California: Drug Company Half-Truths

Summary

Californians are being barraged with TV ads, financed mostly by the pharmaceutical industry, opposing a ballot measure that would force manufacturers to grant discounts or lose their lucrative state Medicaid business. The companies support a voluntary plan covering fewer persons.

The industry’s ads contain half-truths and misleading statements. For one thing, they say the plan they oppose would require Californians to get approval of “bureaucrats in Sacramento” to get prescriptions filled, which is false for the large majority who see the ads.

Analysis

So far, this ad war has been one-sided. The drug companies and their allies spent an estimated $22.6 million on television ads through Oct. 23, while the other side had spent $10,000 on a single TV spot, according to HealthVote.org, a nonpartisan group monitoring the ads. The drug companies and their allies have raised a total of $80 million for the campaign, which includes mail and other advertising as well as TV ads. It will run through election day Nov. 8.

The drug companies are fighting Proposition 79, a ballot measure favored by labor unions and consumer groups to create a state program to provide discounts on prescriptions for millions of low- and middle-income Californians. Drug companies that refuse to participate and negotiate discounts would risk losing lucrative contracts with the Medi-Cal program, which bought $3.2 billion in prescription drugs last year according to the state’s nonpartisan Legislative Analyst’s Office. Prop 79 would cover those making up to 400 percent of the poverty level, or about $77,000 for a family of four.

The drug companies are supporting a rival ballot measure, Proposition 78, which would set up a smaller plan, covering fewer persons. It would be entirely voluntary: a company that did not participate would face no penalty. It would cover those making up to 300 percent of the poverty level or about $58,000 for a family of four.

Patients Denied Access?

One ad financed by the drug industry says that “doctors decide” under Prop 78, but that under Prop 79, “bureaucrats in Sacramento could deny patients access to medicine.”

The ad shows an official stamping “REJECTED” in big red letters on a medical form.

That’s seriously misleading. By using the word “patients” without any qualification, the ad implies that all patients might possibly be affected, which is false. Even under the worst possible outcome, the large majority of those viewing the ads would not be affected.

In fact, there would be no denials at all under Prop 79 unless drug companies themselves refuse to participate in the discount program or refuse to negotiate discounts. And even if a drug company refused, the only patients affected would be those covered under Medi-Cal, something the ad fails to mention.

And even if that happened, Medi-Cal patients would continue to have access to alternative medications from other companies without any requirement for prior approval by state officials. Prop 79 also exempts any medications “for which there is no therapeutic equivalent,” so Medi-Cal patients would continue to have those medications covered even if the manufacturer refused to participate in the new discount program.

The ad would have been correct to say “bureaucrats might decide, for some.” But, as worded, it creates a false impression.

Discounts Up to 40 Percent?

The same ad says that “every drug . . . is eligible for a direct discount of up to 40 percent” under the smaller, voluntary program the drug companies favor. But that may be an exaggeration. A similar program in Ohio, which began in January 2005, is delivering average savings of just under 32 percent, according to the most recent monthly report of the program. And most of the discounts are coming from pharmacies; drug manufacturers are trimming prices only about 7 percent.

Furthermore, discounts under Prop 78 would probably be smaller than those under the rival program. Prop 79 “is expected to result in larger rebates on a wider array of drugs,” according to an independent assessment by RAND Health, commissioned by the nonpartisan California Healthcare Foundation. The reason is that Prop 79 calls for discounting prices down to levels “comparable to or lower than the Medicaid best price” obtained by the federal government with its massive buying power.

How Expensive?

The ad says Prop 79 “creates an expensive new Sacramento bureaucracy,” which is true. But just how expensive is a matter on which predictions differ. And left unmentioned is that the drug industry’s alternative would require a bureaucracy, too, though it would be smaller.

A study by the State of California’s nonpartisan Legislative Analyst’s Office projected a cost that “would probably range in the low tens of millions of dollars annually.”

The ad fails to note that the alternative favored by the pharmaceutical companies also would require “an expensive new Sacramento bureaucracy,” just not one so big or costly. Those costs “would probably range from the millions to the low tens of millions of dollars annually,” according to the state’s legislative analyst.

(For the record, a private study  – commissioned by the industry – concluded that state spending under Prop 79 would increase “probably by hundreds of millions of dollars.”)

One reason the Prop 79 system would be somewhat more expensive than the industry’s proposal is that it would cover more middle-income persons – those whose incomes are between 300 percent of poverty and the higher 400 percent ceiling under Prop 79. But the industry’s ad naturally doesn’t mention the wider benefits.

The ad would be closer to the mark if it said Prop 79 “creates a more expensive new Sacramento bureaucracy than our alternative does.”

$480 Million Bill to Taxpayers?

The ad claims that Prop 79 “could jeopardize as much as 480 million dollars a year in drug rebates for California…leaving taxpayers to make up the difference.” That’s a possibility that would come true only if drug companies refused to participate in the proposed discount program, giving up their lucrative $3.2 billion a year in Medi-Cal business.For California to lose all $480 million in rebates, every major drug company would have to refuse to participate in the Prop 79 discount program, and state officials would have to bar all of them from contracting with Medi-Cal. Losing all $480 million in rebates is “possible but unlikely,” according to an analysis by the nonpartisan group HealthVote.org, which is monitoring the ads.

Also not mentioned in the ad is that only half the loss of any rebates would be made up by California taxpayers. Under Medicaid, the federal government would pick up half of any added costs, and so the remainder would be spread among all taxpayers in the country.

The Real Debate

There are legitimate grounds to debate Prop 79. One of its provisions would allow anyone to sue drug companies for “excess profiteering,” defined as “demanding an unconscionable price” for a drug or demanding “prices or terms that lead to any unjust, unreasonable profit.” What is “unjust” or “unconscionable” is, of course, a matter of opinion. The RAND Health study concluded that such subjective criteria have “the potential to stimulate numerous lawsuits.”

And while most Californians face no risk of having bureaucrats deny them coverage for their prescriptions under Prop 79, there is a real possibility that some low-income, blind, or disabled patients covered by Medi-Cal might be harmed should it pass and drug companies refuse to participate. One advocate for the poor, the Western Center on Law and Poverty, opposes Prop 79’s enforcement mechanism on grounds that it “hurts the poor, elderly and disabled.”

But anyone getting their information primarily from television ads would only be getting one side of the debate, and a twisted version of it at that.

 

Media

Watch Pharmaceutical Industry Ad: “You Decide”

Watch Pharmaceutical Industry Ad: “Did You Know?”

Sources

Elizabeth G. Hill, “Lowering the State’s Costs For Prescription Drugs,” California Legislative Analyst’s Office, February 2005.

Geoffrey F. Joyce, Cynthia Schuster & Manan Trivedi, “The Right Prescription for California? An Analysis of Propositions 78 and 79,”
RAND Health, for the California Healthcare Foundation, October 2005.

William G. Hamm, Elizabeth Wang, Mary Wickens, “An  Economic Analysis Of Two Prescription Drug Discount Programs Proposed For California,” Californians Against the Wrong Prescription/Californians for Affordable Prescriptions, July 2005.

“Proposition 79: Prescription Drug Discounts. State-Negotiated Rebates. Initiative Statute,” study by California Legislative Analyst’s Office, July 2005.

“Proposition 78: Prescription Drugs. Discounts. Initiative Statute.”  study by California Legislative Analyst’s Office, July 2005.

William G. Hamm, “State Administrative Costs and Staffing under Proposition 79,”  study by LECG consulting firm, undated.

“Monthly Report,” Ohio’s “Best Rx” drug-discount program, September 2005.