Industry Aims to Defeat Discount Drug Initiatives

Facing pressure from many states to provide cheaper prescription drugs, the pharmaceutical industry has launched its most aggressive counterattack in California, where the issue is threatening to explode on the ballot as early as this fall.

The industry already has raised an unprecedented $8.6 million to defeat a ballot initiative being readied by Health Access California, an Oakland-based nonprofit, even before the authors have gathered enough signatures to qualify it for the next election.

The Health Access measure would compel drug makers to offer discounts to 6 million to 10 million Californians -- making a substantial dent in the industry’s profits and offering what it considers an unwelcome model for other states to follow.

The companies are treating that approach, which is paralleled by Democratic legislation pending in the state Assembly, as far graver than last year’s press to allow the importation of Canadian drugs.

Drug firms also are threatening retaliatory initiatives aimed at trial lawyers and unions, which are most likely to be donors to Health Access’ ballot measure. And they have hired three of Sacramento’s best-connected Democratic strategists -- including former Assembly Speaker Willie Brown -- to cut a deal with the Democrat-controlled Legislature and avert a ballot battle.

Drug makers say the California fight comes at a critical time. Though the industry faces little danger from Congress, manufacturers are on the defensive in places such as Washington state and Rhode Island as legislative interest mounts to control the growing cost of medicine. “We take it as such a serious threat to the health and welfare of the pharmaceutical industry that we have to make a stand here” in California, said Jan Faiks, a vice president of the industry’s trade group, the Pharmaceutical Research and Manufacturers of America. “It’s a very bad precedent. You’re the leader in the country, and there are 26 states that allow ballot initiatives.”

Despite industry challenges, Ohio and Maine recently have launched their own discount plans for low-income people. But so far, the industry has been able to prevent any state from punishing individual manufacturers that decline to lower prices voluntarily. They are trying to do the same in California. The pharmaceutical trade group and Gov. Arnold Schwarzenegger have negotiated a voluntary discount plan called California Rx. It calls for manufacturers to agree to provide discounted drugs to anyone earning less than three times the federal poverty level ($28,710 for an individual or $58,050 for a family of four). Almost 5 million Californians would qualify.

The administration projects that, including rebates from manufacturers and pharmacies, Californians would be offered drugs that on average were 40% cheaper than retail. The nonpartisan legislative analyst’s office says, however, that would “still be significantly below the 60% to 65% savings” that California’s Medi-Cal program receives.

“Our concern about the governor’s plan as envisioned is that it doesn’t seem like they would get the lowest prices,” said Assembly Majority Leader Dario Frommer (D-Glendale), who has proposed legislation that Health Access used as the basis for its ballot initiative. “They wouldn’t even be as good as you can get at Costco.”

The administration has not yet negotiated any deals with individual manufacturers. The state envisions that, if approved by legislators, its plan could begin next year, and says the drug industry has agreed not to fight it in court, as it would be sure to do with the Health Access initiative and Frommer’s legislation.

“We believe ours is the only pending proposal that not just promises the rhetoric of discounts, but actually delivers the reality of discounts, and it does so in the near term,” said Kim Belshe, head of the state Health and Human Services Agency.

Drug makers consider the governor’s plan far more preferable than the Health Access and Frommer approaches. Their plans would cover more people than Schwarzenegger’s, requiring discounts for anyone earning less than four times the federal poverty level ($38,200 for an individual or $77,400 for a family of four). People with incomes above that who spend a disproportionate amount on medical expenses also would be eligible.

Most disturbing to the industry is that under the Health Access and Frommer proposals, drug companies that do not consent to the discounts could be shut out of a prized market: the state’s huge Medi-Cal program, which annually buys $3 billion worth of drugs for the poor.

“The prescription drug companies have admitted with their initiative that their drug prices are too high,” said Anthony Wright, executive director of Health Access. “The question is, should the state use its leverage to bargain for better prices, or should it just rely on the goodwill of the industry?”

The experiences of other states suggest caution on both approaches. Schwarzenegger’s plan is modeled on one in Ohio that began operating this year, but its discounts so far amount to just 26% off retail prices.

As in California, the industry agreed to Ohio’s plan as a more palatable alternative to a ballot initiative that was being launched. (Also as in California, the industry had assertively tried to block a ballot fight, filing lawsuits in 41 counties to challenge voter petition signatures.)

But now some of that plan’s supporters say the compromise was not ideal, blaming the relatively low discounts on a decision to use state employee drug prices as the basis for negotiations. “We were in fact negotiating from a weakened position, and not negotiating for a best possible price,” said John Gallo, a Cleveland activist who worked on the initiative campaign. Schwarzenegger’s plan would base its price on the lowest net cost available commercially.

Maine’s Rx Plus program -- the inspiration for Frommer’s legislation -- claims to save patients up to 15% off retail prices on name-brand drugs and up to 60% on generics. Maine’s program was delayed for years when the drug industry filed legal challenges. The case went to the U.S. Supreme Court in 2003, where a splintered opinion failed to clarify whether states could use their Medicaid programs as leverage. Maine’s program is operating, but the state has yet to punish any companies. The industry says that such penalties are illegal because they would unfairly penalize Medicaid participants by potentially denying them the full range of medicines. The industry is expected to make the same arguments in court should the Frommer or Health Access measure become law.

Some efforts at establishing voluntary discount programs have flopped. A plan in Iowa collapsed when only three of 20 drug makers that the state approached agreed to participate. The Schwarzenegger administration says Iowa has so few poor people that it can’t be compared to California. Only one generic drug maker and 13 brand manufacturers agreed to participate in California’s Golden Bear State Pharmacy, created in 2001 to offer discounted drugs for the elderly. The Schwarzenegger administration was forced to abandon that approach last year, but blames the plan’s design -- not the drug companies -- for its failure. “There haven’t been great success stories -- at least in the past -- with voluntary rebates,” said Kimberly Fox, senior policy analyst at the Rutgers Center for State Health Policy in New Jersey.

Still, the pharmaceutical manufacturers group has stepped up its efforts to set up voluntary programs in other states that, like California, are ripe for more coercive legislation. Officials of the trade group say they are negotiating with labor leaders and politicians in Washington state, Rhode Island and Illinois. Other states are taking different tacks. West Virginia lawmakers are trying to get companies to offer drugs for the same low price they offer veterans hospitals and the military.

“Some of these things are really spreading out across the states,” said Sharon Anglin Treat, executive director of the National Legislative Assn. on Prescription Drug Prices, a Maine-based group that advocates for those measures.

“A lot of the innovation has come in states like West Virginia and Maine, which have citizen legislators who meet over a short period of time. Someone can put in a bill and it becomes law in two months,” said Treat, who helped pass the Maine law while Senate majority leader there. “It’s possible legislation can fly through without a lot of attention from the drug companies.”

There is no chance of that in California, where the industry is threatening retribution.

Not only are drug companies bankrolling Schwarzenegger’s plan as an initiative, but they also are offering two companion ballot measures aimed at the heart of Democrats’ donor base. One would slash trial lawyers’ contingency fees and the other would require public employee unions to obtain members’ permission before spending their dues on political activities.

“It certainly is a signal to the unions that they’re not going to engage in a one-handed attack, that the industry is going to fight for its interests and the interest of the patients that it serves,” said Frank Schubert, who is managing the initiative campaigns for the pharmaceutical manufacturers group.

The drug industry’s new slate of strategists is well-positioned to help it find some common ground in the Capitol. Along with Brown, a legendary figure in Sacramento, the consultants include Jason Kinney, a former speechwriter for Democratic Gov. Gray Davis now advising Don Perata, the Alameda Democrat who leads the Senate; Steve Smith, who was Davis’ labor commissioner and a chief campaign advisor; and Bob White, a key architect of Schwarzenegger’s campaign in the 2003 recall.

The donations that companies have already made dwarf the industry’s previous contributions in California politics or in any other state. From 2000 through 2003, the industry gave $2.2 million in California, according to the Institute on Money in State Politics, a nonpartisan analyst in Montana.

The industry has increased its generosity since Schwarzenegger’s election, giving him more than $300,000, backing GOP candidates for the Legislature he has supported and holding a fundraiser for him in Washington, D.C., earlier this month. The industry has pledged $10 million toward its initiatives and another $10 million to help publicize existing free drugs offered by individual manufacturers. Faiks, the drug makers group executive, said the industry would spend “whatever it takes” to defeat the Health Access initiative. “We are (1), trying to get out of harm’s way,” she said, “and (2), trying to help people.”

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Drug donations

The pharmaceutical industry has pledged to donate at least $10 million in California to fight proposed ballot initiatives that would mandate lower drug prices. These are the companies that have each given more than half a million dollars toward the effort, which has raised $8.6 million so far.

Company: Donation

Johnson & Johnson: $1,300,000

Pfizer: $1,300,000

GlaxoSmithKline: $1,300,000

Abbott Laboratories: $650,000

Amgen: $650,000

AstraZeneca: $650,000

Eli Lilly: $650,000

Novartis: $650,000

Wyeth: $650,000

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Source: California secretary of state

Los Angeles Times