Drug Price Breaks Upheld

Times Staff Writer

The U.S. Supreme Court gave a boost Monday to the campaign to give uninsured Americans low-cost prescription drugs, reviving a novel Maine law that forces drug makers to discount their prices for all consumers if they want to sell to the huge Medicaid program that serves the poor.

The 6-3 ruling was a defeat for the drug industry, which had won a lower court order that blocked the law, the first of its kind in the nation, from taking effect.

The decision, while not the final word, clears the way for other states to pass similar drug discount laws. At least 27 states, including California, have considered similar measures in recent years, but only two -- Hawaii and Illinois --have passed them.

Most have awaited the outcome of the legal and regulatory battle in Washington. The Bush administration could veto the states’ drive for drug discounts, since the Medicaid program is a joint federal-state venture. But siding with the pharmaceutical industry over the needs of senior citizens would be politically risky.


Despite the uncertainty ahead, champions of discount drugs hailed Monday’s decision as a big step in the right direction.

“This decision is a victory for consumers, who deserve access to more affordable prescription drugs,” said Sen. Olympia J. Snowe (R-Maine), an advocate of federal measures to bring about lower drug costs.

More than 70 million Americans -- about 1 in 4 -- lack insurance coverage for prescription drugs. About 18 million of them are senior citizens.

At the pharmacy counter, these consumers pay the highest prices for drugs. Big purchasers, including the Department of Veterans Affairs, the Medicaid program for the poor and private managed-care networks, can negotiate price discounts that lower these prices, sometimes by half.

Three years ago, Maine’s lawmakers moved to force drug makers to negotiate similar discounts for all its consumers. If the manufacturers refused, their drugs could be excluded from the state’s Medicaid market.

When the drive to deal with drug costs stalled in Congress two years ago, health-care reformers focused their attention on the states, and in particular the so-called Maine Rx law.

For cash-strapped states, Maine’s approach had the virtue of being a no-cost reform.

“This is unique among the health-care reforms. It doesn’t cost the state a dime,” said Bernie Horn of the Center for Policy Alternatives, which tracks state reform measures.


But the pharmaceutical industry was not ready to swallow the cost. Its lawyers went to federal court to challenge Maine’s law. They said it violated the Medicaid Act because the benefits went to everyone, not just the poor.

“Think of [best-selling author] Stephen King,” said Marjorie Powell, lawyer for the Pharmaceutical Research and Manufacturers of America. Maine residents, even those like King, who are not poor, would be entitled to a discount drug card they could use at pharmacies, she said.

The drug makers also said the state’s law violated the U.S. Constitution by regulating out-of-state manufacturers.

A federal judge agreed on both counts and blocked the Maine law from taking effect. While the U.S. Court of Appeals in Boston disagreed with the decision, it refused to lift the judge’s order.


The U.S. Supreme Court took up the case, PhRMA vs. Maine, to decide how far the states can go in regulating drug prices.

And in something of a surprise, the high court sided with the state and against the pharmaceutical industry. However, the six justices in the majority spoke through four opinions.

Although they agreed that the judge erred in blocking Maine’s law from taking effect, they said it would be a different matter if federal Medicaid officials said the state program clashed with Medicaid’s objective of serving the needy.

For now, Maine should not be stopped from trying to improve the health of its residents, Justice John Paul Stevens said in the court’s lead opinion.


Since 1990, drug makers have been required under law to give states their “best price” when supplying pharmaceuticals for needy people who qualify for Medicaid.

It is not a great leap to say states can seek the same discounts for those who are uninsured, the court said.

“We have made it clear that the Medicaid Act gives states substantial discretion to choose the proper mix of amount, scope and duration limitations on coverage,” Stevens said. “Maine’s interest in protecting the health of its uninsured residents provides a plainly permissible justification” for the drug discount program.

He was joined by the court’s liberals, including Justices David H. Souter, Ruth Bader Ginsburg and, in part, Stephen G. Breyer.


Meanwhile, the court’s two strongest conservatives -- Justices Antonin Scalia and Clarence Thomas -- agreed that a judge had no authority at this stage to block the state’s program. Scalia said the drug makers should have taken their complaint to the U.S. Department of Health and Human Services, not to a federal court. Thomas went further and said the industry’s complaints “are without merit.”

Bills inspired by the Maine Rx program are being considered in 17 other states: Colorado, Florida, Georgia, Indiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey, New York, Ohio, Rhode Island, Tennessee, Texas, Vermont and West Virginia.

In California, where Medicare recipients already can get their prescriptions at the state’s lower Medicaid rate, Sen. Jackie Speier (D-San Francisco) said she would consider sponsoring legislation to extend the price break to all 6 million uninsured Californians.

“It would be appropriate for us to take action to benefit the working poor,” said Speier, who wrote a law that lowered Medicare drug prices by about 20%.


Under California law, senior citizens and those who qualify for Social Security disability payments are entitled to a 20% discount at pharmacies that participate in Medicaid. But last year, a study by the Rand Corp., a nonprofit research institute based in Santa Monica, found that most seniors did not receive the proper discount. Moreover, this discount did not extend to other uninsured people.

Chellie Pingree, president of Maine Common Cause and the former Maine lawmaker who wrote the Maine Rx law, said she hopes other states will follow suit.

“I’m very proud the state of Maine has stood up to one of the most powerful lobbies in Washington and hope that other states will use ours as a model to help citizens afford the medicine they need,” Pingree said. PhRMA’s lawyers said they were disappointed but not defeated. The case now goes back to a federal court in Maine. There, they said, they will try to prove that the expanded drug discount program will hurt the Medicaid program and should be struck down.

Rather than force the industry to bear the cost, Congress should step in, PhRMA said. The real solution will “begin with passing a Medicare prescription drug benefit for seniors and disabled persons this year.”


That looks increasingly unlikely, however. The big tax cut engineered by President Bush, combined with the growing federal deficit, have squelched talk in Congress of passing a new law to subsidize the cost of prescription drugs for seniors.

The crucial next step in the debate over drug prices will be taken by the Bush administration.

So far, the White House has tread cautiously. Its health regulators have not announced a definite position on whether states can demand drug discounts for those who are not in poverty and do not qualify for the Medicaid programs.

On the one hand, the health regulators told the states in a memo in September that they can use the leverage of the Medicaid program to demand “discounts and rebates for non-Medicaid drug purchases.”


But they also said the discounts should be limited to a “narrowly defined class of persons who have a low income.” This approach would allow the states to aid seniors or the working poor but not have to assist those who might be relatively affluent.

The dispute, still unresolved, turns on whether the Medicaid program is helped or hurt by expanding its reach to include people who are not in poverty.

Lawyers for PhRMA claimed that requiring discounts for all could force it to raise prices for the most needy. Deep discounts are only possible, they said, because they are limited in scope. Maine’s lawyers say lower-cost drugs will improve the health of their uninsured citizens and prevent them from falling into poverty, where they would become a new burden for Medicaid.

That issue will be contested when the case returns to federal court in Maine.


Reformers say the states should press ahead to help those who are uninsured. Most people who lack insurance are not senior citizens, they said.

“We don’t know what the administration will do, but I think these laws are on solid ground unless the Bush administration aggressively opposes them,” said Horn of the Center for Policy Alternatives.