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Other States’ Experiences Raise Questions, Offer Examples for California Proposals To Address Medication Costs

Some critics say Gov. Arnold Schwarzenegger’s (R) proposal to help low-income residents without prescription drug coverage get lower-cost medications will fail because it relies on voluntary discounts from the pharmaceutical industry. But policymakers involved with similar programs in Maine and Ohio say that a voluntary plan could work if it’s linked to another California program.

Schwarzenegger’s plan, called California Rx, would help eligible residents save an estimated 40% on retail prices for medications with pharmacies and drug manufacturers sharing the cost of the discount, according to the Health and Human Services Agency.

In his fiscal year 2005-2006 state budget proposal, Schwarzenegger requested $4 million for Cal Rx, for which an estimated five million California residents would be eligible. State residents without prescription drug coverage whose annual incomes don’t exceed 300% of the federal poverty level would be eligible for the program.

The Maine Example

Maine has been a model for other states working on similar programs in part because of its legal struggles. The state launched Maine Rx Plus in January 2004 after being delayed by court battles with the Pharmaceutical Research and Manufacturers of America.

Initially, Maine wanted to provide discounts on medications to all residents without drug coverage, regardless of income. Maine Rx, the state’s first attempt at a drug discount program, would have given the state authority to negotiate discounts with drug companies equal to or larger than those set by federal law for the Medicaid program. The state would have been permitted to penalize companies that did not offer such rebates by requiring physicians to receive state approval before prescribing those companies’ medications to Medicaid beneficiaries.

The case went all the way to the U.S. Supreme Court, which in May 2003 ruled in Maine’s favor but raised questions about how the program was structured, including the absence of income restrictions. As a result, Maine Gov. John Baldacci (D) dropped plans to implement Maine Rx and instead received approval from the state Legislature to implement Maine Rx Plus, which includes income eligibility limits.

Almost one-fourth of the state’s total adult population of 1.2 million are eligible for Maine Rx Plus, and about 110,000 people have enrolled in the program, currently in the first phase of implementation. A subsequent lawsuit brought by PhRMA has delayed the implementation of the program’s second phase, under which the state would place on a Medicaid prior authorization list products of drug companies that refuse to give discounts.

Motivating Factors for Pharmaceutical Companies

This potential size of the beneficiary pool is the largest incentive for drug makers to voluntarily participate in Cal Rx. Jude Walsh, the pharmacy affairs coordinator for the Maine Governor’s Office of Health Policy and Finance, said that pharmaceutical companies offer discounts to gain customers who otherwise couldn’t afford their drugs.

“It’s all about market share,” according to Walsh, who negotiates discounts for the Maine Rx Plus program, which provides discounts on prescription drugs for people who do not have drug coverage.

Beyond adding customers, discounts for the uninsured also might give pharmaceutical firms a palatable remedy for their ongoing public relations problem.

Tim Burga, legislative director of the Ohio AFL-CIO, said that PhRMA really wanted to persuade its member manufacturers to participate in the Ohio’s Best Rx discount program, adding that PhRMA “wanted to improve their public image without agreeing to more restrictive price controls.”

The AFL-CIO led the coalition of labor and not-for-profit groups that helped create Ohio’s Best Rx. An estimated 1.5 million low-income uninsured Ohio residents are eligible for the program, which launched in January 2005.

Recommended Link to State Program

Both Walsh and Burga said that to be effective, Cal Rx needs one important modification: a linkage to the preferred drug list of another state program, possibly Medi-Cal.

“As long as you have a preferred drug list, (Cal Rx) can work,” Walsh said. “You need to have the same covered drugs in order to be consistent in publicly funded programs.”

If a drug is on a preferred list, doctors don’t need prior authorization to prescribe it. When determining which medications to include on preferred drug lists, state programs and health plans that cover prescription drugs first consider effectiveness, then price.

Walsh said that linking Cal Rx to an existing preferred drug list would make life easier for pharmacies and physicians because this would eliminate the administrative hassle of using another list. Maine Rx Plus offers the uninsured discounts on the same drugs that are included on the state Medicaid program’s preferred drug list.

Sharon Anglin Treat, executive director of the National Legislative Association on Prescription Drug Prices, said that the devil is in the details when it comes to evaluating a seemingly generous discount. For one thing, a drug maker can effectively negate a discount by raising prices for its medications.

“It’s very important to nail down what the baseline is for drug discounts,” Treat said.

The number and scope of drugs that a voluntary discount covers also is a critical consideration.

“You have to make sure the [discount] program isn’t just a marketing measure for the most expensive drugs,” Treat said.

Is a Link to Medi-Cal the Answer?

Some Democratic members of the California Assembly and consumer groups, such as Health Access California, have proposed drug discount plans that would be linked to Medi-Cal.

However, some states are leery of any link to Medicaid programs. Ohio’s Best Rx is linked to the state employee and retiree health plan because Ohio feared a drawn-out legal battle that would delay the launch of the program if it were tied to the state’s Medicaid program, Burga said.

But California has better prospects for receiving deeper prescription drug discounts if it links Cal Rx to Medi-Cal rather than to state programs with less purchasing power, according to Michael Saxl, former Speaker of the Maine House of Representatives. “Medicaid is what drives market share,” Saxl said.

California state agencies purchase about $4.2 billion annually in prescription and nonprescription drugs, and Medi-Cal accounts for a little more than $3 billion of this, according to the nonpartisan Legislative Analyst’s Office.

LAO recently proposed linking Cal Rx to Medi-Cal if Schwarzenegger’s approach doesn’t work. The group recommended that the state try voluntary discounts first but also amend the California Rx legislation to automatically require the Department of Health Services to link Cal Rx to Medi-Cal if drug makers fail to make good on their discount promises.

However, PhRMA said the state should try the voluntary program before attempting any link to Medi-Cal.

“We’d like to give [the Cal Rx legislation] a fair shot to pass in its current form,” PhRMA spokesperson Wanda Moebius said. “It’s too soon to be making changes to a proposal that isn’t widely known and hasn’t been widely discussed.”

“It’s not just Schwarzenegger’s legislation — we’d like to build the bipartisan support needed to pass it,” Moebius added.

But Will Pharmaceutical Firms Participate?

Requiring drug makers to cooperate with Cal Rx might not be a realistic approach. Ohio and Maine have had trouble coaxing some pharmacies to participate in their programs.

Both Maine and Ohio technically can use the threat of prior authorization to encourage drug manufacturers to participate in their discount programs. But taking drugs off the preferred drug list if manufacturers didn’t offer discounts would limit access to these medicines for the other Medicaid or state employee plan populations to which the uninsured programs are linked.

As a result, neither Ohio nor Maine has exercised this option.

No matter what form California’s discount program ultimately takes, any help for residents without prescription drug coverage is a step in the right direction. “If the choice is no rebate or some rebate, something is always better,” Saxl said.

More on the Web

The Legislative Analyst Office’s report on California Rx is available online.

The text of SB 19, by Sens. Deborah Ortiz (D-Sacramento) and Chuck Poochigian (R-Fresno), which would create California Rx is available online.

Related Topics

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