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 un-apologetically 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. Read more:
Drug prices are out of control.
No one really disputes it, and the real question is, Do we have
the political will to do anything about it?
A classic case is the cancer drug Gleevec, which in 2013 cost
roughly $6,200 per month in the United States but only $1,100 in
Canada. Similarly, Sovaldi, the drug for hepatitis C, listed in the
United States for $84,000 for a 12-week course of treatment but only
$46,000 in Germany.
There are countless other examples. Last year
drug prices in the United States went up almost 14% despite health
care inflation falling to historic lows.
If you look for answers from the pharmaceutical industry, the
answer you get is simple: Research. As one Pfizer executive put it: "Here's the reality: Most
of the medicines we develop in our labs will not make their way to
patients ...
To make up for the risk and expense inherent in creating
new medicines, the few medicines that are successful must cover the
research and development costs of the many clinical failures that
will never earn a single cent.
It's easy to forget that profits serve
an important purpose: they allow businesses to invest in the
innovations of the future."
Makes sense, right? Consumers are paying for the overall cost of
developing different therapies for different illnesses.
Except that
this rationale doesn't come close to explaining what actually drives
drug prices.
When cameras and mics aren't around, pharmaceutical executives
acknowledge that research costs don't determine drug prices.
Speaking
at the 2014 annual meeting of the American Society for Clinical
Oncology, AstraZeneca Vice President Gregory Rossi, Ph.D said: We do not solve for [the] price
[of a drug] on 'how do we basically return our investment?'...
We
don't solve for price based on how much we have sunk for [research]
costs...We solve for price based on a number of factors associated
with market and value.
This private rationale is much closer to the truth. Just look at
the regular and sizable price increases for drugs that have already
been brought to market, where the research is already completed.
Every year like clockwork, Biogen and Teva have increased the prices
on their multiple sclerosis drugs not because they are doing more
research on the drug but to maintain revenue and profits with
shrinking market share.
