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MARIN COUNTY'S NEWS MONTHLY - FREE PRESS
(415)868-1600 - (415)868-0502(fax) - P.O. Box 31, Bolinas, CA, 94924

October, 2005

 

Arnold's End-run Around Democracy-Prop 78 and 79
By Karen Nakamura

The November 4 election is getting harder to avoid. Obviously, Arnold is using his special election for an end-run around the legislature. He says his initiatives give the people their voice while conveniently ignoring an opposition voted in by the very same people. Voters have only one solution. Vote and vote informed. And insist those voting machines are legit.
This month the CP will look at the propositions whose ads on TV assault you whenever you turn around, Props 78 and 79. Both bills address drug benefits to residents of California. But what does it all mean? And what are the unseen pitfalls? Though intricately interwoven, let's examine each bill individually.
Prop 78 is described in the voters' manual written by the State Attorney General. "Establishes discount prescription drug program for certain low- and moderate-income Californians. Authorizes Department of Health Services to contract with participating pharmacies for discounts and with participating drug manufacturers for rebates."
The important fiscal impact from the Legislative Analyst says, "State costs for administration and outreach in the millions to low tens of millions of dollars annually. State costs for advance funding for rebates. There would be unknown, potentially significant savings for state and county health programs.
According to smartvote.org, Prop 78 would create a new state drug discount program. Its function would be to reduce prescription costs to persons with an income at or below 300 percent of the federal poverty level and would pay for prescription drugs purchased at pharmacies. While ads for Prop 78 claim that Prop 79 creates a new bureaucracy, they conveniently ignore the fact that so does Prop 78.
The Department of Health Services would oversee the program and determine eligibility. It also authorizes DHS to contract with pharmacies to sell prescription drugs at agreed-upon discounts negotiated in advance, and to negotiate rebate agreements with drug manufacturers. There would also be an educational outreach program to increase public awareness and a $15 application fee renewable annually.
One thing Prop 78 does is to create bulk-buying power by allowing DHS to negotiate prices. Most Californians see that as the only responsible avenue. At the same time, not only does 78 leave out a lot of people, it depends on voluntary compliance by the drug companies, a doubtful proposition. Prop 79, in contrast, covers more people and allows for greater individual savings but could cut back on medicines from disqualified companies.
Interesting, and a bit cloudy, is the creation of a state fund for the deposit of rebate payments from drug manufacturers. The proposition also allows the program to be terminated under specified conditions. What specified conditions? This is an important subtext especially when Arnold has recently tried to close employee access to the huge reservoirs of state pension funds.
There would also be one-time and ongoing state costs, probably in the millions to low tens of millions of dollars annually. These costs would pay for administration and outreach activities to implement the new drug discount program.
Interesting here is that a significant share of these costs would probably be borne by the state General Fund. There is also one-time state costs, potentially in the low tens of millions of dollars, to cover the funding gap between the time when drug rebates are collected by the state and when the state pays funds to pharmacies for drug discounts provided to consumers.
Does this mean paying back the pharmacist at the local drug store? Or does it mean Californians have to pay to cover pharmaceutical companies for their profit losses? The reason for including collective bargaining powers is to stop gouging by the pharmaceuticals and force them into competitive practices.
Any costs not covered by advance rebate payments from drug manufacturers would be carried by the state General Fund. Again, there's that tapping of the General Fund if drug manufacturers don't pay. And, as opponents point out, "Proposition 78 would rely on the voluntary participation of drug companies with no consequences for firms that chose not to give discounts."
The State Analyst states there would be unknown savings on state and county health program costs due to the availability of drug discounts. Proponents claim a 40% savings for low income and seniors.
Who then, besides Governor Schwarzenegger, is backing this bill? Four drug companies, Bristol-Myers Squibb, Pfizer, Wyeth Pharmaceuticals and Bayer are reported to have donated over $27 million to the California war chest. Other drug companies include Johnson & Johnson, Merck, Novartis, Hoffman-La Roche, Eli Lilly, Amgen and Glaxo-Smith Kline.
Opponents summarized their position: "Sponsored by the prescription drug companies, Prop. 78 is a smokescreen to stop Prop 79, a real, enforceable plan backed by consumer groups. Under a voluntary compliance Prop 78, drug companies don't have to provide a single discount, and the plan can end at any time."
Prop 79 is a drug discount plan backed by the unions and consumer groups. The State Attorney General official statement says:
"Provides for prescription drug discounts to Californians who qualify based on income-related standards, to be funded through rebates from participating drug manufacturers negotiated by California Department of Health Services. Prohibits new Medi-Cal contracts with manufacturers not providing the Medicaid best price to this program, except for drugs without therapeutic equivalent. Rebates must be deposited in State Treasury fund, used only to reimburse pharmacies for discounts and to offset costs of administration. At least 95% of rebates must go to fund discounts. Makes prescription drug profiteering unlawful."
Plainly put, the biggest difference between 78 and 79 is that Prop 79 allows the state to use financial leverage to punish companies that don't discount qualified Californians. The teeth are the state's ability to drop firms from the Medical preferred list that refuse to comply. This program would buy around $4 billion of drugs per year and cover nearly twice as many Californians as Prop 78.
A potential problem is some Medical recipients would find it harder to get certain drugs when the manufacturers are drop from the preferred list. And exclusion from the list could spell financial disaster for companies.
However proponents of 79 say that Medical patients could still get their medication from an off-list company if there's no equivalent drug on the list. Drug companies are worried doctors would turn to prescribing preferred list drugs. True, but isn't that why there are teeth in Prop 79 and why the provision is referred to as The Hammer? Companies can't have it both ways. It's estimated implementation of 79 could cost the drug companies millions of dollars.
Sources include Calvoter.org, smartvoter.org, Cal-Access, State Attorney General's website, the Sec of State's campaign finance website, League of Women Voters and Los Angeles Times and Sacramento Bee.

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