Merck (And Others): Spending Significantly On California Ballot Referenda — Fighting State-Wide Drug Price Caps

While I must candidly admit that, based on what it actually costs to bring many of the new life-saving drugs to market, I am not a proponent of state-wide hard caps on drug prices, I do understand that the frustration underlying such ballot measures is genuine, and deeply-held. And truly — more reform of health care delivery system payments is needed. Nationwide.

I am unconvinced that the California measure — if passed — would improve the overall situation (much). California is a vast health care market for all the life science companies, and so it makes sense that Pfizer, J&J and Merck would spend to protect the freedom to charge enough to make a sensible profit inside the state. [Did I mention that I don’t think legislated hard price caps would be the best answer. I think. . . I did.] But the portion of the ballot measure that would tie reimbursement to the amount the VA pays, is in some ways, an outgrowth of pharma’s own past pricing practices.

Historically, in order to win a contract with the VA, life science and pharma and health care companies (generally) would have to offer “most favored nations” pricing clauses, in the supply contract — which essentially meant that no other purchaser could be offered a price lower than the price the VA enjoyed, due to its vast volume of covered lives, and thus vast commitments to purchase drugs. Now California voters are in essense saying — the state is one vast unitary helath care market-place, and so all the citizens of California ought to benefit from similar provisions. The difference is that the VA’s is set by contractual give and take, while California’s would make it a matter of prescriptive law. [My May 2013 backgrounder, on California exchanges, here.]

And so — in many ways, the 2016 cycle is shaping up to be a series of races (and referenda), unique in modern memory. Here is a bit from Bloomberg’s reporting this morning — but do go read it all. It is obvious that pharma is outspending the proponents, over fourteen-to-one, in the state:

. . . .California’s most expensive campaign is taking shape over a proposal to cap and tie the amount state agencies pay for prescription drugs to what’s paid by the U.S. Department of Veterans Affairs. California spent more than $4.2 billion on drugs in fiscal 2015, according to the state Legislative Analyst’s Office.


Opponents, mostly pharmaceutical companies based outside California, have poured $68.4 million to defeat the measure. Merck, Pfizer and Johnson & Johnson gave about $6 million each, according to state campaign finance data. The AIDS Healthcare Foundation, the measure’s proponent, raised $4.4 million. . . .

[I suppose, should Mr. Sanders win, none of this would matter too much, as he would move us toward a single payer system — and there would thus be a unitary price schedule set, nationwide — we need only look at the UK, and the EU, for that example. But I see no scenario in which Mr. Sanders is nominated, let alone elected.] Headed out — into the sublimely clear morning air now. . . smiling. . . Onward!

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