Banned Aid
Competing propositions are poised to either help low-income patients - or protect pharmaceutical pro
By Idan Ivri
In the best of circumstances, voters should be skeptical when a major industry offers to regulate itself and shrink its profits. But when the most profitable pharmaceutical corporations in the U.S. concoct a regulation specifically designed to defeat another measure on the same ballot, wise voters will be dissecting it under a microscope.
The first thing they'll find is that this week the pharmaceutical industry was poised to break the record for the most cash ever spent supporting a single ballot measure. Its Proposition 78 campaign has already amassed roughly $60 million (the record is $66 million) and there are still three months to go before the governor's special November election.
Prop. 78 supporters are locked in mortal combat against rival measure Proposition 79. Both would set up a system of drug rebates in which the state of California would negotiate bulk prices for its residents. But somewhere in the wide gaps between these measures, billions of dollars in drug profits are at stake - as are the medicine costs to millions of low-income Californians.
In both measures, the state Department of Health Services (DHS) makes a deal with pharmaceutical companies to offer qualified Californians a discount on certain drugs. The companies pay the state, consumers swipe a discount card at their local pharmacy, and the state pays the pharmacists back. Neither program guarantees exactly which drugs will get rebates. And that's basically where the similarities end.
Prop. 78, called Cal-Rx, reads something like the used car contract on a 1976-77 Yugo. It is devoid of accountability or responsibility on the part of the corporations. Essentially, it is a request made by the nation's largest drug companies to please lower their own prices. And, not surprisingly, they are asking themselves very nicely.
There is no requirement that any company make a deal with the rebate program that it creates and no penalty for those that don't. The nominal goal for each rebate would be to offer the drug at its lowest commercial price (which might be around the price that some private HMOs pay for drugs, about 65 percent of wholesale). But not all rebates would go that low, and drugs could be removed from rebate status at any time.
Compared to that, Proposition 79 (creatively called Cal-Rx Plus) comes from another universe. If a company refuses to provide discounts, Prop. 79 arms the DHS with the power to deny that company's drugs access to the fast-growing, $4 billion Medi-Cal drug market the state maintains on behalf of the poorest Californians. And the drug prices that the state would try to secure from companies would be at the level that Medi-Cal or the federal government enjoys (about 50 percent of wholesale) - even lower than the lowest commercial price.
The mere threat of action is an important aspect of Prop. 79. The DHS would not be required to use Medi-Cal against the industry just because a company doesn't provide the perfect rebate on a particular drug. It would simply have the authority to do so.
Prop. 79 is largely funded by labor unions and supported by consumer and senior groups that want bigger discounts. The fundraising Armageddon between these factions and Prop. 78 is a reflection of classic business-versus-union politics. Understandably, Prop. 79 advocates want to cast the net as wide as possible, including people whose total un-reimbursed medical expenses constitute more than five percent of their family income, or who earn less than 400 percent of the federal poverty guidelines (FPG). Prop. 78 provides its discounts, should the companies choose to provide them, up to 300 percent of FPG.
For a family of four in 2005, 400 and 300 percent of FPG are $77,400 and $58,050, respectively. For a single person, the numbers are $38,280 and $28,710. "An enforcement mechanism tied to a 400 percent federal poverty level will never be approved by the federal government," says Denise Davis, spokesperson for Prop. 78's Californians for Affordable Prescriptions. "It provides a benefit to people who make too much money."
Davis argues that tying the poverty assistance of Medi-Cal to people making so much money distorts the original purpose of the program. Homeowners who buy medicine while paying the costs of living in Los Angeles, San Francisco, and San Diego may disagree with her assessment. In any case, Davis makes a legal argument, and there is no guarantee that the courts will agree. In fact, the Maine Rx program which leveraged Medicaid against the industry in that state withstood challenges from the pharmaceutical industry up to the Supreme Court.
Maine Rx has since been replaced by Maine Rx Plus, which provides discounts in a different way. But no federal agency or standing legal decision has ever held that leveraging Medicaid (where Medi-Cal receives its funds) against drug companies is explicitly illegal.
Under Prop. 79, the DHS could employ Medi-Cal to impose "prior authorization" requirements for the drugs of the company being punished. In other words, a physician prescribing medicine to a Medi-Cal patient would be pushed to choose a drug manufactured by a cooperative company unless there was no alternative.
Under this system, the state is able to threaten drug companies to lower prices for a huge group of people by exposing the poorest in the state to a compromise. Theoretically, the threat alone could force the corporations to deal or, failing that, a physician would find an identical substitute. Still, Davis maintains Prop. 79 "puts a bureaucrat in between a physician and a patient in prescribing a drug."
Prop. 79 goes even further. In a blitzkrieg which its supporters may come to regret, Prop. 79 includes a section making it illegal for companies to engage in "profiteering." Quite apart from all the enforcement powers it gives to the DHS, Prop. 79 makes it a crime for corporations to charge an "unconscionable price ... or terms that lead to any unjust or ´´08 unreasonable profit."
The pharmaceutical companies have seized on that paragraph as a source of powerful rhetorical ammunition: "This provision opens the door to the same type of shakedown lawsuits that trial lawyers filed against countless California businesses until ... Proposition 64 [ended] the practice," proclaims the Yes-on-78 campaign website.
Wright says the language on profiteering in Prop. 79 is extremely limited and wouldn't open the door for the type of lawsuits Prop. 64 banned. Still, it begs the question of whether Prop. 79 proponents didn't have enough of a fight on their hands without that provision.
The corporations, in contrast, have been positioning themselves as moderates, saying that Prop. 78 is simply a copy of a bipartisan piece of legislation called SB-19 which was shelved in Sacramento during wrangling over Governor Schwarzenegger's reform agenda. "Last year, Gov. Schwarzenegger asked professionals from the [state] and the drug companies to come to the table," says Davis. "Those folks worked out a voluntary drug program with the intention of getting prices down to the level of Canadian importation, 40 percent off."
SB-19 was introduced on December 6, 2004. At that time, it was like a hybrid of today's Propositions 78 and 79. There was no profiteering provision, but there was Medi-Cal leveraging against companies who would not offer rebates to people at 400 percent of FPG. And those rebates were to be aimed at the government rates, not the lowest commercial price.
But by its most recent amendment on April 18, 2005, SB-19 had been utterly neutered. By then, it had become a voluntary program and looked almost identical to Prop. 78 today. As Schwarzenegger's clout diminished, so did SB-19's chances. On May 4, its hearing was postponed indefinitely.
After SB-19 was shelved, Props. 78 and 79 qualified for the ballot. And opponents of Prop. 78 are convinced the opposing measure it is nothing but an obstruction designed to confuse voters. "Prop 78 was filed a couple of weeks after Prop 79," says Wright. "The entire purpose of 78 is that it is a poison pill to prevent 79 from passing." If Californians vote yes on both propositions, the one with the most votes wins. Either way, pharmaceutical companies are poised to make this one political fight to remember.Published: 08/11/2005
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