Proposition 61: State Prescription Drug Purchases. Pricing Standards.
Should state agencies generally be prohibited from paying more for any prescription drug than the U.S. Department of Veteran Affairs (VA) pays for the same drug?
The state purchases prescription drugs under various programs covering current and retired state employees, prison inmates and Medi-Cal enrollees. The state (1) purchases some drugs directly from manufacturers, or (2) reimburses entities implementing state programs. Significant drug purchasers typically negotiate and receive price discounts.
The VA provides health care to approximately nine million veterans nationwide, including prescription drugs. It is subject to federal upper limits on the prices it pays for drugs, and often negotiates additional discounts, generally achieving lower prices.
The VA maintains a public database that lists the prices it pays for most drugs. However, the database may not display the lowest prices paid for some of the drugs because of confidentiality clauses in some purchase agreements.
Prop. 61 would generally prohibit state agencies from paying more for a prescription drug than the lowest price paid by the VA for the same drug after all discounts are factored in. This would apply whether the state purchases directly, or indirectly through reimbursements.
The state’s Medi-Cal program offers comprehensive health coverage to the state’s low-income residents. Prop. 61 would apply to its fee-for-service program, which serves approximately 25 percent of Medi-Cal enrollees, but not to its managed care system, which serves the remaining 75 percent.
Prop. 61 would require the Department of Health Care Services (DHCS) to verify that state agencies are paying the same or less than the lowest price paid by the VA on a drug-by-drug basis.
There is the potential for the state to realize drug cost reductions, but there are major uncertainties about the amount of savings.
The VA’s database does not always identify the lowest prices it pays, and it may not be possible to obtain this information. Then DHCS would be unable to assess the lowest price paid by the VA for one or more drugs.
Courts sometimes allow state agencies to implement laws to the degree that is practicable, such as by allowing the state to pay for drugs at a price not exceeding the lowest known VA price, but that is not certain.
There are at least two possible manufacturer responses to Prop. 61:
- Drug manufacturers might try to raise the VA’s drug prices.
- Drug manufacturers could decline to offer California some drugs purchased by the VA.
Therefore, the amount of any savings under Prop. 61 could range from relatively little effect to significant annual savings.