Drug Firms’ $50-Million California Prescription

The pharmaceutical industry, the business of which is ostensibly to make us healthy while making healthier profits for itself, is prepared to spend well more than $50 million to teach Californians what’s good for us.

To be precise, drug manufacturers have already contributed that sum to a war chest designed, in part, to promote Proposition 78 in November’s special election. More money is undoubtedly on the way.

The initiative, developed by the industry, would set up a prescription discount program for elderly residents and families earning less than 150% of the federal poverty level. (The benchmark would be $58,050 for a family of four.) State officials would negotiate the relevant rebates with drug manufacturers, who would participate “voluntarily.”

But the real goal of the Pharmaceutical Research and Manufacturers of America, the lobbying leviathan known as PhRMA, isn’t so much to enact Proposition 78 as to kill Proposition 79.

The latter proposal, sponsored by consumer advocates and labor unions, mandates a program reaching twice as many potential clients as PhRMA’s version -- as many as 10 million Californians. It would cover uninsured families earning up to four times the federal poverty level, or $77,400 for a family of four. It also would mandate much deeper discounts -- 40%, the average discount paid by Medicaid programs such as


Medi-Cal, compared with the 30% or less that negotiated discount programs in other states have reached. (If both propositions were to pass, the one garnering more votes would win.)

Proposition 79 also has a potent enforcement provision: Any manufacturers that don’t comply would be knocked off the

Medi-Cal drug list. Their products would then require prior authorization before being prescribed to Medi-Cal patients, a step that could trim their California market share drastically.

The industry says that this provision, along with the income threshold, would doom the program even without its help. “In our view, this isn’t going to get implemented,” Jan Faiks, PhRMA’s vice president for government affairs and law, told me.

She observes that federal authorities, who must approve any alteration to a federally funded program such as Medi-Cal, have never approved a change benefiting people at such a high income level. Of course, that’s not to say that political and economic conditions might not lead them to do so in the future.

One senses that what really drives PhRMA nuts about Proposition 79 is a provision giving any customer the right to sue the drug companies for “profiteering.” The industry understandably sees this provision as an invitation to massive litigation. It might explain by itself why the drug makers appear prepared to make the dueling prescription initiatives the focus of the most obscenely costly electoral campaign in state history.

Still, given that the industry’s contention is that its “voluntary” programs are superior to the mandated version, it’s proper to examine how the former have been working.

Some “voluntary” discount programs implemented by other states, it’s fair to say, have been fairly effective. It’s also fair to say they don’t all work as well as their proponents wished. Certainly none of them is as ambitious in the size of the covered population or the scale of the discounts as Proposition 79.

The best illustration of the slip that can come ‘twixt the cup and the lip of voluntary programs is in Ohio, where about 25,000 poor and aged enrollees receive discounts averaging 30% from retail. The state hopes to ramp up the program to serve as many as 300,000 participants, but the actual size of its target population is 1.4 million. The shortfall appears related to the need for more outreach, as well as to the existence of other programs that offer equivalent or better deals.

The state developed the program last year in conjunction with the industry, which was brought to the table by the threat of a more draconian voter initiative, and with unions and consumer groups, which were afraid that Big Pharma would fight a more comprehensive discount program with its cash and courtroom delays.

But Ohio officials haven’t been overwhelmed by the drug companies’ cooperativeness. “We’re a little disappointed with the level of rebates we’re seeing,” says Cynthia Burnell, the program’s director.

She says most of the discounts come out of the hides of pharmacists, who charge customers the price paid by state employee and retiree programs. They aren’t subsidized, but get business from customers who wouldn’t buy drugs at all if not for the program.

Since Jan. 11, when the program was launched, Burnell says, its clients have received about $1 million in prescription discounts. Only about $87,000 of that has been covered by negotiated rebates from manufacturers, however. “We were hoping for something better,” she says. The companies use the rebates to promote their low-selling drugs, so the price breaks on widely used products -- those where the need for a break is great -- often aren’t very significant.

Faiks says the manufacturers are afraid that if they offer larger rebates, they might violate Medicaid rules requiring them to charge the federal program’s participants the lowest prices they charge anyone. This could lead to lawsuits in 50 states, she says. She couldn’t explain, however, why the rebates offered in Ohio couldn’t be a lot closer to the 40% average Medicaid discounts without subjecting the drug makers to legal problems.

Faiks also says that the industry would much prefer working out a California prescription program with the Legislature to crafting one via ballot initiative. It would certainly allow wiser deployment of all those industry campaign contributions. Just consider how many indigent and elderly patients would be helped by $50 million in discounts.

Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at and read his previous columns at