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Gov.’s Drug Plan Inferior, Analyst Says

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Times Staff Writer

Gov. Arnold Schwarzenegger’s plan to cut prescription drug costs by asking pharmaceutical makers for voluntary discounts probably won’t work as well as a tougher approach touted by legislative Democrats, an independent analysis concluded Thursday.

Assembly Democrats hailed as “vindication” a review of the governor’s plan by the legislative analyst’s office. But the Schwarzenegger administration said it would not change course.

With political leaders looking far and wide for ways to cut healthcare costs and still stretch a safety net beneath the state’s 6.4 million residents without health insurance, two Assembly members Thursday unveiled a plan to require all Californians to buy health insurance, much as drivers must by law carry auto coverage.

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Their proposal intensifies a debate that gets more urgent each month as hospitals close and prescription drugs and health insurance premiums get so expensive that many Californians choose to do without.

Though the Republican governor hasn’t backed a specific plan to help the uninsured, his administration has endorsed a bill that would give a discount drug card to uninsured people who earn less than $28,000 a year, or $56,600 for a family of four.

Called “California Rx,” the program hinges on drug companies’ agreeing to offer medications at the same discounted price they give large buyers such as Blue Cross. Sens. Deborah Ortiz (D-Sacramento) and Chuck Poochigian (R-Fresno) are coauthors of the proposal, SB 19.

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The discount plan, with cost breaks projected to save about 40%, could be implemented quickly and without legal challenge, concludes the legislative analyst’s office, which gives nonpartisan policy advice to lawmakers.

But bigger discounts on more types of drugs could be attained, the report states, if the state issued this ultimatum to drug companies: Give us discounts for the California Rx program if you also want to sell your drugs easily through Medi-Cal, the state-run program that spends $4 billion a year buying drugs for roughly 7 million of the elderly, the disabled, and poor children.

Maine took such an approach, and although drug company lawsuits blocked its drug discount program for several years, courts eventually upheld it. According to the legislative analyst’s report, Maine has negotiated discounts of up to 60% below retail prices for 200 drugs.

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Iowa tried the voluntary approach endorsed by Schwarzenegger and only three of 20 drug companies agreed to participate.

“It does not appear likely that California Rx will be able to obtain rebates comparable to Maine through a voluntary approach,” the legislative analyst’s report states. It recommends that Schwarzenegger amend his plan to give the state stronger bargaining power with drug companies through Medi-Cal participation, then use that leverage only if the voluntary approach does not lead to substantial discounts.

Democrats, who dominate both houses of the Legislature, presented their plan last month. “We’re in a very good position to get large discounts, but only if the governor is willing to go with our approach,” said Assemblyman Dario Frommer (D-Glendale).

Officials with the Schwarzenegger administration expressed no such willingness.

Using the Medi-Cal program as leverage could lead to years of delay and jeopardize benefits to the elderly, the disabled, and poor children, said Nicole Kasabian-Evans, a spokeswoman for the Health and Human Services Agency. “The governor has already gotten commitments from major drug companies to participate in California Rx,” she said. State health officials say they have the support of all major drug firms through the trade group Pharmaceutical Research and Manufacturers of America.

Ortiz, who broke with fellow Democrats to carry the governor’s legislation, appeared more amenable to amendments. Before she revised it to accommodate Schwarzenegger, her bill had included a Medi-Cal “hammer” like that used by Maine.

Ortiz called the governor’s proposal “a good first step.”

The Capitol debate over how to extend health insurance to more residents veered into new territory with the announcement by Assemblymen Keith Richman (R-Northridge) and Joe Nation (D-San Rafael) that they would introduce a sweeping package to curb healthcare costs.

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Under their proposal, Californians would have to submit proof of health insurance coverage when they filed their tax returns each year.

Uninsured residents who are employed would see monthly premiums automatically withheld from their paychecks, and they would be enrolled in a bare-bones catastrophic health insurance plan with a $5,000 deductible. It would include basic preventive care, such as immunizations.

The lawmakers said their plan would make insurance affordable -- roughly $50 a month for a single person -- by creating regional agencies to negotiate with insurers on behalf of millions of Californians at a time. In order to get any business referred by the state, private insurers would have to agree to enroll people regardless of existing medical problems at a price that blended the cost of serving the healthy and unhealthy.

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