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Prop 61: A Placebo Endorsement

Uploaded: Oct 15, 2016

In wading through the $100 million spent for disinformation on Prop 61, the temptation is to yell: “a pox on both your houses!” and change the channel. For many readers, that may amount to a ‘no’ vote, as the burden of persuasion plainly rests with the proponents of any Proposition.

That said, it’s worth examining the text, and context of this referendum. It summarizes pretty simply as follows, per ballotpedia:

(Prop 61) “Prohibits state from buying any prescription drug from a drug manufacturer at price over lowest price paid for the drug by United States Department of Veterans Affairs. Exempts managed care programs funded through Medi-Cal.”

The simple concept, then, is for California to piggy-back on prices negotiated by the VA, a huge buyer, to achieve volume discounts on prescription drugs. Savings would redound to the taxpayers in some form, like tax cuts (theoretically) or better spending on other state priorities (an actual good thing).

The stakes are significant, as California spends almost $4 Billion annually on such meds – mostly though MediCal and CalPERS. So, what’s not to like? Further, if this is Not a good thing, why has the pharmaceutical lobby pumped some $85 million into its defeat (making it the biggest investment in a Prop campaign ever – if you own a television, you may have suspected as much).

Let’s set aside the scurrilous misdirection of the No campaign (we’ll get to it, because: #scurrilous). There are a few economic facts that bear on this Proposition.

First, some numbers: The VA has negotiated dramatic discounts, to the point where it spends an average of 43% of retail on its formulary (the list of drugs it purchases). That might suggest that J. Q. CA Taxpayer stands to save 2¼ Billion annually -- if you didn’t know that CA already has its own discounts, to the tune of 49% off its own formulary. So, in a static system, the real stakes might be as high as $300 million/year – still nothing to sniffle-at, and it’s comforting to know that our state buyers haven’t been idle on our behalf.

Second, the system is Not static, and nobody knows what the drug companies will do if it passes. They might choose to pull-out of the CA market by refusing to sell to the State at the VA rate, or they might try to re-negotiate that VA rate higher. While the No campaign would like to scare you into believing they might do both, does it seem likely to you that they’d ignore a $4B market to avoid an 8% discount, or be able to force a higher VA rate on a greater volume of sales? Me, neither.

Third, there are thousands of drugs covered by this proposal, and a bureaucratic quagmire might ensue. This seems to have animated the California Medical Association’s opposition, as they say: “… Of greatest concern to doctors is that the measure would result in a new bureaucratic prior approval process that could interfere with patient access to the medicines they need.”

I read this to mean that the docs don’t want to be bothered. They do pay lip-service to a concern for high drug prices (“While California’s physicians are profoundly concerned about the affordability of prescription drugs …“), but my own experience is that their concern is not so profound at the patient interface. I routinely have to dig to get past the 'newest' and 'latest,' to the less expensive generics. So, I take this to be a ‘generic’ professional convenience argument, and this is one case where I don’t buy it.

I do think that this Prop would require an initially inconvenient scramble to determine proper prices to be charged. But it’s exactly what computers are good at doing – assembling and organizing large amounts of information. So, if it’s not equal to this kind of info-challenge, then what’s all this fuss about looming “Big Data?”

Now, for the scurrilous promotion part. When you’re spending $85 million to defeat a Proposition, you probably want to see some creativity from your hired guns. Hence we get claims like “88% of Californians are exempted” (because the state doesn’t purchase their drugs - duh), and we get sickly-looking vets, and ER docs who claim to be worried about access to drugs that ‘might’ disappear or cost more. There may be other examples, but our TV has a remote. I hate these kinds of tactics, because they assume that we’re all just stupid enough that it might work.

To be sure, the $15 million spent by the Yessers also has its share of nonsense – like the claim that the NAACP opposes the Prop because of some $12,000 that drug companies have paid to its President’s consulting firm. While it’s not easy to find out Why the NAACP opposes (Google and I gave-up after a deep dive on their website), it strains credulity to suggest that $12K, for services rendered, no less, could have possibly swayed it.

So after all that, where are we left? Here’s my take: I believe that this Prop addresses the deep and deadly serious social problem of runaway drug costs -- from formerly dirt-cheap doxycycline to epi-pens. Volume buying makes sense to me, and I wish that Medicare had not been forbidden to undertake it, grace of fervent lobbying from the drug companies. It’s our money, after all, although it’s hidden behind thick walls of pricing secrecy on health care, in general. I also suspect that Silicon Valley’s collective genius can overcome the bureaucracy issue.

I’m left to ponder why the No campaign can marshal $85 million in opposition advocacy. One answer is that it’s less than the $300 million/year in lost revenue that cursory arithmetic suggests is at stake. A deeper response is that as fair California goes, so goes the nation, eventually. If this works, it’ll spread, and perhaps ultimately even bring pressure against that Medicare citadel.

To use a medical metaphor, then, these $many millions may be an investment in prevention, rather than a specific cure. The health care system, though, needs all kinds of curing. So while it’s a pretty tepid endorsement, I’d suggest a Yes vote on Prop 61.

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