Regulation over Markets (or More Regulation on Regulation): California’s Initiative on Pharmaceutical Pricing

In California, there are basically at least two ways to create a law.  The first is the traditional route through the legislature with the Governor’s signature.  The second is through the initiative process.  Essentially, an initiative proposal with a certain number of voter signatures can be added to a ballot that the electorate will vote on—think direct democracy.  This process allows a bypass around the legislature and the Governor, and allows voters to, for the most part, enact laws.  According to the Sacramento Bee, the California Drug Price Relief Act has garnered enough signatures to be placed on the November ballot.  The Act will require that the State (so eventually retirees, prisoners, low income folks etc) receive the same price for pharmaceuticals that will be paid by the U.S. Department of Veterans Affairs.  The article reports that proponents of the Act state that this will lead to significantly lower prices for pharmaceuticals and cost savings for the state government.  The pharmaceutical industry has raised a significant amount of money to oppose the measure.  However, even without a lot of money to support it, I think the pharmaceutical industry will lose on this.  Given the level of current poor press about pharmaceutical pricing from the recent concern about generic pricing to the pricing for Myriad’s breast cancer screening test (here), I don’t think there is much public sympathy for the pharmaceutical industry right now.  Also, an argument that "we will raise the prices on veterans" is--not surprisingly--going to go over very badly.  Interestingly, the article notes that there is a chance that the pharmaceutical industry could reach a deal with the proponents of the initiative to withdraw the initiative for concessions on a negotiated bill at the state legislature.  That may be the pharmaceutical industry’s best option at this point.