Discount Drug Deal Reached

More than 5 million Californians with moderate incomes would receive substantial discounts on prescription medicines under a deal that Gov. Arnold Schwarzenegger and Democratic leaders reached over the opposition of the drug industry, negotiators said Tuesday.

The price-reduction effort, a showpiece for Schwarzenegger’s reelection campaign, is an approach he rejected last year and one opposed by the drug industry and advocates for the poor and disabled.

The plan would give the drug industry three years to voluntarily negotiate discounts with the state on behalf of people who earn up to triple the federal poverty level, or about $60,000 a year for a family of four. An additional 400,000 people who earn somewhat more but face debilitating medical bills also would be eligible.

The discounts would take as much as 40% off brand-name drugs and up to 60% off generic medicines, according to lawmakers and Schwarzenegger administration officials.

In a major concession, Schwarzenegger agreed that companies that offer insufficient markdowns could be impeded from selling drugs through Medi-Cal, a $2-billion market that serves millions of Californians. In return, Democrats agreed to give the industry time to comply, and agreed to the income limit Schwarzenegger wanted.

The deal appears to end a three-year battle that produced two competing ballot initiatives that were rejected by voters in last November’s special election. One was sponsored by consumer advocates, the other by the drug industry.

“This is a huge victory for the needy,” said Assembly Speaker Fabian Nunez (D-Los Angeles). “This goes a long way toward correcting the wrong that was done at the ballot box in November.”

Senate President Pro Tem Don Perata (D-Oakland) concurred: “The governor’s basically done everything the sponsors asked.”

At a news conference Tuesday afternoon, Schwarzenegger portrayed the deal as not yet final, saying, “We haven’t come to a conclusion, but I think it’s looking good.”

However, legislative officials said all the elements of the deal had been agreed upon, and all that was left was to sign off on the measure’s final language.

The accord is expected to pass the Democrat-controlled Legislature easily, although it would face some obstacles after becoming law. It would require approval from the federal Center for Medicare and Medicaid Services, which has been skeptical of other states’ efforts to alter their Medicaid programs as they expanded healthcare coverage to people above the poverty level.

And the drug industry could fight the plan in court, as it did in Maine when that state was the first to try to use its Medicaid program to force companies to discount drugs. The case went to the U.S. Supreme Court, where Maine emerged largely victorious in 2003. But the state has yet to penalize any companies.

The election-year deal to reduce drug costs is particularly significant for California, which has lagged behind most of the nation in helping people of modest means afford medicine. Last year, 34 other states offered either subsidies or discounts to the poor or elderly beyond what the federal government provides, according to the National Conference of State Legislatures.

California already buys discounted drugs for people on Medi-Cal. Under the new plan, manufacturers would have to reduce prices for people who aren’t on Medi-Cal but earn no more than triple the federal poverty level and lack prescription drug coverage or have used up what they have. People earning up to the median household income in California -- $70,626 for a family of four -- would be eligible if they had medical expenses exceeding a tenth of their income that were not covered by insurance.

Also included are drugs for the elderly that are not taken care of by the new federal Medicare Part D plan.

Manufacturers would have to meet one of three benchmarks: the lowest price they offer to any state Medicaid program, 85% of the average manufacturer price or the lowest price given to any nonpublic entity in California, such as Kaiser Permanente.

The plan relies on drug manufacturers’ desires to keep their medicines on a list of approved drugs for which doctors are assured of Medi-Cal reimbursement. The Medi-Cal market is not one from which drug companies want to be excluded.

If a pharmaceutical manufacturer failed to offer adequate discounts within three years, the administration would have the authority to strike the relevant drugs from the list.

Though some consumers get cheaper drugs from outside the country, such imports are illegal under federal law.

Under the proposal, doctors who wanted to prescribe de-listed drugs would first have to obtain specific permission from Medi-Cal -- a bureaucratic burden. Though they are supposed to receive such authorization within 24 hours under federal law, some doctors say the actual process is far more tortured.

“Docs in community mental health are besieged with clients. They’ll have hundreds of clients with severe psychiatric disabilities assigned to them,” said John Buck, chief executive of Turning Point Community Programs, a Sacramento-based mental health nonprofit. “There’s always somebody in a crisis, and you’re talking about filling out more paperwork?”

For that reason, advocates for the poor object to the involvement of Medi-Cal.

Loretta Jones, executive director of Healthy African-American Families, a nonprofit group based in Los Angeles, called the plan “abominable.”

“We’re taking our poorest population -- which are usually women and children -- and you’re making decisions about their healthcare that you would not make for a Blue Shield or a Health Net” population, she said.

But Anthony Wright, executive director of Health Access California, a consumer group that has been pressing for discounts, doubts that Medi-Cal patients would be harmed.

“This is a reasonable compromise between the competing proposals of last year that meets our major criteria,” he said, “which is that the program is ultimately enforceable and provides real, verifiable discounts.”