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Support for California drug spending limits stokes industry fears

| LOS ANGELES

LOS ANGELES Oct 5 A California ballot measure to limit prescription drug prices for state-run health plans is gaining popular backing, stoking industry concerns over attempts to control costs nationwide.

The California Drug Price Relief Act, also known as Proposition 61, seeks to limit state health programs from paying more for medications than the U.S. Department of Veterans Affairs (VA), which receives the steepest discounts in the country. The first polls ahead of the Nov. 8 vote show it is favored by up to 66 percent of state voters.

If the VA prices became a benchmark for many more Americans, "that could lead to a slippery slope whereby lawmakers are emboldened to try and enact other legislation for Medicare or other price negotiation strategies" nationally, said Michael Yee, health industry analyst at RBC Capital Markets.

Yee estimates that pricing limits like Proposition 61, if approved by all 50 states, would trim 2 percent to 3 percent from total pharmaceutical company profits. A similar measure will go before Ohio voters on the 2017 state-wide ballot.

The looming vote on "Prop 61" has begun to rattle healthcare investors, contributing to a sell-off in healthcare stocks late last week. The industry has been dogged by concerns that the government will seek new limits on pharmaceutical pricing, boosted by public anger over rising out-of-pocket costs for their medicines.

Democratic presidential candidate Hillary Clinton has accused drugmakers of "price-gouging" and pledged to cap consumers' monthly spending, among other measures.

Recognizing the potential threat in California, opponents of the initiative, led by global drugmakers such as Pfizer Inc , Merck & Co Inc and Amgen Inc, say they have raised nearly $87 million to fight Proposition 61.

Supporters, led by the AIDS Healthcare Foundation and AARP, which advocates for seniors, have raised around $10 million to defend it. The say the plan could save California taxpayers up to $5.7 billion over 10 years, although a state legislative analysis said the financial impact is not clear.

DRUGMAKER RESPONSE

Much depends on whether drugmakers would either reduce discounts provided to the VA, or raise list prices on their medicines to recoup lost revenue.

Manufacturers contacted by Reuters would not comment on their plans if Proposition 61 is approved. Kathy Fairbanks, spokeswomen for the "No on Prop 61" organization, said the measure's passage would "jeopardize" discretionary price discounts that pharmaceutical manufacturers give to the VA.

"This is not free savings and the pharmaceutical industry will just eat the cost," said Geoffrey Joyce, director of health policy at the University of Southern California's Schaeffer Center for Health Policy and Economics. "Prices will go up somewhere else."

In a brief released last month by California's legislature, the VA warned that its annual costs could rise as much as $3.8 billion if drugmakers cancel supplemental discounts and raise prices significantly higher when supply contracts expire.

That would represent a 62 percent increase on the agency's drug spending, spokeswoman Sabrina Owns told Reuters in an email.

Under federal law, drugmakers are required to give the VA a 24 percent discount off the price paid by other purchasers. The agency also negotiates with drugmakers for further discounts.

The VA spends some $6.1 billion a year on medicines for 6 million veterans. Proposition 61 would extend those discounts to around 4.5 million Californians, including certain members of the state's low-income Medicaid plan, state employees and retirees, university teachers and prisoners.

The group "Yes on Prop 61," which represents the AIDS Healthcare Foundation and other backers, says the pharmaceutical industry would risk further damage to its reputation by raising prices for the VA.

Both sides have launched ad campaigns featuring veterans as advocates for their respective arguments.

On the "no" side, veterans say they are worried about being asked to pay more for drug coverage, while ads from the "yes" camp say much of the VA's price discounts are mandated by federal law, and any price increases would represent a choice by the drugmakers.

"What does it say about the drug companies if they are threatening men and women who have served in the military?" said Garry South, chief strategist for Yes on Prop 61. "The pharmaceutical companies' biggest fear is if this passes in California ... every other state in America will demand the same discounts." (Reporting by Deena Beasley; Editing by Michele Gershberg, Bernard Orr)

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