Governor May Face Obstacles to Winning Viable Drug Plan

There’s something characteristically theatrical in Gov. Arnold Schwarzenegger’s promise to personally pry big voluntary discounts for Californians from drug manufacturers.

After all, those aren’t paper tigers seated across the bargaining table. Big Pharma didn’t become the second most profitable industry in America by quailing at stage roars.

Yet the notion that drug makers will voluntarily fork over rebates for California’s needy is the linchpin of Schwarzenegger’s prescription drug policy. Last week -- while vetoing several bills to help Californians import low-priced drugs from Canada -- he said he had begun talks with manufacturers to secure “meaningful discounts” for more than 4 million residents lacking prescription insurance.

The Department of Health and Human Services assured me that several other states have already launched similar efforts. Ohio, whose program starts next month, is the governor’s main model, said an agency spokesperson, who also cited Maine and Hawaii. So I called around to those states to learn more about their experiences. The results underscore how hard a task the governor has set himself.

Big Pharma delayed the efforts in Maine and Ohio for years by deploying its Three Ls: lawyers, lobbyists and lucre. The industry’s legal challenge to Maine’s program (Hawaii’s is similar) went to the U.S. Supreme Court, which upheld the state plan in 2003, and it fought various Ohio proposals, including a ballot measure, before finally obtaining a program it found palatable. That’s a plan known as Ohio’s Best Rx -- which is based so much on voluntary discounts that state officials don’t yet know how much money residents will save, if any.

“Before any state copies Ohio’s Best Rx, they should wait to see how it’s working,” warns Cathy Levine, executive director of the Universal Health Care Action Network of Ohio, which helped set up the program.

The oldest effort is Maine Rx Plus, which provides up to 275,000 lower-income residents, or nearly a quarter of the state’s population, with discounted prescription drugs.

It had a difficult birth.

Maine’s original idea was to force the companies to offer discounts by holding hostage their sales to the state’s Medicaid program. The products of any company that refused discounts for the needy would land on a list of drugs requiring special authorization before Maine Medicaid doctors could prescribe them. The state hoped to secure discounts approaching the average 16% to 18% markdown enjoyed by Medicaid.

In 2000, the industry won a federal injunction blocking the plan. After the Supreme Court lifted the injunction in 2003, Maine took a gentler tack, encouraging the companies to view the discounts as a way to reach a large population of customers who otherwise might not purchase their products at all.

But it never dropped the implicit threat. “Maine Rx is effective because there are hammers involved,” says Senate Majority Leader Sharon Treat, who sponsored the program. “We have provisions that say if you don’t bargain with us, bad things will happen to you.” The industry hasn’t abandoned its legal challenge, which remains alive on issues the Supreme Court didn’t address.

The industry had meanwhile opened a second front in Ohio, where labor unions and consumer groups were pressing the Legislature to enact a discount program while collecting signatures to place such a program on the state ballot. The companies lobbied lawmakers to kill the proposal and harried the petition gatherers in court.

The Supreme Court’s Maine ruling, however, scared the companies into making a deal in Ohio. To avoid another threat to Medicaid sales, they agreed to sell drugs to medically uninsured poor and elderly residents at prices tied to the average rates paid by six state and union health plans. In return, they got a law forbidding the state to punish companies that don’t participate.

Consumer groups aren’t all delighted with the deal. Even the agreed prices will place many drugs beyond the reach of the target population. The companies haven’t yet said how much they will offer in further rebates, or what drugs will be covered. “We’re waiting for a response from the manufacturers,” says Cynthia Burnell, the Ohio program’s director.

Neither state program, incidentally, yields savings approaching what’s available from Canadian pharmacies. For all the virtues of Maine Rx Plus, Sen. Treat says her state is considering enacting a Canadian re-importation program.

California does have a negotiating advantage that the other states don’t. It can offer drug companies access to a huge market of potential customers if they play ball -- about 4.5 million residents if the plan covers uninsured Californians earning up to 300% of the federal poverty level ($47,000 for a family of three), as Schwarzenegger proposes.

Will he exploit this advantage? He has been talking tough, threatening to propose a discount program of his own if the drug companies don’t negotiate in good faith.

But it may not be a good sign that he’s negotiating with the industry first, giving the companies a chance to shape California’s program to their own ends before it’s shown to the Legislature. It’s not encouraging that his statement accompanying the Canadian import vetoes included a wholesale regurgitation of the drug industry’s transparent arguments against the bills, or that he’s accepted a $100,000 donation from big drug company Pfizer Inc.

We may have to wait until January, when he says he’ll unveil his prescription plan, to see which Schwarzenegger is representing Californians at the bargaining table -- the tiger, or the pussycat.

Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.