Propositions 78 and 79: Rival plans target pain of uninsured
By Clea Benson -- Bee Capitol Bureau

Friday, October 14, 2005

Here's what you need to know about Propositions 78 and 79, the drug-discount measures that may end up being at the center of the most expensive ballot initiative campaign in history:

Drug companies are prepared to spend $80 million to persuade voters to approve 78 and defeat 79. Consumer groups, waging a low-budget campaign with mere tens of thousands of dollars, are supporting 79 and opposing 78.

That's just the condensed version of another complex issue facing voters on the Nov. 8 California ballot.

Legal and economic factors also make it unclear whether either program would end up delivering deep discounts.

"Clearly, these are one step," said Bob Stern, president of the Center for Governmental Studies in Los Angeles. "They only affect between 11 and 28 percent of Californians, and everybody is feeling the squeeze."

Both propositions would set up state programs to issue discount cards to eligible consumers. But they are very different.

Proposition 79 would allow the state to punish companies financially if they failed to cut prices for the uninsured. Manufacturer participation under Proposition 78 would be voluntary.

Proposition 79 would also allow Californians to sue pharmaceutical makers for charging excessive prices.

And it would affect more people: low-and middle-income Californians without insurance and those with extremely high medical costs. Proposition 78 would apply only to poorer people who are uninsured or on Medicare.

Consumer groups, including the nonprofit publisher of Consumer Reports magazine, argue that Proposition 79 is most likely to offer the best discounts, in part because drug companies will lose sales to the state's health-insurance program for the poor and disabled if they don't comply.

The state spends about $4 billion on drugs every year for the 6 million recipients of Medi-Cal, California's version of the federal Medicaid program. Under 79, if companies did not participate in the discount program for the uninsured, their products could be dropped from the list of drugs that doctors can prescribe to Medi-Cal patients without prior authorization from the state.

Drug companies believe requiring permission for Medi-Cal patients to get certain drugs would cut into their overall sales because doctors gravitate toward prescribing products that don't need authorization and also tend to recommend the same brands for all of their patients.

"Without using the state's purchasing power, the drug companies have no incentive to provide discounted prices at all," said Anthony Wright, director of Health Access, a nonprofit group that is behind Proposition 79. "Only with the influence of the $4 billion the state buys in prescription drugs will the drug companies come to the table and provide a discount that millions of Californians need."

But the drug industry, which has been battling in court to stop a similar program in Maine, argues that the punishment is legally unenforceable. So far, Maine has not threatened any pharmaceutical makers with the loss of state business, so the courts have not issued a final ruling on the practice. But if a state does take enforcement action, there could be another lawsuit.

There is one area where all sides agree: Uninsured Californians are at a big disadvantage when they walk into a pharmacy.

Health-care plans and government agencies buy large quantities of drugs at secret negotiated prices, getting a big markdown from the public retail price.

But an uninsured consumer pays the sticker price. On top of that, those consumers pay the entire amount themselves, without benefit of an insurance company picking up part of the tab.

Catherine McNair, 53, of Newport Beach knows firsthand the difficulty of paying for drugs without good insurance coverage. McNair, who had two organ transplants following complications from childhood diabetes, said she spends about $15,000 annually on two immunosuppressant drugs. She and her husband, a manufacturing engineer, are paying for her prescriptions with a home equity loan.

McNair, who had to quit her job when she became disabled, said she was told her husband's insurance wouldn't cover the brands of drugs she needs. She gets only about an 11 percent discount through Medicare, she said.

"I worked for almost 30 years in information technology and health care," McNair said. "I never thought the system was rotten, but now I do."

McNair would be eligible for discounts under Proposition 79, which would cover people who spend more than 5 percent of their income on health care as well as the uninsured. Drug prices under the Proposition 79 program would be similar to the rate for Medi-Cal patients.

McNair would not be eligible for price breaks under Proposition 78 because her family income is too high. For people who were eligible, the state would try to negotiate prices similar to the best rate drug companies give to health plans or other private buyers, though there would be no penalty for pharmaceutical makers that chose not to participate.

Drug companies say the only program that will work right away is one that allows them to participate voluntarily. They interpret recent court rulings to mean that states must get federal approval before using their Medicaid programs as leverage. Consumer groups dispute that interpretation.

"Proposition 78 can be implemented immediately without federal approval," said Jan Faiks, a lawyer for the Pharmaceutical Research and Manufacturers Association. "Proposition 79 must have federal approval before it can be implemented. ... What pharmaceutical companies are trying to do is help design a program we know will work to help bring costs down to people we know who need it."

Much is at stake for drug companies, which is why they are prepared to approach records for spending on an initiative campaign. The previous record was $74 million, which insurance companies spent in their unsuccessful 1988 bid to defeat the rate rollbacks in Proposition 103. (In today's dollars, that comes to $122 million, still more than the nearly $80 million drug companies have raised.)

Drug companies are concerned that if California enacts a discount program with an enforcement mechanism, other states will follow, said Stern, whose organization is tracking the issue on a Web site, healthvote.org.

"They're worried that 79 would be the second step after Maine in terms of states starting to regulate this area," he said. "If they can defeat it in California, I think they feel they can defeat it anywhere. The fear is that it will snowball and keep on going."

That's not the only thing that worries pharmaceutical makers: They also oppose the Proposition 79 provision allowing Californians to sue for excessive pricing.

If citizens were able to file lawsuits over drug costs, it could "seriously damage the pharmaceutical industry," Faiks said.

These two initiatives are just the latest step in a long-running political battle over drug prices in California.

Last year, consumer groups and Democrats tried to pass legislation making it easier for Californians to get their prescriptions from Canada, where drugs cost an average of 40 percent less than they do in the United States. The Canadian government limits what drug makers can charge for brand-name prescriptions.

But Gov. Arnold Schwarzenegger vetoed those bills, saying they would violate federal law against drug imports.

Schwarzenegger said he would come up with an alternative to help Californians pay less for prescriptions. So in January, Schwarzenegger and the drug industry unveiled SB 19, a bill virtually identical to Proposition 78.

Democrats refused to approve that measure. Meanwhile, Democrats and consumer groups placed Proposition 79 on the ballot and drug companies put Proposition 78 on the ballot to compete with it.

Even if both measures pass, the one that gets the most votes will win.

Propositions 78 and 79