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Report From Key Agency Raises Concerns About Proposal To Cut Drug Prices

Researchers at one of the nation’s largest public sector health care purchasers weighed in this week with serious concerns about the feasibility of a ballot initiative that seeks to limit how much state programs pay for prescription drugs.

In an analysis presented Tuesday, the California Public Employees’ Retirement System’s staff lauded the goal of controlling prescription drug prices, but it warned of possible resistance — or even retaliation — by pharmaceutical companies.

The CalPERs staff also noted that implementation of the drug price proposition could unravel the whole purchasing and distribution network the agency has in place.

“The proponent’s intent to lower drug prices for certain Californians, such as CalPERS members, is very attractive and might possibly provide cost savings,” the staff report says. “However, passage and implementation of the Act would drastically change the current drug purchasing landscape and could result in unintended consequences.”

The CalPERS analysis echoes the findings and language of a May report by the state Legislative Analyst’s Office.

CalPERS’ interest in the ballot initiative, known as the Drug Price Relief Act, is not surprising since its members would benefit directly from any savings the proposal generates.

The agency is not only the largest public buyer of health care in California but the second largest in the nation after the federal government. Of the $8 billion CalPERS paid in health benefits last year for its 1.4 million covered members, about $1.8 billion went to buy prescription drugs, according to the agency.

CalPERS covers active and retired state, local government and school employees and their families.

In recent years, officials at the agency have blamed sharply escalating drug prices for its imposition of relatively high premium increases.

CalPERS expects rising health care expenses to remain a perennially thorny challenge well into the future. A draft of a five-year strategic plan for 2017 to 2022 lists “increasing health and pharmacy costs” under the heading “Threats, Obstacles and Impending Changes.”

This week, however, CalPERS unveiled its health plan rates for 2017, showing that members will face significantly lower increases than they did this year. A CalPERS spokesman attributed the moderating trend in part to the agency’s new pharmacy benefit manager, OptumRx, which he said is guaranteeing lower prices on brand name and generic drugs.

The Drug Price Relief Act, sponsored by Michael Weinstein, head of the AIDS Healthcare Foundation in Los Angeles, would curb rising drug costs by tying state agency spending on prescriptions to the lowest prices paid by the U.S. Department of Veteran Affairs. The VA uses the clout of volume purchases for millions of veterans to negotiate what are widely believed to be the best deals with drugmakers.

But here’s the rub: Those negotiations are confidential, and there is no guarantee the VA would share its price data with California state agencies. The VA does post prescription drug prices on a public website, but the CalPERS analysis casts doubt on whether those postings include all the drugs in the VA’s formulary.

The ballot initiative is intended to benefit nearly 5 million Californians, mostly Medi-Cal fee-for-service enrollees, public employees and retirees. It would not apply to the 10.3 million state residents enrolled in Medi-Cal managed care.

The debate is transpiring against a backdrop of sharply escalating prescription drug costs, which have angered consumers and become a hot button issue in a presidential election year.

Gilead, based in Northern California, grabbed headlines when it marketed Sovaldi, a hepatitis C drug, at $1,000 a pill — and $84,000 for a 12-week course of treatment.

Then, pharmaceutical entrepreneur Martin Shkreli infuriated lawmakers and the public when he bought a company called Turing Pharmaceuticals and jacked up the price of its AIDS-related drug Daraprim from $13.50 per pill to $750.

The report speculates that the initiative could provoke the ire of pharmaceutical companies, which have depicted doomsday scenarios if it passes.

One of those scenarios is the possibility that companies will raise prices on the VA, forcing California health programs to pay even more than they do now.

The report also expresses concern that pharmaceutical companies could make certain medically necessary drugs unavailable to the state.

Another route drugmakers could take, the report says, is to offset any concessions to the state by raising prices for private market health plans.

Garry South, lead strategist for the act’s proponents, said the fears highlighted in the CalPERS report are nothing more than surrender to the agenda of the drugmakers.

“Anything in life can have unintended consequences,” South said. “So all these hand-wringers are simply buying into the whole Pharma menu of threats in terms of how the industry would punish the state of California if the voters have the audacity to pass this measure.”

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