State concludes Issue 2 won’t likely result in savings

State Issue 2 is unlikely to result in any savings for Ohio’s Medicaid program, the state’s budget office concluded in a report that appears to call into question claims by supporters that the initiative will save the state hundreds of millions of dollars on prescription drug prices.

Although the report says other programs may see some savings, Medicaid makes up the bulk of the state’s prescription drug spending.

Issue 2, which is on the Nov. 7 ballot, would require that the state pay no more for prescription drugs than the lowest price paid by the U.S. Department of Veteran Affairs.

The state Office of Budget Management is required by law to do a fiscal analysis of all ballot issues that will go before voters in advance of the election. The OBM released its report on Issue 2 Wednesday, saying it was unable to do a full calculation of potential expenditures or savings because there are too many unknowns.

But Medicaid likely wouldn’t see savings, the report concluded, because it is “paying prices for prescription drugs that may already be as low or lower on average than what the VA pays.”

Medicaid accounts for roughly $2 billion of the $2.8 billion spent annually by the programs and departments that would be impacted by Issue 2.

FULL COVERAGE: Helping you understand Ohio Issue 2

Proponents say Issue 2 could save the state up to $400 million annually.

But the OBM report says there is insufficient information available to estimate what the total state savings might be if Issue 2 passes. “The first and most fundamental issue is that VA final prices are often not known,” the report says.

Another problem identified in the report is that the VA and state programs like Medicaid serve very different clientele.

While the VA serves mostly males and many clients over 45 years of age, Medicaid serves a large population of women and children.

“As a result, in many cases there will be no VA equivalent purchase price for drugs that are purchased by the state. In those cases, there would be no potential savings,” the report says.

MORE: What they are saying on both sides of Issue 2

The report also says Issue 2 does not account for drug dispensing costs that the state pays to pharmacies.

“It is important to note that the VA’s cost of filling and dispensing drugs through the VA system is separate from the price it pays for drugs. This is not true, however, for most state programs, which fill and distribute drugs to their recipients through retail pharmacies,” the report says. “Issue 2 ignores this key operational difference in its comparison to VA drug prices. In such cases, any calculation of state savings based solely on VA pricing would overstate potential savings.”

The OBM report also details a number of possible responses from drug companies that could limit savings from Issue 2.

“It is not realistic to assume that static estimates of Issue 2 savings would actually be realized because drug manufacturers are likely to respond in various ways that would limit the savings,” the report says.

The report points to past actions by drug companies. In 1990 when Congress tried to cap prices for Medicaid, drug companies started cancelling discounts to the VA. This resulted in the 1992 law that currently ensures the VA gets a minimum discount.

Manufacturers could offer the lowest VA prices to the state for the drugs both purchase, but then raise prices for drugs not purchased by the VA, the report says. Manufacturers could also refuse to offer the lowest VA prices to the state, since Issue 2 doesn’t mandate what they charge. Or, manufacturers could raise VA drug prices.

Opponents of Issue 2 said this report reiterates many of the points they have been making about the ballot issue.

“The Ohio Budget Director’s analysis confirms that Issue 2 is fundamentally flawed and, if passed by voters, would not achieve the taxpayer savings repeatedly claimed by Issue 2 sponsors,” said Dale Butland spokesman for the No campaign. “Issue 2 could very well increase costs for a majority of Ohio consumers, while reducing access to needed medicines for some of our most vulnerable citizens.”

MORE: Issue 2 forum in Dayton on Thursday

Supporters of the ballot issue pointed out that the budget report said some agencies could see savings.

“We believe the savings can be calculated and we have produced a study that shows the range will most likely fall well within the $400 million a year that Ohio taxpayers will save when we no longer pay the excessive prices charged by big drug companies for medicine,” said Dennis Willard, spokesman for the Yes on Issue 2 campaign.

He said the drug companies funding the opposition campaign would not be spending millions of dollars if Issue 2 didn’t impact their bottom line.

“Ohio voters see through the drug company lies and are going to vote yes on Issue 2 to lower drug prices and save all taxpayers money,” Willard said.


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