A community member has been asking for my opinion on Ohio Issue 2. This is a referandum question that is a near clone of Prop 61 in California. Ohio’s state government would be required to pay no more than Veteran Administration prices for any drug that the VA gets. This would lead to pass through savings on Medicaid, state employee, state retiree and a few other plans. Let me repurpose most of my California post as my thoughts have not changed.
The basic thrust of the proposition would be to effectively make the VA the proxy price negotiator for a significant chunk of
CaliforniaOhio prescription drug budget. CaliforniaOhio could probably get away with this because it is a huge market and it has the ability to significantly move stock prices if it shifted all purchases in one category to a single company instead of seven manufacturers. It actually has some market power. That market power is why the Pharma industry opposed the measure. Pharma probably would not have spent $100 million dollars to oppose a similar initiative in Wyoming.
We have to ask ourselves why does the VA get such good pricing on their drugs?
They have decent size although there are several pharmacy benefit managers with much larger patient pools.
They benefit from the federal law that mandates a list price discount but that does not explain their superior pricing to Medicare’s drugs.
The VA gets good drug pricing because they say no…
The initiative would have put into place a massive implicit system of NO. That NO would create a significant set of diffused winners (
CaliforniaOhio tax payers), a small set of concentrated winners ( CaliforniaOhio funded beneficiaries who currently take drugs that would be on the narrow formulary at lower prices), a large set of somewhat diffuse losers (beneficiaries who would either have to change drugs or pay higher co-insurance for current drugs) and a narrow set of concentrated losers (Pharma as they won’t extract as much money from CaliforniaOhioin economic and intellectual property rents). That is a nasty political balance of power that implies a close election which is what we got.
Is this an experiment that other states could push forward on? I think it is. The biggest challenge may be getting the VA to be the lead negotiator for drug classes that their population does not use or does not use in large quantities even as the states’ impacted population uses those drugs in large numbers. I am not a clinician but I would think some pediatric drugs would fit into this category of concern. The VA might be willing to take on this role as it could significantly increase the market power of the VA negoatiators as they would have millions of more covered lives to credibly threaten to move to a different drugmaker unless they get a better deal.