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Drugmakers Cheer California's Drug Price Decision

By Motley Fool Staff – Updated Nov 16, 2016 at 8:08AM

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Two Fools analyze California's decision on drug spending and its potential impact on the drug pricing debate.

Drug prices are rocketing higher, and that's a big problem for state healthcare budgets. In California, a bid to crimp runaway drug spending by tying its drug prices to the prices paid by the Department of Veterans Affairs appeared on last Tuesday's ballot. That measure -- Proposition 61 -- could have cut California's drug spending significantly, yet voters rejected the measure after deciding that the risk of unintended consequences was too great.

In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analyst Michael Douglass and contributor Todd Campbell discuss California's decision and its potential impact on the drug pricing debate.

A full transcript follows the video.

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This podcast was recorded on Nov. 9, 2016.

Michael Douglass: That's talking about individual state ballot questions. And my oh my, there was quite a bit about healthcare. Do you want to start with California Prop 61, Todd?

Todd Campbell: Yeah, we'll take this one because it's easy and it segues nicely into what we were just talking about as far as drug pricing and the future of drug pricing. California had something on the docket. It was the California Drug Price Relief Act, also known as Proposition 61. Proposition 61 sought to tie California's healthcare spending, the state's spending on drugs, to the prices that are paid by the Veteran's Affairs Department. The concept there was the Veterans Affairs Department can typically pay 40% to 50% of whatever the list price happens to be for an individual medicine. Therefore, by passing this, they're basically saying, "We're going to get whatever the lowest price is that the VA is passing on these drugs." Theoretically, that could save California as a state a lot of money.

Douglass: Right. And it didn't pass.

Campbell: Didn't pass.

Douglass: The drug industry spent over $100 million lobbying against it. It's believed to be the most ever spent on a California ballot measure.

Campbell: Yeah, $106 million or $109 million, depending on who you listen to, was spent defeating this proposition. There were a lot of different things that could have happened, even if it had passed, they may have escaped some of the meat of the proposition. But, regardless, it's a nonevent because it was defeated. Proponents battled that $106 million or $109 million with $17 million. That tells you a little something. It suggests, we're still hunting for ways to control the cost of increasing drug prices. But, at least as far as California voters are concerned, tying it to the price that's paid by other government organizations or government payers such as a VA is not the way to go.

Douglass: Yeah. There is a large conversation going on about drug pricing in the United States, and that the drug industry is engaged in as well, with other stakeholders, including payers and patients and patient advocacy groups and hospitals, etc. So, this is definitely a conversation that's going to continue, just not in this particular way. I do not think that the drug pricing conversation is over, by any means, and I don't think anyone really thinks it is, either. It's definitely going to be something that continues, and continues to be an issue that people are talking about and voting on.

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