Stateline Story

Battle Brews as States Try to Cut Rx Prices

This November California could become the third state to use its muscle to make prescription drugs cheaper for average citizens without insurance.

Californians face two competing proposals on the Nov. 8 ballot that are stirring up a brawl between the pharmaceutical industry and consumer groups over how hard to push drug companies to lower their prices.

The dust-up in California comes after lawmakers and Gov. Arnold Schwarzenegger (R) deadlocked on measures to help the state's residents buy cheaper drugs from Canada. The latest attempt is on the cutting edge of states' efforts to hold down costs of prescription drugs, which, according to the AARP , have risen two to three times faster than the rate of inflation every year since 2000.

Most state efforts to hold down prices focus on medicines the state buys on its own, principally for state employees or Medicaid recipients. But the initiatives in California, like the programs in Ohio and Maine that inspired them, offer benefits to a much broader swath of residents who have trouble paying for prescription drugs.

"Lawmakers around the country are grappling with these same issues, so many people are keeping a close eye on California and the outcome of this initiative battle," said Michael McCauley, a spokesman for Consumers Union, which publishes Consumer Reports magazine and is supporting one of the ballot initiatives.

He predicted that whichever approach California approves likely will be the one other states follow.

Maine, the first state in the country to try the concept, fought the pharmaceutical industry all the way to the U.S. Supreme Court in 2003 before it could roll out its program.

The state's Maine Rx Plus plan allows the uninsured and those with poor coverage to buy prescription drugs at the same price the state pays for its Medicaid recipients. The state now is trying to negotiate even lower prices by threatening to make it harder for customers on Medicaid to get drugs made by companies that don't offer deeper discounts.

When Ohio consumer groups tried to launch a ballot initiative to mimic Maine's program in 2003, the Pharmaceutical Research and Manufacturers Association responded with legal challenges to the petitions in 41 of the state's 88 counties.

Eventually, PhRMA and the consumer groups agreed to a scaled-back version of the Maine plan. The chief difference? Drug companies could choose to participate, but they wouldn't face retaliation from the state if they didn't.

In California this fall, voters can choose to implement a program that works a lot like Maine's or one that's a lot like Ohio's.

Actually, they can also endorse both or reject both, too. If they endorse both, the one that receives the greater amount of support would become law.

So far, PhRMA has spent close to $80 million to encourage Californians to pick the Ohio-style initiative, Proposition 78 , and defeat the competing measure. Consumer groups are working to get the opposite message out despite the industry's advertising blitz and the controversy surrounding a slew of unrelated initiatives also on the November ballot promoted by Schwarzenegger.

Consumers Union  backed the Maine program and is now championing Proposition 79 in California. Several other groups, including labor unions, the AARP and the League of Women Voters are joining in that effort.

They argue that their proposal would cover twice as many Californians as the industry alternative because theirs covers not only people with no drug coverage but those with insufficient coverage as well.

Plus, Proposition 79 includes coverage for Californians earning less than 400 percent of the federal poverty level (roughly $64,000 for a family of three), while the drug companies' plan applies to those making less than 300 percent of the FPL (about $48,000 for a family of three).

The consumer groups also point out that California already tried a voluntary program in 2001 but scrapped it because so few drug companies participated.

McCauley, with Consumers Union, said the pharmaceutical industry introduced its ballot initiative primarily to confuse voters.

But Denise Davis, a PhRMA spokeswoman, said the consumer groups circumvented the legislative process. Lawmakers, drug companies and other interest groups hammered out a proposal nearly identical to Proposition 78 before the consumer groups circulated petitions, she said.

PhRMA's proposal in California is similar in most regards to Ohio's program. Its backers contend that the industry-backed program would offer Californians more immediate benefits because it is on more solid legal footing than Proposition 79.

Plus, the consumer groups' measure "holds Medicaid patients hostage to benefit" middle-class people, Davis argued.

If the consumers' version of the program passed, a lawsuit almost certainly would follow, but that doesn't mean it would succeed, countered Sharon Treat, a former Maine lawmaker who authored that state's program and who is now the director of the Prescription Policy Choices .

A study conducted by Treat's group found that a higher percentage of Mainers took advantage of that state's program than Ohioans. The review also concluded that the Maine initiative offered deeper discounts than the Ohio plan.

But a group that backs PhRMA's plan in California determined that Ohio's mail-order program offered lower prices, on average, than Maine's. Treat claims that's because Ohio's prices tend to be lower to start off with.

There is another key difference between the approaches: how they're funded. Maine and the California consumer measure pay for the administration of the program with general state funds, but Ohio and the PhRMA proposal in California use a small amount of the rebates they negotiate to pay for their expenses.

Treat and Davis, the PhRMA spokeswoman, disagree over whether Maine - or California - would need permission from the federal government to use the "hammer" to force drug companies to offer lower prices. The "hammer" is the provision that would require prior approval of all medicines made by drug companies that don't offer sufficient rebates to the state for its uninsured residents.

Not only has Maine not resorted to that tactic yet, it still hasn't rolled out the discounts based on rebates from drug companies. Treat said consumers will see the lower prices beginning in January. In the meantime, the discounts consumers have seen under Maine Rx Plus, which began in January 2004, have been borne by pharmacists.

"This is just another program by the state that takes money out of the pockets of the pharmacists," said Robert Morrissette, president of the Pharmacy Group of New England, a purchasing group for 190 independent drug stores, including 55 in Maine.

Ohio's program is up and running, but it went to court to try to get more information from the companies that run drug benefit programs for state employees. Ohio Best Rx officials say the data could help them drive prices even lower.

The sides are trying to work out a settlement, but Ohio regulators are looking for other ways to find comparable data, said Jennifer Lopez, the director of Ohio Best Rx.