Proposition 61 was losing with just 46 percent of the vote Wednesday morning, with more than 90 percent of precincts reporting.
The ballot measure was narrowly constructed and would have applied to an estimated 4.4 million people. Still, it had attracted national attention and $109 million in opposition funding, led by the pharmaceutical industry.
It was, in many ways, a test of Sen. Bernie Sanders's (I-Vt.) sway and of the viability of a key piece of his agenda, which has involved repeated attacks on the pharmaceutical industry over drug pricing. He appeared at last-minute rallies in Sacramento and Los Angeles on Monday to support the measure, called Proposition 61.
Both presidential candidates have expressed concern about high drug prices, and the industry has been preparing to defend its business model next year against possible price controls or other interventions.
Donald Trump has said Medicare should be able to bargain on drug prices and his health plan calls for importation of drugs and removal of "barriers to entry" for safe drugs. But much remains unclear about his agenda and the viability of any actions, particularly with a Republican Congress.
There was little agreement on how much -- or even if -- the measure would save California money, in large part because no one was sure how the pharmaceutical industry would respond. For example, if drug companies were forced to extend deeper discounts to a larger swath of people, they could jack up their prices -- charging veterans, or potentially even the broader public, more for its drugs. If the state agencies weren't able to secure deep enough discounts from drugmakers to comply, certain drugs would simply not be available to sick people.
Drug companies argued that the deal was bad for patients and launched an aggressive campaign against the measure, a message that ultimately won out.
A nonpartisan state agency that provides guidance on fiscal issues had been unable to say how much the measure would save the state, providing an estimate that ranged from "relatively little effect to significant annual savings" in its analysis. But, it noted that if the state's prescription drug spending were lowered even a few percent, there could be "savings in the high tens of millions of dollars annually."
An analysis in the British Medical Journal of the likely impact on the top 200 drugs in the Medi-Cal fee-for-service program, which made up a little more than half of that program's $1.8 billion drug spending in 2014. The analysis found that the budget impact could be $100 to $125 million on the drugs.