The U.S. Department of Health and Human Services approval yesterday of a five-state prescription drug purchasing pool designed to negotiate bulk discounts with pharmaceutical companies should clear the way for a similar proposal being debated in the California legislature according to the Foundation for Taxpayer and Consumer Rights.
Bulk purchasing of pharmaceuticals is attracting growing support around the country as states look for effective strategies to control skyrocketing prescription drug costs. Yesterday's announcement contradicts the Bush Administration's ban on bulk buying in the recent law providing a Medicare prescription drug benefit.
On Tuesday, a California Assembly legislative committee supported a new proposal, AB 1958 (Frommer, D - L.A.), which allows any patient or business to join the state's existing prescription drug bulk purchasing pool operated by the California Public Employees Retirement System (CalPERS). Currently, CalPERS negotiates discounts on prescription drugs for state employees, legislators and the governor. By combining the purchasing power of consumers and small business owners, CalPERS could achieve deeper savings, thus reducing state budget expenditures, and allow individual patients and business owners to benefit from state's bulk discounts.
"All Californians should have access to same prescription drug discounts provided to legislators and the governor," said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. "Bulk buying of prescription drugs allows California to flex its buying power and negotiate deep discounts with drug companies."
Large bulk purchasers, like HMOs and the U.S. Department of Veteran Affairs, are able to negotiate bulk discounts of 30-50% off the list price of prescription drugs. Since 1999, more than a dozen states have implemented or promoted bulk purchasing.
Bulk purchasing has been used in California to save the state money on the purchase of prescription drugs since the passage of a 2001 law (SB 1315) which directed the Department of General Services (DGS) to purchase prescription drugs on behalf of four state agencies: the Department of Mental Health, the Department of Youth Authority, the Department of Developmental Services, and the Department of Corrections. To date, DGS has completed negotiated bids for a single therapeutic class of drugs, atypical anti-psychotics, and expects to save 7%, or $4.2 million, off previous rates.
The five states in the purchasing pool (Alaska, Michigan, Nevada, New Hampshire and Vermont) are coming together to purchase prescription drugs for state Medicaid programs which provide health benefits for the poor and disabled. The 5 state pool is expected to save $12 million or more in the first year. AB 1958 has an even larger savings potential according to the Foundation for Taxpayer and Consumer Rights because the bill would allow any of California's 35 million residents to join.
Pharmaceutical companies have opposed large buying pools because when consumers band together the drug companies are forced to provide lower cost drugs which means lower profits. The pharmaceutical industry is the most profitable in the world -- drug industry profits are five times that of the average Fortune 500 company.
In a new report, "Crisis and Opportunity: Forging a Universal Health Care Consensus," the Foundation for Taxpayer and Consumer Rights sets forth three model cost-control laws and a model ballot initiative. The laws are designed to address the immediate crisis: affordability. FTCR proposes bulk purchasing of prescription drugs, regulating health insurer premiums, and stabilizing hospital markets. The report, which also includes patients' stories, may be downloaded at: http://CalHealthConsensus.org