COLUMBUS, Ohio -- Ohioans have pushed a mandate onto this fall’s ballot that aims to rein in the skyrocketing costs of prescription drugs. But determining the exact savings it would bring is no easy task.
On paper, Issue 2 sounds simple. The citizen-initiated statute would bar state entities from buying drugs at prices higher than those paid by the U.S. Department of Veterans Affairs, which receives deep discounts.
Yet an Associated Press review reveals significant unanswered questions surrounding the Ohio Drug Price Relief Act. Even the state budget office is apparently struggling for definitive answers as it prepares a required analysis due out next month. A closer look at some of the sticking points:
What's a 'state entity'?
Proponents of the act use a broad definition of what constitutes a “state entity” to estimate the act’s potential savings. Opponents use an even broader definition to show how far reaching the act is. Which agencies you count can significantly change the numbers.
The proponent campaign, Ohio Taxpayers for Lower Drug Prices, for example, appeared to include Ohio’s five public pension funds when calculating annual savings of up to $526 million. At least some of the pension funds say their lawyers don’t believe they would be subject to the act.
Including the pensions’ heavy prescription spending could have inflated the savings estimate.
A PhRMA analysis cited by the opponent campaign, Ohioans Against the Deceptive Rx Ballot Issue, meanwhile, suggests the impact of the act could extend to a host of “non-targeted” government entities. Those include city and county health departments, state colleges and universities, even the average of 41,000 patients being treated at Ohio State University’s Wexner Medical Center.
Analysts say there’s no telling how agencies will respond.
Dale Butland, a spokesman for opponents, predicts: “This is going to be a giant magnet for lawsuits. You’ll have people suing over are we in, are we out.”
How low is 'lowest'?
Supporters and opponents disagree on how difficult it would be to match the “lowest price” paid by Veterans Affairs, with backers of the act arguing it is relatively straightforward, and opponents suggesting that calculating the figure is next to impossible.
A VA spokeswoman said some ceiling prices are set by law, others are set in the VA’s national contract and others are unilaterally offered by vendors.
The proponent analysis, conducted by Vorys Health Care Advisors, notes that Medicaid -- at roughly 3 million patients and $1.5 billion in pharmacy purchases a year -- already receives discounts through the federal rebate program. The report suggests passage of the act could jeopardize those existing rebates while adding significant administrative costs.
In a report released by proponents, Case Western Reserve law professor Maxwell Mehlman contends Medicaid would pay the net price after the federal pass-through if the act passes, which is less than it’s paying now.
John Hanna, director of pharmacy services for the Ohio Bureau of Workers’ Compensation, wonders how his agency would comply when it has no direct influence over drug prices. He says the bureau and VA systems are “apples and kumquats”
“They buy the drugs directly in warehouse quantities, and then on top of straight volume discounts they’re eligible for rebates,” he said. “In our situation, we do not operate pharmacies, we do not talk to a drug manufacturer about the cost of their drug. We don’t negotiate directly for anything involving the prescriptions, other than to negotiate our fee with our pharmacy benefit manager.”
Proponents argue state leaders could hash out such details during the implementation phase of the new law.
A major hurdle in determining whether the act can lead to the price relief it promises is predicting how drug companies will respond.
The scenario envisioned by proponents, who lost a similar battle last year in California, is that compelling major drug purchasers like states to demand lower prices will begin the downward pressure necessary for long-term change.
The analysis by PhRMA, representing drugmakers, concludes the act is unworkable, won’t achieve its purpose and could have sweeping unintended consequences, including forcing drug prices both in Ohio and at the VA higher due to “cost-shifting across the supply chain as manufacturers, wholesalers, and pharmacies attempt to response to the state seeking deeper price concessions.”
Matt Borges, a spokesman for the yes campaign, says the pharmaceutical industry wouldn’t be fighting the issue so hard if it believed the discounts weren’t achievable.
“This is the exact reason why the drug companies are fighting this reform, because of the ripple effect they know it would have through the marketplace,” he said.