Political Hay

California Drug Trip

Proposition 79 is likely to lose tomorrow -- but it's yet another effort by the left to bring "cheaper" drugs to consumers and new bonanzas for pharmaceutical-suing trial lawyers.

By 11.6.05

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Although it is Governor Arnold Schwarzenegger's ballot initiatives that are garnering most of the press attention nationwide, there is another that has big implications for the future of prescription drugs. Promoted by the leftist Consumer Union of the U.S. and the California union-coalition Alliance for a Better California, Proposition 79 does not seem likely to prevail at the polls tomorrow. Nevertheless, it provides considerable insight into how the political left wants to control the pharmaceutical industry.

Entitled the "Cheaper Prescription Drugs For California Act," it establishes a new program called Cal Rx Plus. Cal Rx Plus will impose drug price controls: a pharmaceutical company must offer Cal Rx Plus the same price for its drugs that it offers to Medi-Cal, California's Medicaid program. If the pharmaceutical company refuses? Then Medi-Cal is forbidden from entering into a contract or renewing a current contract with the pharmaceutical company. Of course, if a pharmaceutical company decides that the revenue lost from the Cal Rx Plus price control is not worth staying in the Medi-Cal program, then Medicaid patients will have a harder time purchasing needed drugs. Apparently, that is worth the risk if it means forcing the pharmaceutical companies to charge a price that the political left approves of.

The beneficiaries of these "lower cost" drugs will be any California resident "whose total unreimbursed medical expenses equal 5 percent or more of family income," and whose family income is "equal to or less than 400 percent of the federal poverty" level. That equals about $38,000 in income for an individual and $77,000 for a family. Since people at those income levels are not poor, Proposition 79 in effect creates a middle-class entitlement. And how stringent is the income requirement? Well, the left is very generous on that point: "In assessing the income requirement or Cal Rx Plus eligibility, the department [of Health Services] shall use the income information reported on the application and not require additional documentation." A recipe for fraud is not the only unintended consequence that will result if Proposition 79 passes. Indeed, the third paragraph of the measure suggest that its proponents recognize this:

It is not the intention of the State to discourage employers from offering or paying for prescription drug benefit plans for their employees or to replace employer-sponsored prescription drug benefit plans that provide benefits comparable to those made available to qualified California residents under this program.

In other words, the authors of Proposition 79 hope that employers won't reduce their insurance costs by dumping their employees' drug costs onto Cal Rx Plus. As usual, don't judge the left by their results, but by their intentions.

Not surprisingly, Proposition 79 also creates more bureaucracy by establishing a "Prescription Drug Advisory Board." Its purpose is to "review access to and the pricing of prescription drugs" for Californians and provide periodic reports to state officials. And no employee of a pharmaceutical company -- i.e. those who have experience producing drugs -- may be on the Board.

So what happens if a pharmaceutical company decides that participation in this is not worth it? Well, such companies can still be brought to heel, for Proposition 79 states that "profiteering in prescription drugs is unlawful," profiteering being defined as "an unconscionable price," or "terms that lead to any unjust or unreasonable profit." What are an unconscionable price or an unjust or unreasonable profit? Proposition 79 doesn't define them, but you can be sure that trial lawyers will know them when they see them. And a pharmaceutical company can forget about avoiding this mess by pulling out of California altogether: Proposition 79 states that illegal profiteering also occurs if a pharmaceutical company "intentionally prevent, limits, lessens or restricts the sale or distribution of prescription drugs in [California] in retaliation for the provisions of" the section on profiteering.

Fortunately, passage of Proposition 79 seems unlikely. A recent Field Poll showed it losing by six points, and a Los Angeles Times poll showed it down by seventeen. Furthermore, the pharmaceutical companies have put forward their own measure, Proposition 78, which would make participation in a Cal Rx Plus-like program voluntary. Although the polls also suggest that the Proposition 78 will go down to defeat, that may be the intent. In California, one can defeat a proposition by putting a similar measure on the ballot. Voters become confused and vote against both propositions.

Combined with the bill recently passed by the Washington, D.C. City Council that is similar to Proposition 78, we now know the model that the left wants to apply to pharmaceutical companies: price controls, middle-class entitlement, bureaucracy, and trial lawyers. You might object that model is no different from the one the left brings to most every other political issue. And you'd be right.

David Hogberg is a senior research analyst at the Capital Research Center. He also hosts his own website, Hog Haven.

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David Hogberg is a senior fellow at the National Center for Public Policy Research.  Follow David Hogberg on Twitter.