Biotech and Pharma

Doctors spar over passing a California proposition on drug price relief

Drug Price Relief Act battle

Two doctors clashed Tuesday afternoon over their stances on California's Proposition 61, a referendum that would require state agencies to get the same discount on drugs as the Department of Veteran Affairs.

The proposition is shaping up to be one of the most expensive ballot initiatives in California history with a record $120 million contributed. A majority of the contributions oppose the vote with Merck, Pfizer and Johnson & Johnson among the biggest donors.

Scott Gottlieb, a physician and resident fellow at the American Enterprise Institute, told CNBC's "Closing Bell" that he opposes the measure because "it is an impractical solution to a real challenge in the market place" and claims that there are "too many aspects of our drug market place that really lack the kind of competition we would expect."

Zeke Emanuel, the Vice Provost for Global Initiatives at the University of Pennsylvania, countered those statements saying that the reason "we don't have a lot of competition in many areas is in part because the government is giving the drug companies monopolies through patents, FDA and marketing exclusivity, without regulation of their prices and they are exploiting that monopoly power."

The issue has gained traction since Sen. Bernie Sanders, a proponent for the proposition, tweeted earlier, criticizing the pricing of Eli Lilly's Humalog insulin, citing a Washington Post story and blaming "the drug industry's greed." As a result, Eli Lilly shares dipped more than 1.5 percent on Tuesday.

However, Emanuel also acknowledged weaknesses in the proposal, but ultimately believed it's crucial that the proposition passes to send a political message to drug companies about their prices.

"This proposal linking the state payment to the V.A. is less than optimal, because it leaves off most people who are not in the state programs, and for those who are getting private insurance, the price could rise for them," Emanuel said. "But politically it is important to send the message to the drug companies that their prices are unacceptable."

Gottlieb continued his argument for opposing the proposition, saying that the real problem is different prices reported for the market place.

"There is a problem with the growing gap between list price and the actual real price in the market place. It is not the insurance company's fault that the list prices are going up, but more consumers are paying the list price because they find themselves underinsured for drugs. They are paying out of pocket," Gottlieb said. "One thing we can do is change rules to allow drug companies to provide discounts up front rather than having to provide discounts in the form of back ended rebates which don't necessarily benefit consumers. That is a failure of the marketplace."

While Emanuel didn't agree that the market place would fix the fundamental problem of drug pricing, he agreed that insurance companies are not to blame for the drug prices and emphasized transparency on actual drug prices.

"The insurance companies are trying to protect the commons in this case and drug companies are trying to maximize their profits," Emanuel said. "It would be nice to have more transparency into what the actual prices are. The drug companies control that. But they prefer the shadow game so that they can claim the list price is not the real price and play all of these parties off against each other."

If the measure passes, state agencies would be required to comply by July 1, 2017.

The critical vote for the proposition will occur on Election Day, November 8.