Amid Debate On Drug Prices, California Leads Way On Cost Control

A pharmaceutical firm’s recent decision to hike the cost of a prescription drug that treats foodborne illness from $18 to $750 per tablet outraged millions of Americans.

The move prompted Democratic presidential candidate Hillary Clinton to accuse the Swiss-American company Turing of “price gouging.” The following day, Clinton unveiled her national plan to rein in drug prices — and borrowed an idea from California: cap out-of-pocket costs for some prescriptions to save patients with chronic or serious health conditions thousands of dollars.

The Golden State’s effort to tackle the issue of skyrocketing drug prices is among the most aggressive in the nation, opening up a wider debate over an industry whose sales account for 10 percent of the nation’s $3 trillion in annual health care costs.

There seems little doubt that the controversy over rising drug prices will rage on and become a key issue in the presidential race. Though average generic drug prices have fallen by more than half since 2008, costs for the name-brand prescription drugs that treat chronic and life-threatening diseases have more than doubled over that period, up 127 percent, far more than the 11.24 percent inflation rate.

For 28-year-old Sacramento resident Charis Hill, who suffers from a type of arthritis that causes lower back pain and stiffness, California’s new rules mean she won’t have to fear a $2,000 monthly price tag for Enbrel, a specialty drug she needs to live as normal a life as possible.

“I feel very relieved, not just for me, but for so many people who have chronic health conditions,” Hill said. “This program will allow people to access drugs they could not afford.”

Critics counter that such price controls could backfire, leading to higher insurance premiums for everyone and discouraging drug development.

“It’s sort of a popular thing to say, ‘I want lower drug prices,’ ” said Geoffrey Joyce, chairman of the pharmaceutical and health economics department at the University of Southern California School of Pharmacy. “That’s like saying, ‘I’m against crime,’ and who’s not in favor of that? But the reality is there are implications and consequences.”

California’s game-changing moves began early this year after Covered California, the state’s health insurance exchange marketplace established under the Affordable Care Act, became the first in the nation to apply a cap for most plans on outpatient prescription drug costs to treat life-threatening conditions such as multiple sclerosis, epilepsy, cancer and AIDS. The cap limits co-payments to $250 per drug per month.

Then a few weeks ago, Gov. Jerry Brown signed into law Assembly Bill 339, which mimics the exchange’s prescription drug co-payment cap and covers those who get their insurance outside the exchange.

Both plans, however, are aimed only at outpatient prescriptions — people who get their medication at a pharmacy or through the mail. People who receive “inpatient” lifesaving medications that must be administered intravenously at clinics or hospitals will not benefit from California’s new caps.

“The percentage of Californians this law will effect is not huge, but it’s huge for each one of these individuals — we’re talking about people whose lives depend on these drugs,” said Assemblyman Richard Gordon, D-Los Altos, who carried AB 339.

Relief for up to 26,000 of Covered California’s 1.3 million enrollees who confront at least one monthly drug prescription that costs them more than $250 arrives on Jan. 1. And for about 134,000 Californians in the same boat who buy private health insurance plans on their own or get them through their employer, AB 339 kicks in Jan. 1, 2017.

The two top Democratic presidential candidates — Clinton and self-proclaimed socialist Sen. Bernie Sanders of Vermont — already are pounding away on the subject of controlling drug prices. Even Republican candidate Sen. Marco Rubio of Florida this week criticized those drug manufacturers whose practices he said amount to “pure profiteering.” However, most political experts say Republican presidential hopefuls will be wary of advocating for federal regulation of prices.

Some critics say placing price caps on co-pays will increase the cost of premiums for everyone else, though a state analysis concluded that any increase would be less than 1 percent under AB 339 and the Covered California policy.

Still others note that the price caps don’t solve an underlying problem: Unlike most other major industrialized countries, most of which have national health plans that regulate drug prices, the U.S. imposes no such regulations.

At the Washington, D.C.-based Pharmaceutical Research and Manufacturers of America, a trade group that represents at least 50 pharmaceutical companies in the U.S., member firms are worried about the thrust of the debate, said spokeswoman Priscilla VanderVeer.

“We are concerned about any effort designed to artificially cap the price of drugs because it will impact innovation and have the potential to affect access to needed medication,” she said.

VanderVeer added that the trade group issued a statement about Turing, the company that boosted the price of Daraprim, which treats parasitic infections, by 5,000 percent “as not representing PhRMA or the values of its membership.”

The furor over the price increase led the company to say it would back down on its price. But Turing’s CEO also defended the price hike, saying it was a result of increased costs, and that the firm would use the money to develop new and better drugs to replace Daraprim.

Particularly worrisome to the industry, VanderVeer said, are legislative efforts in California and around the country demanding drug manufacturers explain their pricing to patients.

The legislative proposals “don’t have any accounting for the failure inherent in the work our companies do,” VanderVeer said, noting that only 12 percent of all potential new drugs make it to the market.

On average, it takes at least eight years for a new medicine to get to the marketplace, with the average cost to research and develop each successful drug estimated to be $2.6 billion.

Regulating drug prices, VanderVeer said, “would significantly impact our ability to innovate and develop new drugs because you are curbing the amount that can be reinvested back into research and development.”

VanderVeer and Joyce at USC noted that both Medicaid — called Medi-Cal in this state — and drug companies offer deep discounts on drug prices for the poor.Many doctors argue, though, that if patients can’t afford the drugs, they will get sicker and end up in the hospital — which adds even more costs to the health care system.

Dr. Steven Coutre, a professor at Stanford University School of Medicine who specializes in blood-related cancers such as leukemia, said it’s hard to justify the stratospheric costs of many cancer medications — some of which cost $100,000 per year or more. Although most of the cost is covered by health insurance, he said many patients are still responsible for a substantial share of the charges.

Without some type of reform, such as government regulation, Coutre said, “The situation is only going to get worse.”

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