Posted At Bloomberg
BY : Matthew Daly
Drugmakers including Pfizer Inc. and GlaxoSmithKline Plc set aside about $80 million to block a California proposal requiring them to offer discounts to lower- income residents.
About 2.4 million Californians would enroll in the discount program under Proposition 79, which would force drugmakers to participate or have their products removed from the preferred drug list for the state-run Medicaid health program for the poor, a $4 billion-a-year market. The industry supports an alternative with no enforcement provision, Proposition 78. The initiatives are on California's ballot today.
"It's really a national fight for the drug companies," said Bob Stern, president of the Center for Governmental Studies in Los Angeles, in a Nov. 2 telephone interview. "California is a huge state and it's a huge market, and the drug companies realize the consequences of 79 passing is enormous for them."
Prescription drugs represented about a fifth of the 8.2 percent increase in U.S. health-care spending last year as drug prices rose 7.2 percent, according to the Center for Studying Health System Change. The increases have spurred states to explore steps that include letting residents buy drugs outside the U.S. and regulating prices, ideas opposed by the industry.
Proposition 79 would provide discounts for individuals who earn $38,000 and less, families of four making $77,000 and less without other coverage, and those with medical expenses making up 5 percent or more of family income.
Drugmakers that refused to negotiate rebates would have their products removed from a list of drugs that Medi-Cal, the state's health program for the poor, covers routinely. The proposal also would allow the state and individuals to sue over "excessive" prices that generate "unreasonable" profit.
Voluntary Discounts
The industry-backed Proposition 78 would give voluntary discounts to those who earn $29,000 and less and families of four making $58,000 or less without other prescription coverage. That's about 1.6 million people, said economist Geoffrey Joyce at the Rand Institute in Santa Monica, California.
If Proposition 79 wins, "it really does set a kind of precedent," Joyce said. "The industry in general has fought any sort of price regulation."
California has a history of public policy trendsetting. Proposition 13, a property tax initiative passed in 1978, was credited with galvanizing a tax-cut movement that helped spur Ronald Reagan's election as president. In 1990, voters approved lawmaker term limits that since have been accepted by 18 other states. New York and others are poised to adopt carbon dioxide rules similar to those California put in place in September 2004.
`A Hypothetical'
Denise Davis, a spokeswoman for Californians for Affordable Prescriptions, a drugmaker-supported coalition, wouldn't say whether the drug industry is concerned that Proposition 79's success might spread the idea to other states.
"That's a hypothetical," Davis said in a telephone interview. She also wouldn't say whether there's a plan to bring legal action if Proposition 79 wins.
Davis's group raised as much money as it has because "it's a crowded ballot," and California has costly media markets, she said.
New York-based Pfizer, the world's biggest drugmaker, contributed almost $10 million to the California campaign, according to the Web site HealthVote.org. Also contributing that much were New Brunswick, New Jersey-based Johnson & Johnson, Whitehouse Station, New Jersey-based Merck & Co. and Europe's biggest drugmaker, GlaxoSmithKline, based in London.
The money is helping to pay for advertisements saying Proposition 79 would create an "expensive new bureaucracy," deny certain drugs to patients and spur "unlimited lawsuits allowing lawyers to sue and keep all the money themselves."
18,000 Commercials
More than 18,000 television commercials were aired between Aug. 1 and Oct. 16 opposing Proposition 79 and nearly 11,000 aired for Proposition 78, according to Nielsen Monitor-Plus, which tracks advertising activity.
The ads have drawn the ire of Proposition 79 supporters.
"Proposition 79 will provide cheaper drugs that more Californians can count on," said Anthony Wright, executive director of Health Access California, a consumer health group, in a Nov. 4 telephone interview. "It is a common-sense solution to the high costs of prescription drugs, since Americans now pay more for prescription drugs than anywhere else in the world."
"The drug companies in response have not only launched this unprecedented assault on Proposition 79 but also sponsored a sham measure, Proposition 78, which looks similar but lacks any enforcement whatsoever," Wright said. "The drug companies aren't going to voluntarily lower their prices."
Less Than $2 Million
Less than $2 million has been raised and spent by groups supporting Proposition 79, Wright said.
Pfizer spokesman Jack Cox said his company thinks the industry's California initiative addresses important national issues related to "where we, as a country, are going with our health-care system."
"It's clearly in our interest, not just in this election, but longer term, to have a plan like 78 in place," Cox said in a Nov. 4 telephone interview.
The voluntary plan "is a good model for the rest of the nation," said Davis, the industry's local activist. "It's workable. The companies like it. In California, the health and human services agencies like it."
A poll by Field Research Corp. showed that support among likely voters for Proposition 79 lags 43 percent to 37 percent, while Proposition 78's support is 45 percent to 36 percent.
Voters may approve both propositions. In that case, the one with the most votes would take effect, according to HealthVote.org.
Pfizer's shares rose 1 cent to $22.27 yesterday in New York Stock Exchange composite trading. Johnson & Johnson rose 55 cents to $61.34, and Merck shares rose 23 cents to $29.45. Glaxo's American depositary receipts rose 72 cents, or 1.4 percent, to $53.45 in New York Stock Exchange composite trading. One ADR is equal to two common shares.
