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DTC in Perspective: California Prop 61 A Dangerous Remedy

October 14, 2016 by Bob Ehrlich0

In an attempt to mandate lower drug prices California is asking voters to mandate state agencies pay no higher than the Veterans Administration (VA) rate. The VA gets lower negotiated rates than most other payers by as much as 40%. The VA has a formulary and dictates the prices it will pay. Proponents of Prop 61 say it will lower drug prices because it says drug companies can only receive the lower VA price.

Bob Ehrlich
“Price controls rarely work in practice”
-Bob Ehrlich

It sounds nice but price controls rarely work in practice. Drug companies do not have to sell to anyone. They may just decide the VA price is just too low to justify the sale. Californians may miss out on those newer drugs that drug companies refuse to sell them at the VA price. The VA because it negotiates these low prices does not provide veterans with many of the newest drugs.

Drug companies may face this type of bill in other states. That means they may decide not to sell to the VA at current prices because they know it is the new benchmark used by the states. Therefore, they may play hardball with the VA and thus veterans may not even get the drugs on the current formulary.

Drug price controls sound great but proponents think that they can dictate prices to drug companies and nothing will change. Drug companies will respond by refusing to sell at government mandated prices, or try to raise prices elsewhere to compensate. Anytime the government tries to mess with free market prices problems arise in supply. Liberals, who usually have never run a business, seem to think that the profit motive is ethically wrong. They feel they can decide what a company should make in profit.

Maybe some drug companies will sell California its drugs at VA prices. Many will just forgo the sale knowing the slippery slope they face in other states if they cave to California. Citizens have legitimate concerns over drug prices but price controls have unintended consequences that will reduce choice for those citizens. Prop 61 may pass but it will not be good for Californians when they see newer drugs are no longer sold to them at mandated bargain prices.

Bob Ehrlich


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