“Liberty cannot be preserved without general knowledge among the people.
By Alden Benton
Proposition 61 seeks to reduce the cost of drugs various state agencies purchase. State drug purchases account for half of all drug purchases in California.
Currently, California spends $3.8 billion per year on eight major programs. The programs include Medi‑Cal for low income Californians ($1.8 billion) and coverage for public employees, their dependents, and retirees in the Public Employees Retirement System ($1.3 billion).
California agencies negotiate with pharmaceutical companies to obtain prices below the list price. Many of these prices are not public knowledge due to the protection of confidentiality agreements.
The Veterans Administration (VA) provides comprehensive healthcare to more than 9 million veterans nationwide. The federal government has programs in place that set limits on the amounts federal agencies pay for drugs, including the VA.
In addition, like California, the VA also negotiates with pharmaceutical companies further reducing drug prices. Confidentiality agreements keep many of these negotiated prices from public view.
Proposition 61 prohibits state agencies from paying more for a prescription drug than the lowest price paid by the VA for the same drug after all discounts. This proposal only applies when the state pays for the prescription whether by direct payment or via reimbursing pharmacies.
Nearly one-third of California’s population receives Medi‑Cal benefits. Medi‑Cal provides benefits through two different systems, a fee for services program that serves about 25 per cent of its enrollees, and a managed care system that provides benefits to 75 per cent of its beneficiaries.
Proposition 61 exempts the Medi‑Cal Managed Care system from its provisions. In addition, this measure requires the Department of Health Care Services verify that state agencies are paying the same or less than the lowest price paid by the VA on a drug-by-drug basis.
This proposition potentially reduces state spending for providing prescription drugs. However, according to the California Legislative Analyst the fiscal effects are uncertain.
Since confidentiality agreements obscure the cost of many prescription drugs purchased through the VA, the savings to California may be less.
The response of pharmaceutical companies is also a factor in how much the state saves. Pharmaceutical companies are profit-driven. To make up for lower revenues and profits, pharmaceutical companies could raise their prices or negotiate smaller discounts.
Because of these uncertainties, the California Legislative Analyst says the fiscal effects of Proposition 61 are uncertain.
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