California, not content to wait for a federal prescription-drug program, is trying to slash the costs of medicine for its elderly and disabled by persuading pharmaceutical companies to compete for business by discounting popular drugs.
Signed into law last month by Gov. Gray Davis, the initiative will create a state-run purchasing pool of 1.3 million Medicare beneficiaries to negotiate voluntary rebates from drugmakers. Manufacturers that offer the most generous discounts will have their products added to a preferred list of drugs being drawn up by the state's Department of Health Services.
Planned for a launch by next summer, the program is the latest in a state-by-state push to curb prescription-drug spending, which rose 18.8% last year. Medicare doesn't cover outpatient prescription drugs, and Congress has yet to act on several proposals to extend such coverage. Meanwhile, a court battle has entangled HHS' plan to use pharmacy-benefit management firms to discount drugs for Medicare beneficiaries.
Drug firms that make it onto California's list stand to boost their market share in the state, which accounts for 8% of U.S. prescription sales, said Michael Ashcraft, M.D., a staff member for state Sen. Jackie Speier, a Democrat who sponsored the bill. "The companies on the list would have a large pool of buyers open to them. And that means increased volume, which translates into increased profits," Ashcraft said.
Under the plan, seniors will pay about $15 for a pharmacy card that will entitle them to discounts of 5% to 15% at retail pharmacies, but only on medications for which the drugmakers have agreed to pay rebates.
Those savings would be on top of the 25% average retail discount California seniors already receive through a law enacted in 1999. That law requires pharmacies participating in Medi-Cal, the state Medicaid program, to extend Medicaid discounts to seniors. Since the law took effect in February 2000, the average cost for a prescription has dropped by $8 to $32, according to the Sacramento-based California Pharmacists Association.
"Essentially, we want to take the infrastructure that's already in place for our Medi-Cal discount program and build on that for seniors," said Stan Rosenstein, assistant deputy director of the state health department's medical services division.
Already, 29 states have enacted programs that shave the costs of medications for seniors, up to 30% of whom do not have any prescription-drug coverage. Many of the state programs for seniors use federal funds to subsidize costs. But as drug expenditures continue to climb, legislators have come up with innovative ways to share the burden with drugmakers and, to a lesser extent, pharmacies-whether they like it or not.
Maine, for instance, has adopted a program that essentially requires drugmakers to provide bulk discounts for needy state residents who lack prescription-drug coverage. The program authorizes mandatory price controls if voluntary rebates are insufficient. The Pharmaceutical Research and Manufacturers of America, an industry trade group, so far has been thwarted in its efforts to permanently block the program. In July, PhRMA appealed its latest court loss to the U.S. Supreme Court, which has yet to decide whether to address the matter.
Another industry suit is pending against a similar program in Florida, which this summer cut special deals with drug giants Pfizer and Bristol-Myers Squibb.
Pharmaceutical companies object to mandatory rebates, arguing that states cannot legally restrict access to their drugs simply because they don't like the prices being charged. The companies also contend that mandating lower prices hurts everyone, because manufacturers will have less money to plow into research and the development of new drugs.
California officials expect the state's voluntary program to fare better than mandatory drug-rebate initiatives. "At least we won't get into the litigation problems that other states have gotten into," Rosenstein said.
He said he is heartened by HHS Secretary Tommy Thompson's negotiations with Bayer Corp., which has agreed to sell its anthrax-fighting antibiotic Cipro to the U.S. government at the considerably discounted price of 95 cents per tablet.
PhRMA spokesman Jeff Trewhitt said he couldn't predict whether drugmakers would choose to offer rebates but said there is "a world of difference" between California's voluntary program and its mandatory counterparts.
The former "is based on competitive marketplace principles, and we are all for that," Trewhitt said. "Offering volume discounts to third parties is a routine part of business. What we object to is the government dictating what prices we have to offer and then penalizing us if we don't."
The pharmaceutical industry, however, may not always have a choice in the matter. Speier has said that if drugmakers fail to volunteer for the program, she will pursue a mandatory rebate measure.
"We don't want to have to resort to that bill," Ashcraft said. "But it's there if we need it."