NEWS ANALYSIS
Bill would discount drugs for poor
Program could force drugmakers to answer to the government over their pricing policies

California's plan to require pharmaceutical companies to offer discounted medicines to low-income and uninsured residents takes the debate over government intervention in the drug market to a new level.

Earlier this week, Gov. Arnold Schwarzenegger and Democratic leaders in the state Legislature agreed on a program that would penalize drugmakers that fail to offer such discounts by restricting their ability to participate in the state's Medi-Cal program.

California wouldn't be the first state to impose such rules -- Maine has that distinction. But California represents the nation's largest health care market, and its decision to create price incentives, if successful, could prompt other states to follow.

"It's a big step, and made even bigger by the fact it's being taken by the biggest state in the country," said Larry Leavitt, vice president with the Kaiser Family Foundation.

The bill, which was agreed upon Thursday and could reach the state Senate early next week, comes at a time when rising prescription drug costs have prompted politicians to consider a variety of measures to make medicine affordable. Democrats tend to favor controls or subsidies, while Republicans want to promote competition and let market forces keep prices down.

Although the California program doesn't explicitly set up negotiations between drugmakers and state regulators, it would effectively force the companies to answer to the government over their pricing policies.

The Bush administration favors limiting the ability of state or other government units to negotiate drug prices, fearing controls could hinder development of new drugs. Medicare's new prescription drug benefit, for example, prohibits the government from negotiating prices, a point critics say is a major weakness in the program.

"This movement in California could help change the national debate about whether the federal government should negotiate for the best possible price for prescription drugs. That's something clearly being raised in elections around the country," said Anthony Wright, executive director of Health Access, a health advocacy group that supports the bill.

If the questions about a state-run prescription drug program for the uninsured sounds familiar, it should. Last year, voters rejected two propositions that would have offered lower-priced drugs to uninsured Californians.

Confusion about the two measures -- one backed by labor and health care reformers, the other by drugmakers -- in what turned out to be the most expensive initiative battle in the country was blamed in part for the demise of both initiatives.

Drug companies spent more than $80 million to defeat a labor-backed measure, which included a "Medi-Cal hammer" tying continued participation in Medi-Cal with cooperation on discounts. The other measure would have set voluntary standards for drugmakers.

The bill is a hybrid, with features similar to both of the two failed measures. It includes the so-called hammer, but gives drugmakers three years to comply with the law before the penalty is enforced.

Discounts are limited to uninsured people earning three times the federal poverty level, which is lower than what some Democrats and advocates proposed. About 5 million Californians are expected to be eligible.

Despite the compromises, some question whether the program -- if passed into law -- will see the light of day.

Maine's discount drug program was approved in 2000. But drug companies held it up in court. It was finally implemented in 2004. Ohio tried to implement a program with a Medicaid hammer but bowed to legal pressures and made the program voluntary.

John Graham, director of health care studies at the Pacific Research Institute, a free-market think tank in San Francisco, said he expects the drug industry to wage legal warfare if the state tries to restrict manufacturers from the Medi-Cal program.

"Whatever (Schwarzenegger) thinks he's trying to do, it's going to have to wait until the taxpayers spend who knows how much money fighting lawsuits by the pharmaceutical industry," he said.

-- Drugmakers must offer 40 percent discounts for their brand-name drugs and 60 percent for generics.

-- Uninsured people earning up to three times the federal poverty level are eligible.

-- Drug companies that don't offer discounts would be restricted by Medi-Cal.

Source: Chronicle research

Source San Francisco Chronicle