Calling All Californians

California voters will be confronted tomorrow with two ballot initiatives on pharmaceutical pricing: Proposition 78, promoted mainly by the pharmaceutical industry, and Proposition 79, promoted mainly by the public employee unions.

The bottom line: Prop. 78 will increase drug access and reduce drug prices for those in need precisely because it will enable the drug producers to make more money, by discounting drugs for those less fortunate without being forced to offer the same discounts to the federal government. Prop. 79 explicitly would reduce drug access for the needy in an effort to subsidize the middle class, and would engender a tidal wave of litigation.

Consider a drug that costs, say, 20 cents per pill to produce after the enormous investments in research and development have been made. A wealthy patient might be willing to pay, say, $1 for each pill; but someone less fortunate might be able to afford, say, only 25 cents. Is it profitable for the drug producer to sell the drug to the poorer patient for 21 cents? The answer is yes, as long as the producer does not have to give the same price break to the wealthier patient.

Beginning in 1990, federal law in effect made it illegal to offer that price break to the poorer patient, because then the drug producers would have been required to give that same price to the feds. And so the need to cover large research and development costs prevented the drug producers from using such differential pricing to increase access to medicines for the poor.

The Bush Administration has changed the rules so that the producers now may give such discounts to those less fortunate through Patient Assistance Programs, without being forced to offer those same low prices to federal drug programs. Prop. 78 enables the producers to engage in such discounting in California by creating a legal gateway to the producers’ Patient Assistance Programs. Therefore, as counterintuitive as it may seem, the voluntary approach underlying Prop. 78 yields far greater benefits for those in need precisely because it allows the pharmaceutical producers to make more money.

Prop. 79 attempts to force sharp price discounts for over half the California population by threatening to remove from the Medi-Cal preferred drug list the drugs produced by those pharmaceutical firms not agreeing to the discounts demanded by a new California Prescription Drug Advisory Board. In other words, Medi-Cal patients would be denied the newest and most effective medicines if a given drug producer refused to offer sharp discounts to the middle class, unless a new state bureaucracy granted prior authorization for a given prescription.

That is why Prop. 79 almost certainly would never be implemented: The federal government has made it clear (in a 2002 letter to the state Medicaid directors) that it will not approve state programs that threaten the benefits of Medicaid patients in efforts to reduce drug prices for those not poor. And that is why the original program in Maine---quite similar to Prop. 79---was never implemented; after years of litigation, the state promised not to put drug access for poor patients under the Maine Medicaid program at risk. And so the actual program implemented in Maine is a voluntary one, as is the more successful program in Ohio, similar to Prop. 78.

Under Prop. 79, “profiteering” would be a civil offense, “defined” as “unconscionable prices” or “unjust or unreasonable profits.” This is a blatant attempt to conduct “negotiations” with a gun held to the heads of the drug producers. Any attorney could file a lawsuit, with damages of $100,000 plus costs per prescription. It entirely accurate to say that Prop. 79 would take from the poor and give to the lawyers.

Why is it that the political Left in California is supporting something as preposterous as Proposition 79, a blatant attempt first to politicize pharmaceutical pricing not only in California, but nationwide, second to create a litigation lottery that only the lawyers can win, and third to use political and regulatory processes to confiscate private property? The answer simultaneously is both subtle and crude: Proposition 79 would have the effect of making not only the poor but the broad middle class as well dependent upon government, and that is the overriding central goal of the Left. That is something that all freedom-loving individuals should fear and oppose.