California Rx Prescription Drug Discount Plan

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

California governor Arnold Schwarzenegger has proposed a program called Cal Rx that would leverage voluntary discounts from drug manufacturers and pharmacies to make low-cost prescription drugs available to low-income uninsured Californians. Portions of Cal Rx have been enacted, and the legislature is debating the remainder. Critics question Cal Rx?s ability to produce significant discounts, while supporters assert that the voluntary discounts approach will be easier to implement successfully.

Purpose of health policy or idea

California Governor Arnold Schwarzenegger has introduced plans for a program called Cal Rx. Cal Rx aims to lower the cost of prescription drugs for the state's uninsured low-income residents by negotiating voluntary discounts from drug manufacturers and pharmacies and leveraging discount programs already offered by the pharmaceutical industry for low income individuals.  The plan has three parts: 

• Voluntary Discounts Negotiated for Cal Rx Members: Participating drug manufacturers and pharmacies will offer their products to Cal Rx members at discounts negotiated by the state.  The state will not force companies to participate, nor will they set mandatory discount levels - thus the discounts are "voluntary".  While no benchmark exists for these discounts, the bill's language indicates that prices are not to exceed the lowest price paid by any commercial purchaser in the state.  The state Department of Health Services (DHS) estimates that Cal Rx participants will get an average 40% discount on their prescriptions; approximately 20% of which will be provided by drug manufacturers, and 20% by pharmacies. 
• Leverage Existing Patient-Assistance Programs (PAPs): The pharmaceutical industry already offers free and discount drug programs, known as patient assistance programs (PAPs) to qualifying low-income individuals.  Cal Rx will create and use a web-based clearinghouse funded by pharmaceutical industry partners to help low income residents find and access the PAPs. 
• Best Price Determination: the state and industry partners will create a "single point of entry" system to help Cal Rx beneficiaries determine the cheapest source of their medications; that is, at the point of purchase Cal Rx customers will be able to determine whether it will be more cost-effective for them to obtain their medication using their Cal Rx discount or, if they qualify, through an existing drug discount program that offers them the medication for less.

For the state of California, the incentive for implementing the Cal Rx plan over other, more coercive policy options is that Cal Rx is more likely to avoid prolong legal challenges from the pharmaceutical industry and/or the federal government, and thus can be implemented more quickly.  As an added incentive for the state, the Pharmaceutical Researchers and Manufacturers Association (PhRMA) has committed $10 million in private funds to establish and promote a web-based "clearing house" to help Cal Rx members access free and reduced price drugs. This is nearly three times the $3.94 million that the state has proposed to establish and administer the Cal Rx program.

For the pharmaceutical industry, the incentive to participate in the Cal Rx plan is that its implementation will likely head off other, more coercive or punitive prescription drug acts and/or the legalization of reimportation.  Additionally, the potential size of the untapped beneficiary pool represents new clients who would likely be unable to afford their drugs otherwise. What is more, the successful implementation of the Cal Rx plan would provide a much-needed image boost for the beleaguered pharmaceutical industry.



Cal Rx will be available to uninsured Californians who make less than 300% of the federal poverty level (that is, less than $27,936 for an individual and less than $56,569 for a family of four). This amounts to around 5 million people who would be eligible.  The administration estimates that approximately 1 million of these would actually enroll. The state Legislative Analyst's Office indicates that this estimate may be high; in other, similar discount drug card programs in other states, enrolment was sometimes as low as 5% of eligible participants.

Main points

Main objectives

Lower the cost of prescription drugs for California's uninsured low-income residents by leveraging new and existing voluntary discounts from pharmaceutical companies and pharmacies.

Groups affected

Qualifying low-income uninsured Californians (around 5 million people ), Pharmaceutical companies, Pharmacies

Political and economic background

The Cal Rx plan comes in response to growing concern over the rapidly rising cost of prescription drugs in California and across the US. 

Schwarzenegger's approach to the prescription drugs problems is shaped by his pro-business leanings and his good, some argue overly close, relationship with the pharmaceutical industry. The pharmaceutical industry contributed more than $300,000 to Schwarzenegger's gubernatorial campaign and also financed the governor's trip to New York City where he delivered the keynote address at the Republican national convention.

The Republican-controlled federal government strongly oposes coersive methods of reducing drug prices such as prescription drug reimportation or government price controls. Schwarzenegger, a Republican, has also generally tried to cultivate a close working relationship with the federal government. Thus, he is much less willing than the Democrat-controlled legislature to enact state policies that contradict or challenge federal government, making alternative, more less coercive drug price reduction policies more attractive. 

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Origins of health policy idea

Cal Rx attempts to lower the price of prescription drugs for the state's low-income uninsured residents by leveraging existing and negotiating new voluntary discounts from pharmaceutical companies. Governor Schwarzenegger and his advisors developed the Cal Rx proposal. They worked closely with the pharmaceutical industry, which plays a key role in the plan. 

Last year, Governor Schwarzenegger vetoed bills passed by the Democrat-controlled legislature that would have allowed state residents to purchase prescription drugs at a discount from Canadian pharmacies [See survey from April 2004 entitled "Prescription Drug Reimportation Legislation" and the October 2004 supplement]. Because he cut off this avenue of discount prescription drugs, the governor announced he would be introducing his own alternative drug discount program in the coming year. Increasing the pressure on the governor to follow through on this promise, democrats in the state legislature have reintroduced reimportation bills this session.

The pharmaceutical industry has been a major driver of prescription drug policy in the state in the past year, actively lobbying the governor to veto drug-reimportation legislation, and pushing heavily for the Cal Rx plan.  Along with pledging $10 million to support part of the Cal Rx plan, the pharmaceutical industry has raised $7.7 million for a political action committee to promote the plan.  This is in addition to the nearly $250,000 that the industry contributed (through legal channels) in the fall of 2004 to candidates supported by Schwarzenegger in the two weeks after the Governor vetoed the reimportation legislation.

Existing California programs to reduce the cost of prescription drugs for low-income individuals are mostly aimed at senior citizens and persons with disabilities, and have failed to solve the problem of high prescription drug costs for the low-income uninsured. A 1999 law requires pharmacies to sell prescription drugs to Medicare recipients at prices just above those paid by the Medicaid program. A second drug discount program called the Golden Bear Pharmacy Assistance program was adopted in 2001. This plan aimed to help the same group of citizens affected by the 1999 law by passing on rebates that drug companies paid to the state to these individuals. The Golden Bear program has never been implemented, partially due to administrative challenges. 

Other states have implemented programs similar to Cal Rx with mixed results. A voluntary drug discount program in Iowa failed to produce significant discounts for beneficiaries. Ohio launched a voluntary drug discount program in January 2005 with the active support of the AFL-CIO and a coalition of union and non-profit groups as well as the pharmaceutical industry. In Maine, the Main Rx program imposed a more coercive method by linking a drug company's listing on the state's Medicaid prescription drug formulary to their willingness to provide discounts for the Main Rx participants. This program is just now being rolled out after years of legal battles with The Pharmaceutical Research and Manufacturers of America (PhRMA), the trade association representing the large pharmaceutical companies. Schwarzenegger has indicated he wishes to avoid these kinds of protracted struggles.

Stakeholder positions

Stakeholders In Favor

The pharmaceutical industry is decidedly in favor of the governor's plan.  BIOCOM, the trade association for southern California's life science industry, Californians United for Research, Economic Development, and Saving Lives (CURES) and The Pharmaceutical Research and Manufacturers of America (PhRMA) are sponsors, and PhRMA has raised millions of dollars to help implement portions of the plan and to promote it to the voters in the case of a special election. The California Pharmacists Association, representing the state's pharmacists, has signed on to the plan as have several Physician's organizations, including the powerful California Medical Association.

The American Association of Retired Persons (AARP), representing many senior citizens, are traditionally heavy users of prescription drugs, have endorsed the plan.  Also endorsing the plan are some patient groups. 

Stakeholders Opposed

Some more liberal consumer and health advocacy groups have come out strongly against the plan, including CALPIRG, a consumer group, and Health Access, a health advocacy organization. Several of these have introduced alternative plans, in the form of ballot initiatives for the special election that the governor may call in November 2005. The plans call for the use of more state "muscle", such as by leveraging the purchasing power of the state's Medi-Cal program, to obtain drug discounts for the uninsured. 

Many Democrats in the California legislature believe the governor's plan reflects the needs of the pharmaceutical industry rather than the needs of the low-income individuals it is supposed to help. They have reintroduced drug reimportation legislation that was vetoed by the Governor last year [see survey from April 2004 entitled "Prescription Drug Reimportation Legislation"]. As they debate Cal Rx, Democrats in the legislature will likely try to get some guarantees of the drug discount levels for the Cal Rx plan if it is implemented.    

Non-Partisan Observers:

The non-partisan Legislative Analyst's Office, which offers advise to the legislature on pending bills, has suggested changes to the governor's plan.  Specifically, the legislative analyst calls for the governor's voluntary plan to be implemented, but coupled with a "trigger" mechanism. Under this trigger mechanism, if pharmaceutical companies did not make good on their promises of big discounts, the state would automatically begin making participation in Cal Rx a requirement of being included in the state's Medi-Cal prescription drug formulary.

Influences in policy making and legislation

Elements of the Cal Rx program were originally proposed as amendments to various pieces of legislation last year, but were not adopted.

Governor Schwarzenegger announced revised and expanded plans and proposed funding for California Rx in the state budget that he announced in early January 2005.  Senators Deborah Ortiz, a Democrat, and Chuck Poochigian, a Republican, wrote the legislative bill describing the program and introduced it on January 6, 2005. The legislature will debate the budget and the bill in the coming months.  The fact that Governor Schwarzenegger was able to convince Senator Ortiz, the Democratic chair of the senate Health Committee, to author the Cal Rx legislation is significant, and may help him garner support in the Democrat-controlled senate.

Only the portion of the drug discount plan that requires the state to negotiate with drug companies requires legislation. The web-based clearinghouse of existing manufacturers discounts will be funded by the pharmaceutical industry and will go into effect in the spring of 2005.

Potential changes to the plan could come during the legislative process, and may be influenced by the budget negotiations and by the success of other prescription drug bills that have been introduced by Democrats in the legislature. 

If the Governor decides to call a special election in November of 2005, at least 5 different prescription drug plans, including Cal Rx, could go before voters. If this occurs, the Governor's political clout and the pharmaceutical industry's financial backing would give Cal Rx a large boost with the voters. 

Adoption and implementation

If passed as proposed, the web-based clearinghouse for manufacturers discounts would go online in the spring of 2005, and the Cal Rx discount program would begin enrolling participants in January 2006.

Before implementation can being, the state Department of Health Services (DHS) must obtain State Pharmacy Assistance Programs (SPAP) status for Cal Rx from the federal Centers for Medicare and Medicaid Services (CMS). SPAP approval will allow the state to maximize manufacturer discounts, because discounts negotiated for SPAP programs are exempted from the federal lowest-cost requirements (federal law requires that drug manufacturers sell their products to certain federal health programs below their lowest negotiated prices for other purchasers, however, if the "other purchaser" is an SPAP, then the SPAP negotiated price can be lower than that offered to federal programs). SPAP status requires the state to contribute general fund dollars to the effort, which the governor's budget does, to the tune of 3.94 million.  The Schwarzenegger administration reports that preliminary discussions with CMS have been positive, and that SPAP approval seems likely.

DHS will be responsible for administering the program, and must negotiate discounts with drug manufacturers and pharmacies. The DHS says all major drug manufacturers have agreed to participate in the program, however, it has not negotiated the discount levels that will be available. 

The enrolment process will be kept deliberately simple. A one-page form that requires participants to self-certify their financial information will be available to fill out at pharmacies, physicians offices and on the internet. This information will be reviewed, and if they qualify the applicant will be enrolled in Cal Rx. Enrolment will cost participants $15 each. 

Monitoring and evaluation

Although the language of the bill asks that some sort of evaluation take place, it does not specify how, nor does it appropriate money for it. The non-partisan Legislative Analyst's Office has expressed grave concerns over the lack of a monitoring and evaluation mechanism.

Expected outcome

Cal Rx is a program with a limited focus: reducing the cost of prescription drugs for low income Californians who do not have prescription drug coverage. Any discounts that the program is able to generate will help those individuals enrolled in the program. However, Cal Rx will not reduce the cost of prescription drugs for state health coverage programs like Medi-Cal, health insurers, and other large purchasers, whose budgets are being severely crunched by rising drug costs.

Cal Rx's reliance on voluntary discounts may fail to produce discounts as deep as other, more coercive programs might. However, it has the advantage of being relatively simple to implement and it is unlikely to be subjected to protracted and expensive legal and regulatory challenges from pharmaceutical companies and/or the federal government.

By publicizing existing Patient-Assistance Programs (PAPs), Cal Rx has the potential to expand access for a select group of low-income individuals who qualify for the programs. However, simply publicizing the PAPs may not be enough to encourage uptake. A survey released in March of 2005 cited complex, time-consuming and inconsistent eligibility requirements rather than lack of awareness of their existence as a primary barrier to PAPs use. If Cal Rx is to significantly increase access to industry programs, it may need to work with the pharmaceutical industry to simplify eligibility requirements as well as publicize the pharmaceutical programs.

California's debate over how to deal with the rising cost of prescription drugs plays into the larger national-level debate. If California's approach of voluntary cooperation with pharmaceutical companies works, it will provide ammunition for those who oppose more coercive cost-cutting strategies such as price controls and drug reimportation. The pharmaceutical industry has indicated that it is willing to spend a great deal of money to increase access to drugs for the poor and thereby discourage the implementation of price control policies. This willingness was evidenced most recently by the launch of a nationwide website to publicize and facilitate enrollment in existing industry PAPs. Policymakers interested in prescription drug pricing will be watching California's Cal Rx program carefully.

References

Sources of Information

Saenz, KD, Raube K, Lipton HL. (2005) "Patient-assistance programs: Assessment of and use by safety-net clinics" American journal of health-system pharmacy.  62:726-731

Stickler, Miriam. "Other states' experiences raise questions, offer examples for California proposals to address medication costs".  California Healthline, Health Currents. February 28, 2005.  Available online at: http://www.californiahealthline.org/index.cfm?Action=dspItem&itemID=109356&ClassCD=CL116

"Evaluating the administration's California Rx Proposal" The Legislative Analyst's Office.  Febraury 2005.  Available online at http://www.lao.ca.gov/2005/california_rx/california_rx_021005.htm

Author/s and/or contributors to this survey

Sarah Weston, Institute for Global Health; Carol Medlin, PhD, Institute for Global Health

Empfohlene Zitierweise für diesen Online-Artikel:

Sarah Weston, Institute for Global Health; Carol Medlin, PhD, Institute for Global Health. "California Rx Prescription Drug Discount Plan". Health Policy Monitor, April 2005. Available at http://www.hpm.org/survey/us/d5/3