be able to get a low reference price on the non-HIV and non-HCV drugs. If these drugs were removed from the ADAP formulary, people with HIV and those co-infected with HCV could lose access to the drugs that treat all of their other conditions. In the case of the mental health drugs in particular, this could also have a serious effect on their ability to adhere to HIV treatment and remain stably housed.
  • With the exception of three Medi-Cal managed care plans (including the AIDS Healthcare Foundation), HIV/AIDS drugs are one of a limited number of drug classes that are carved out of Medi-Cal managed care and are instead covered through Medi-Cal fee for service. As a result, the bulk of the HIV/AIDS drugs provided by Medi-Cal would be subject to the provisions in this initiative. While it is true that Medi-Cal is required by state and federal law to deliver medically necessary drugs, if Medi-Cal is unable to meet a reference price, and therefore not able to enter into a supplemental rebate contract, the program may be forced to require a prior authorization or some other utilization management mechanism in order to manage the costs of HIV/AIDS drugs, particularly the newer and more expensive drugs. Any type of utilization management practice can be extremely burdensome on providers, particularly those in a busy clinic, and can impede timely access to treatment for vulnerable patients.
  • The prison system is not known for its ability to negotiate drug prices for the health of those incarcerated. Although we believe that HIV and hepatitis C care and treatment has improved in the California prison system, there are few people working in this area and we don’t have reliable data. If the prison system was unable to meet drug reference prices, it is unclear what would happen with health care for those in need of treatment in the system.