Enormous public frustration with the skyrocketing prices of essential medicines in the US has not yet led to any meaningful reform. But a historic initiative on the November ballot in California, championed by health care and consumer advocates and fiercely opposed by multinational drug corporations, may finally rein in Big Pharma.
It is hard to overstate the level of dysfunction in the US medicines system. The headline-producing greed of "pharma bro" Martin Shkreli was just the most dramatic example of a pharmaceutical industry whose patent monopolies grant it immunity from market forces while its political clout shields it from government regulation. Taking full advantage of taxpayer-funded research, drug corporations make record profits, even by Fortune 500 standards, and pay their CEOs as much as $180 million a year. Those corporations spend far more on incessant marketing to consumers and physicians than they do on research -- part of the reason they have largely failed to develop new medicines that address the most deadly illnesses and diseases.
As for the patients who rely on those medicines, pharma lobbying has ensured that the US Medicare program is alone among industrialized nations' government health plansin not negotiating down the price it pays for medicines, causing US patients to pay far and away the highest global price for necessary drugs. One in every five US cancer patients can't afford to fill their prescriptions, and many seniors on Medicare are forced to cut their pills in half to stretch their supply.
None of this dysfunction has escaped the notice of those patients and taxpayers. An AARP survey taken earlier this year showed that 81 percent of respondents aged 50-plus think drug prices are too high, and over 90 percent want politicians to take action about it. Those AARP results were consistent with other polling across a broader age spectrum. Such responses are not at all surprising, since the same AARP survey revealed that many of the organization's members do not fill some prescriptions due to cost. Earlier this year, an emergency room physician wrote about Big Pharma in The Salt Lake Tribune: "Evil in medicine is often linked with the past practices of blood-letting, lobotomies and arsenic treatments. Now we can add to these atrocities another evil, that of killing people by preventing their needed, life-sustaining treatments."
This kind of populist anger has caused both Hillary Clinton and Donald Trump to vow to reverse the ban on Medicare drug price negotiation. But President Obama has pursued the same goal for years, only to find it a non-starter in Congress. Even modest reform proposals for Medicare drug reimbursement, designed to stop incentivizing physicians to prescribe the highest cost medicines, have triggered determined bipartisan Congressional opposition. Not that the Obama administration has always been a champion of medicine access: the Affordable Care Act enshrined a huge guaranteed market for pharmaceutical companies, and the National Institutes of Health (NIH) recently flat-out refused to exercise its legal right to address huge corporate mark-ups on cancer medicines the NIH helped develop.
Why the dissonance between the popular thirst for reform and government lethargy? The answer can be found in the annual reports by the Center for Responsive Politics, which reliably list the pharmaceutical industry as the world's top spender on both lobbying and campaign contributions. Pharma knows its financial windfalls are the very opposite of a free-market success story. The industry depends not just on government-supplied research and government-supplied patent monopolies, but also on massive, undiscounted government purchases of its products. So it invests accordingly.
The industry's US trade organization, the Pharmaceutical Research and Manufacturers of America, known as PhRMA, has an annual budget exceeding $200 million, which it directs to the promotion of the image and interests of its 57 member companies. The industry's US lobbying expenses for 2015 were $238 million, and its campaign contributions have reached as high as $50.7 million in a year. That money has been well-spent. This year, Rep. Jan Schakowsky (D-IL) complained that every aspect of the US health care system is being reformed except for pharmaceuticals. Matt Salo, executive director of the National Association of Medicaid Directors (NAMD), says he knows the reason why:"The pharmaceutical industry is the third rail of politics, and if you go against them they will cut you off at the knees."
Reform Moves to the State Level
With drug pricing reform thoroughly stymied on Capitol Hill, state governments are starting to step in. In June, Vermont passed the country's first law requiring drug manufacturers to justify some price increases. Proposals demanding transparency in drug pricing have been made in at least 10 states, including Virginia, Oregon, Pennsylvania, Texas, North Carolina and Massachusetts. New York governor Andrew Cuomo has suggested capping the prices his state's Medicaid program pays for some medicines. But the most sweeping state-level reform proposal comes from the country's most populous state, and is the only one that tries to bypass the outsize influence Big Pharma has on elected officials: a California ballot initiative called the Drug Price Relief Act.
The initiative, recently certified by the California Secretary of State as Proposition 61, calls for state agencies to be blocked from paying more for a prescription drug than the price paid by the US Department of Veterans Affairs. Unlike the Medicare program, the VA is free to negotiate the price it pays for drugs and as a result, pays as much as 42 percent less than Medicare and usually significantly lower than state Medicaid programs. The primary force behind the ballot measure, the AIDS Healthcare Foundation, says the law could save Californians hundreds of millions of dollars a year in lower government costs and lower individual co-payments. The California Legislative Analyst Office says it cannot provide an accurate estimate of the savings, concluding that it is impossible to predict how pharmaceutical companies would react to this first-ever restriction on state drug spending.
Along with the AIDS Healthcare Foundation and the California AARP, endorsers of the California initiative include the Los Angeles Urban League, multiple county Democrat Party organizations, and progressive figures like Sen. Bernie Sanders and former US Secretary of Labor Robert Reich. Deborah Burger, president of the California Nurses Association (CNA), says her organization supports the initiative because its members witness first-hand the impact of unrestrained drug pricing, including cancer medicines that now average over $100,000 per year.
"Nurses see the patients who are forced to make a choice: 'Do I get treatment or do I leave something behind for my family for after I die?' We see the patients with high blood pressure come to the emergency room with heart attacks because they did not fill their prescriptions. We see diabetics go blind or lose limbs because they chose to pay their rent instead of paying for their medicine," Burger says. "It is immoral for people in this country to go without the medicine they need."
Nurses are not the only ones who see the pain inflicted by unrestrained drug costs. A July 2016 poll conducted by the initiative campaign, Californians for Lower Drug Prices, showed over two-thirds of voters supporting the ballot measure.
Many activists are excited by the shift in the medicine reform movement to the state level. They point to parallels with the national campaign to raise the minimum wage, which responded to powerful resistance in Washington (substitute the Chamber of Commerce for Big Pharma) by pushing the issue back to states and local communities. Those localized campaigns have succeeded in passing hundreds of laws that have raised wages for millions of Americans. That success is consistent with the longtime observations of social movement historians: that significant reform often begins locally before moving to a national stage.
Blanca Castro, advocacy director for AARP California, says her organization's 3.3 million statewide members are eager for the chance to be heard on the issue of drug prices. Many of those members are dealing with multiple health care conditions and the organization's public forums repeatedly circle back to expressions of frustration about the costs of medicines, Castro says. The Drug Price Relief initiative provides a voice for that frustration that cannot be muzzled by the lobbying might of the pharmaceutical industry. "We have found that the ballot initiative process, even when it attracts well-financed opposition, allows us to do education and outreach to voters, who will then get a chance to directly express their views," says Castro.
Big Pharma Is Concerned
Historically, ballot initiatives have a mixed record on progressive issues. In 2005, a California initiative on drug pricing attracted both well-financed resistance and an intentionally confusing copy-cat ballot measure submitted by the pharmaceutical industry. Ultimately, both initiatives were defeated. But in recent years, referenda at the state level have led to higher minimum wages, increased gun control and campaign finance reform, all of which are often blocked by big-money opposition in state legislatures.
In California, organizers hope for a parallel between this year's Drug Price Relief Act and a 1988 initiative called Prop 103. The Prop 103 campaign followed a spike in insurance rates and featured populist anger intense enough to overcome an $80 million industry campaign against the measure. The result was the nation's strongest pro-consumer insurance regulations, which the Consumer Federation of America estimates has saved Californians billions of dollars.
Not surprisingly, the pharmaceutical industry is already devoting huge sums to opposing this year's ballot initiative. "Californians Against the Misleading Rx Measure" has reported nearly $70 million in donations, and most observers expect that number to eventually exceed $100 million. By comparison, the initiative supporting Californians for Fair Drug Pricing campaign has reported contributions of a little over $9 million. The opposition campaign says the ballot measure would lead to lawsuits and bureaucratic red tape and could cause some drugs to become unavailable. In an interview, opposition campaign spokesperson Kathy Fairbanks said, "We are calling it the misleading drug measure because that is exactly what it is. It is not going to deliver on the promises of lower drug prices for residents of California."
However, some pharmaceutical industry insiders express concern that the measure may turn out to be every bit as effective as its supporters hope. In a December 2015 article labeling California as "ground zero" for the struggle over drug pricing, the industry newsletter Pharma Exec wrote that "adoption of VA pricing by the State of California would be a pricing disaster for the entire US drug industry." The same publication later said that passage of the measure "would shake the rafters of every single public state drug program in the nation, as well as the federal Medicaid and Medicare programs."
While the pharmaceutical industry opposition to the measure is predictable, some patient-connected advocacy organizations have raised concerns as well. Anne Donnelly, policy director for the San Francisco-based HIV and Hepatitis C advocacy group Project Inform, has been widely quoted by the opposition campaign and in media reports questioning the wisdom of the ballot initiative. Donnelly says her group is officially neutral on the referendum and points out that Project Inform supports a drug price transparency bill that is pending at the California state legislature. "We are supportive of the goal of lowering drug prices, but the drug pricing system is so complex that I am not sure this simplistic (ballot) measure is the best approach," she said in an interview.
Project Inform's lack of support was highlighted in a July New York Times article on the referendum. But the referendum's supporters have in turn questioned Project Inform's motivations, noting that the organization -- like many patient advocacy groups -- is funded in significant part by pharmaceutical company donations. "When you look at who is speaking out against the initiative, you have to ask what it is in it for them," says Burger of the CNA. Donnelly confirms that industry donations make up between 20-36 percent of Project Inform's budget, but says the organization takes precautions to ensure that the industry does not influence its positions.
The strong early-polling support showed for the ballot measure will be put to the test by a concentrated campaign against it. "We won't underestimate what $100 million of advertising will do," says Garry South, lead strategist for the campaign. But he and fellow organizers hope that the expected high voter turnout in a presidential election, especially among California Democrats concerned about Donald Trump's candidacy, will help the initiative's prospects. "What we have here is a face-off between unlimited money coming from one of the most hated industries in America versus widespread public disgust with drug prices," South says.
Some industry analysts are confident that the drug companies will continue their winning ways. In April, the Wall Street brokerage and research firm Bernstein issued a report concluding that the wave of state efforts to address drug pricing "is a very modest risk to pharma, if at all." The analysts noted that the industry "is very much on the ball" in opposing reform at every turn. But ballot initiative supporters like the AARP's Castro say the industry's cash-heavy game plan may not be as effective with voters as it has been with elected officials. "Whether it is California or elsewhere, we just can't keep giving these drug companies a blank check," she says. "People's lives depend on access to affordable medicines, and we are finally going to have a chance to hear from the people directly."