Why doctor and hospital groups are fighting a measure to rein in drug costs

CLEVELAND — In recent years, doctors nationwide have lamented ever-rising drug prices that are limiting patient access to crucial medicines and undermining hospital finances.

But a ballot initiative in Ohio is flipping that script. Several prominent physician and hospital groups are joining pharmaceutical companies to oppose a proposal to rein in drug costs paid by state agencies.

Their reasoning? Drug makers, wholesalers, and pharmacies will actually raise prices on most Ohioans if the state takes a mandatory discount.

The measure, which will appear on the Nov. 7 ballot, is a rehash of an unsuccessful ballot initiative in California to require the state to pay no more for drugs than the discounted rate paid by the federal Veterans Affairs.

Some doctor groups opposed the measure in California, but in Ohio they are playing a more active role.

Read more: Congress isn’t acting to curb drug prices, so states are stepping up. Here’s how

“We have closely examined issue 2, and we know it’s wrong for our patients,” Dr. Robyn Chatman, president of the Ohio State Medical Association, says in a commercial that has run in prime time slots. “Issue 2 won’t reduce your drug costs,” she concludes in the ad. “It will make things worse.”

While the ballot issue would only affect Ohio residents, it would be the first state in the country to implement such a proposal. The alliance between drug companies and doctor groups spotlights the sometimes counterintuitive mechanics of drug pricing amid various fights nationwide to make drugs more affordable. Hospital and doctor groups argue the ballot initiative could have broader consequences for 7 million residents covered by Medicare or private insurance, because those groups might be hit with higher prices from drug companies and other parties trying to recoup losses.

But both the extent of such cost shifting, as well as the amount of potential savings for the state, are difficult to determine — leaving voters to sort through these competing financial motivations with little objective information. Meanwhile, partisans on both sides are filling the void with overheated rhetoric and sharp questions about each other’s motives.

The author of the proposal, AIDS Healthcare Foundation president Michael Weinstein, said the physician and hospital groups opposing the measure are “bought and paid for.”

“How did we get the opioid epidemic to begin with?” Weinstein said. “We got the drug companies pushing these medications and the doctors overprescribing them.”

Weinstein and his supporters at the yes campaign say implementation of his proposal could save Ohio taxpayers $400 million a year.

But opponents argue those savings are illusory. They say that determining the final price paid by Veterans Affairs is impossible, because even though the VA’s mandated 24 percent discounts are public, the final negotiated rates are considered proprietary and kept secret. That means the state has no way of comparing the VA’s actual prices to those paid by the state agencies such as Medicaid, which negotiates its own discounts with drug companies.

But even if the state could determine the VA’s rates, they argue, applying them to agencies like Medicaid is a crude instrument that would spread financial pain throughout the health care system. They said, for example, that the measure could hurt retail pharmacies, especially smaller independent drugstores whose distribution costs would not be recognized under the state’s discounted payment structure.

“This is bad public policy that would be to the detriment of our state and its people,” said Dale Butland, a spokesman for the no campaign who previously worked as chief of staff to former Ohio Sen. John Glenn.

Complex politics

The no campaign’s assortment of bedfellows reveals some of the complex politics at play in the U.S. health care system.

For starters, the opposition is almost entirely funded by the pharmaceutical industry. PhRMA, the industry’s main lobbying arm, created a wholly owned subsidiary that had donated nearly $16 million as of July, and that number has grown considerably in recent months. Weinstein’s nonprofit had spent about $3.7 through July, according to state records, and is also continuing to invest in the campaign.

PhRMA’s use of a subsidiary shields the identity of the individual drug makers donating to the no campaign. Only a couple firms, Biogen of Massachusetts and California-based Amgen, have disclosed contributions.

Meanwhile, the industry has recruited a large group of stakeholders to be the public face of its efforts, including veterans and labor groups, and three former state Medicaid directors who have argued against the proposal.

One of the former directors, John McCarthy, acknowledged that he is being paid to advocate against the proposal. But he said his opposition is based on a belief that it is a deceptive ballot question that would not deliver relief from high prices.

“It’s so easy to stand on a corner and say to somebody, ‘Don’t you want lower drug prices?’” McCarthy said. “It’s an actual lie. It doesn’t give people lower drug prices.”

Read more: Is pharma hiding ‘dark money’ to fight an Ohio measure to lower drug prices?

He noted that under Medicaid, beneficiaries would be required to make the same copay and would not directly benefit from any price reductions. So the only savings would be to taxpayers, which he said are a fraction of what supporters are forecasting.

The Ohio Office of Budget and Management determined that some state agencies could save money from the ballot proposals, but it is impossible to accurately predict how much.

Meanwhile, the state’s physician and hospital groups are mostly joining on to the arguments of the no campaign. In public, the Ohio State Medical Association has emphasized the cost shifting argument, suggesting that pharmaceutical companies would react to the measure’s passage by hiking prices on everyone else. Opponents have also said that hospitals and physicians could face lower reimbursements from the state for drugs they administer to Medicaid patients, causing steeper losses on treating those patients.

The medical association did not respond to requests for details about how the measure could impact physicians financially.

The Ohio Hospital Association is also opposing the measure. A spokesman for the agency said its trustees voted to join the no campaign after receiving a presentation from McCarthy last summer.

The spokesman, John Palmer, said in a statement that the ballot initiative is problematic because Veterans Affairs covers fewer drugs than Medicaid, which means the discounts would only apply to a subset of the drugs purchased by the state. The ballot proposal does not address how the state would handle purchasing drugs not included on the VA’s formulary.

“If the ballot issue passes, reduced access could also be a major problem for thousands of other Ohioans who obtain their prescription drugs through state programs,” Palmer said in a statement, adding that affected groups could include state government employees and retirees, prisoners, and employees of state colleges and universities.

Weinstein said pharmaceutical companies and their supporters are simply trying to create as much confusion as possible to convince voters to turn against the measure.

“Their whole campaign is to hide,” Weinstein said. “They know that people hate them. And for an industry that does save lives, for them to be hated as much as tobacco — you have to work overtime to get people to hate you that much.”