Congress should take heed of California drug discount plan in Medicare

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Thursday, Aug. 31, 2006

California’s Prescription Drug Discount Plan Advances Concept of Price Negotiation for Medicare Part D Program

Bill expected to be signed by Schwarzenegger calling for significant drug savings

(Sacramento, CA) –Gov. Arnold Schwarzenegger is expected to sign a landmark bill calling on pharmaceutical companies to significantly discount prescription drugs for the low-income and uninsured, a signal to Congress that it should use the government’s purchasing power to negotiate better drug prices for millions in the Medicare Part D prescription program.
“Gov. Schwarzenegger has seen the light about using the government’s purchasing power to help the needy afford their medications, including the elderly whose drugs aren’t covered by Medicare,” said Earl Lui, senior attorney for Consumers Union, publisher of Consumer Reports. “It’s time for Congress to do the same and use its power to negotiate drug discounts for those in Medicare.”
“California stood up to the drug companies and got a meaningful drug discount program for consumers. We hope other states will do the same, especially if Congress fails to act,” Lui added.
The California Legislature on Wednesday passed the Schwarzenegger-backed bill (AB 2911) that would create a prescription drug discount program for residents lacking drug coverage or with inadequate drug coverage. An estimated 5 million to 6 million residents will be eligible to participate. The program will provide up to 40 percent savings on brand name drugs, and up to 60 percent savings on generics, to uninsured residents with incomes below 300 percent of the federal poverty level.
Drug manufacturers have three years to voluntarily provide those discounts. If a pharmaceutical company fails to provide discounts at the prescribed benchmark levels, the state would have the authority to remove a manufacturer’s drug or drugs from the preferred list for the state’s Medicaid program (known as Medi-Cal). Because Medi-Cal purchases about $2 billion worth of prescription drugs annually, manufacturers will have strong incentives to offer sufficient discounts to keep their drugs on the preferred list.
Medi-Cal, like many other state Medicaid programs, currently uses this same leverage to negotiate lower prices from drug companies for drugs it purchases. AB 2911 simply takes this existing mechanism and uses it to benefit other low-income residents.
The law is a compromise crafted by state lawmakers and Schwarzenegger after the defeat last fall of two competing prescription drug discount ballot measures. Consumer groups supported Proposition 79, which would have given the state the ability to leverage its purchasing power through the state’s Medi-Cal program to enforce discounts. The pharmaceutical industry spent $80 million to fight the measure and bankroll Proposition 78, which called for a voluntary-only discount plan.
“Drug companies spent $80 million to keep California from using its power to negotiate a better deal for taxpayers, but they ultimately lost. This law advances the concept of the government leveraging taxpayers’ money to negotiate better prescription drug prices for the elderly, disabled and poor, and Congress should take heed,” Lui said.
In approving the Medicare Part D prescription drug benefit, Congress specifically prohibited Medicare from negotiating lower drug prices from the pharmaceutical industry, even though the Department of Veterans Affairs does so for its beneficiaries. Bills in Congress would give Medicare that negotiation authority to lower costs for taxpayers and beneficiaries, but they are stalled.
Maine adopted the first state prescription drug discount program to use Medicaid leverage to negotiate discounts for other state residents back in 2000. The pharmaceutical trade group sued to block implementation of the Maine program, but ultimately lost in the U.S. Supreme Court.
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Earl Lui: 415-601-6747 (cell)
Michael McCauley: 415-431-6747