California's Drug Price Relief Act Initiative (Proposition 61) is on the ballot in November. A "yes" vote essentially requires California's state agencies to pay only the U.S. Department of Veterans Affairs' acquisition cost for prescription drugs. In short, it ties California state agency prescription drug acquisition cost to the prices paid by the V.A., the statutory low price pharmaceutical acquirer in the world of government funded insurance. The V.A. itself estimated, several years ago, that the VA’s Pharmacy Benefits Management (PBM) program saved the VA $1.5 billion between 1995 and 1999 (Sales, 2005) and reported that VA prices for 20 medications commonly used by seniors are lower even than those negotiated by private PBM companies for the Medicare Prescription Drug Plan (Families USA, 2005).
I have been thinking about preferred prescription drug pricing for the V.A. as one manifestation of favored group pharmaceutical pricing — a sort of "who's in and who's out" exercise. I am mindful that V.A. pharmaceutical savings are only partly acquisition driven as the V.A. makes some of its savings through the use of narrower formularies that serve to help lower the cost by eliminating some choice in prescription coverage and by driving larger volumes through preferred medications. It is hard to know what to make of the "let's get the V.A.'s price but not the V.A.'s access constraints" argument in the abstract, though many Californians' experience of MediCal's formulary is of a considerably constrained benefit.
There is no denying the V.A., has long been a preferred program for subsidized health care. Seen in this light, the tradition of the Veteran’s Administration in—for example—leading the way as the low price leader, by custom and by statute, on domestic pharmaceutical acquisition cost, is the most recent iteration of Abraham Lincoln’s motivation in founding the Veteran’s Administration in 1865, “…to care for him who shall have borne the battle, and for his widow, and his orphan.”
By extension, all modern government programs that benefit favored groups with preferential cost and access to prescription drugs—whether it be veterans, or the “deserving poor” in non-Medicaid expansion states, or all lower income individuals in Medicaid expansion states—have a connection to this history of favored pricing for their group.
Medicare's Part D prescription drug benefit prohibits collective government bargaining over pharmaceutical acquisition cost. But, aren't seniors a sympathetic population? Not all seniors, apparently.
The public debate over Proposition 61, of course, is — depending upon your perspective — enhanced or devastated by the fact that no one can or will say, for certain, how the drug companies would respond to Propositions 61's passage. We get a little hint from the current pharmaceutical industry sponsored ads saying it would harm veterans, both a rare admission of cross-subsidization in health care pricing from market players and a harkening back a few decades to the last time V.A. prescription drug acquisition costs were factored into other forms of government funded health insurance, courtesy of OBRA '90. Then, prescription drug acquisition costs are reported to have fallen by 15 percent.
But it was not an enduring savings. This raises the interesting question of what mechanism can be found in Proposition 61 to keep it, in very short order, from being similarly gamed.