Voter Cheat Sheet — Prop. 61 Would Lower Drug Prices; Prop. 52 Would Give Hospitals Control Over Medi-Cal Dollars

Voter Cheat Sheet — Prop. 61 Would Lower Drug Prices; Prop. 52 Would Give Hospitals Control Over Medi-Cal Dollars (2)
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Before Angelenos head to the polls on Nov. 8, we are breaking down the ballot into some quick reads to get you up to speed on what's up for a vote. Read more about the other propositions here.

Proposition 61: Will All the Bad PR Affect Big Pharma’s Bottom Line?

What’s at Stake:

Big Pharma has taken some big lumps in the public-relations department over the past year for drug profiteering, and the question is whether its bruised image will translate to a hit to its bottom line. Turing Pharmaceuticals boosted the price of an anti-infection drug used to treat AIDS patients by 5,000 percent; Mylan boosted the price of the EpiPen allergy injector by 500 percent. But when it came time for legislative reform in California, two attempts at holding drug companies more accountable for future price hikes fell flat. Proposition 61 puts before voters a new plan for (limited) price controls. 

The TV advertisements for No on 61 are ubiquitous and argue that the measure will lead to an increase in the price of drugs for veterans, low-income patients in the state Medi-Cal program and the privately insured. The bill’s main sponsor, the AIDS Healthcare Foundation, is spending more than $14 million for its passage. Vermont's Sen. Bernie Sanders has made public appearances and filmed a TV spot for Yes on 61. Sanders wrote in the Los Angeles Times that the measure will “make medicine more affordable in California and send a signal to Washington that the whole nation’s prescription-drug policies need an overhaul.”

Supporters of Proposition 61 have taken to quoting the measure’s opponents to the effect that it has made California ground zero in the national fight for lower drug prices. Those opponents, led by major drug companies like Merck, Johnson & Johnson, Pfizer and GlaxoSmithKline, have already raised $109 million to defeat the measure, according to the California Secretary of State. The California Medical Association, representing the interests of more than 43,000 doctors in the state, also opposes 61.

What It Does:

Government agencies tend to negotiate lower prescription-drug prices from drug companies, and no agency gets a better deal than Veterans Affairs. Federal law guarantees the VA a 24 percent discount off a drug’s list price from the start, and that is often only the starting point for steeper discounts, though exactly how steep is not publicly known. 

Proposition 61 would prohibit state agencies in California from paying more for their employees’ medications than the VA does for veterans'. The measure would lower drug prices for about 12 percent of Californians — about 4.4 million people — including employees of state agencies, low-income patients enrolled in Medi-Cal’s Fee for Service program and inmates of state prisons. Exempt from the price controls would be public school employees, the privately insured and the 10.4 million people enrolled in Medi-Cal’s managed-care program. (But federal law already entitles Medi-Cal to the lowest prescription-drug prices available to most public and private payers in the United States, according to the nonpartisan Legislative Analyst’s Office.) 

Opponents say the devil is in the details, and that price increases await the 88 percent of the population excluded from immediate benefits of Proposition 61. This thinking, as spelled out in the Times editorial in opposition, argues that the drug-making monopolies will shift their losses onto the backs of consumers who are not covered by the measure. Virtually every major veterans’ organization in California opposes 61, on the grounds that the measure will cause drug companies to drive a harder bargain with the VA. Yes on 61 proponents have called such claims spurious and say federal law protects veterans from price hikes on medicine. 

What Happens If It Passes:

This is the $123 million question — the estimated amount that the Yes and No camps have raised to define the issue for the public. The domino effect in pricing, which the measure's proponents tout (and its opponents fear), is that by pegging California state agencies to the VA’s price scale for drugs, the measure would serve as an example to all state Medicaid programs in the country and indirectly lower the prices paid by private insurers.

The greed of drug makers is nowhere in dispute here, but the question is whether this measure would account for it adequately. Its opponents insist that Proposition 61 would encourage drug makers to shift costs onto those Californians who are not covered by the measure. Its proponents say any such negative consequence would only result from punitive action taken by the drug companies. 

Despite the immense expenditure in advertising and campaigning, the latest poll numbers indicate the outcome isn’t even close. A USC Dornsife/L.A. Times poll conducted from Sept. 1 to Sept. 8 found that a full two-thirds of California voters support Proposition 61.

Voter Cheat Sheet — Prop. 61 Would Lower Drug Prices; Prop. 52 Would Give Hospitals Control Over Medi-Cal Dollars (3)
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Proposition 52:  Medi-Cal Bonus to Hospitals, in Perpetuity

What’s at Stake:

Thirteen million Californians rely on Medi-Cal, the state’s Medicaid insurance program, to pay for their health care. The federal government pays a portion of Medicaid costs in every state, but it reimburses the state of California less than most. That is because California is wealthier than most states — as defined by the median income — and the wealthier a state is, the fewer dollars its Medicaid program receives from Washington. Medi-Cal's reimbursement rates for providers are among the lowest in the country. 

In 2009, the state Legislature devised a system to increase the federal payout at no added cost to the state. It imposed a tax on private hospitals and spent the revenue to raise the rates that Medi-Cal pays providers for care. So in effect the hospital tax is repaid to the hospitals, and on top of that the federal money rolls in to match at a rate of roughly dollar for dollar. 

It has been nothing short of a bonanza to hospitals and the state’s tax base, which is probably why the annual windfall has attracted increasing attention from the state Legislature. Last year, the state reaped $4.6 billion from the hospital tax, investing $3.7 billion of that sum into Medi-Cal and diverting the rest — $850 million — into the state’s General Fund. The hospital industry still came out $3.5 billion ahead, thanks to $4.4 billion in federal matching funds, according to the nonpartisan Legislative Analyst’s Office. 

Though the program is temporary, the Legislature has extended the end date for it three times. The state's cut of the money gets bigger with every renewal. The portion the state diverts to the General Fund has increased from 15 percent in 2009, to 24 percent last year.  Another raise is possible should the Legislature vote once more to extend the program, which is slated to end on Jan. 1, 2018. 

What It Does:

Proposition 52 would move the Medi-Cal fund out of the Legislature's reach, setting a strict limit on how much of the hospital-tax revenue the state can divert to its General Fund and requiring a two-thirds majority for Sacramento to make any changes to the program. Proposition 52 also would remove the Legislature's authority to extend the program, making it permanent, with voter approval in a statewide election the only way to rescind it.  A yes vote would add language to the California Constitution to this effect. A no vote would allow the Legislature to decide whether the program continues and to keep its authority over what portion of the hospital tax is diverted to the state’s General Fund.

Who's Supporting It and Why? 

Not surprisingly, Yes on Proposition 52 is being driven by the California Hospital Association, which has out-funded its opponents by 5-to-1. As of Oct. 16, supporters of Proposition 52 had raised $60.2 million in contributions, while No on 52 has raised $11.6 million, according to the web site Ballotpedia. The CHA is joined by a panoply of health-care provider associations, such as the California Association for Nurse Practitioners, the Children’s Specialty Care Coalition and the California Dental Association. Both the state Democrat and Republican parties support Proposition 52.

The labor union SEIU-UHW was funding opposition to Proposition 52, but the union withdrew its campaign in early September and is now neutral, citing a reassessment of priorities as its reason. The SEIU-UHW was arguing that Proposition 52 would divert billions to the hospital industry on an annual basis without requiring any accountability.

"Our health care dollars should be treating patients, not funding lavish perks for millionaire CEOs,” wrote Virginia Anders-Ellmore, a nurse practitioner, in the official argument against Proposition 52 in the voter guide. “Proposition 52 takes resources from patients and communities and siphons it into the pockets of rich special interests, with no oversight, no accountability and no guarantee it is even spent on health care.”

The California Nurses Association has not taken a position on the measure.


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