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MEDI-CAL $ 80 MIL. DRUG BENEFIT CUTS ARE DRAWING PMA ATTENTION: ASSOCIATION HAS SCHEDULES APRIL 12 MEETING WITH ASSEMBLY HEALTH COMMITTEE CHAIRMAN BRONZAN

Executive Summary

The Pharmaceutical Manufacturers Association is beginning a series of informal meetings with key California state legislators in reaction to the state's proposed cuts of $ 80 mil. in the Medi-Cal drug purchase program. A first meeting is scheduled for April 12, less than three month's prior to a July 1 deadline for the state to decide the size and nature of pharmaceutical benefit cuts. The chairman of the health committee of the California State Assembly, Bruce Bronzan (D-Fresno), disclosed the upcoming session with PMA representatives during a breakfast presentation to the PMA annual meeting on April 4. "I have decided," Bronzan reported, "to ask a number of the major representatives to sit down with our membership privately to discuss both the impact on your industry as well as some thoughtful ideas that you may have about how we might solve the [state health budget] problem." Bronzan said the meetings are planned to discuss alternative ways to find savings before "a gun is to our heads" (see box, p. 18, for an analysis of the proposed state cuts). Nothing that the state is initially looking for $ 40 mil. in drug expenditure cuts from manufacturers (through changes in the drug formulary), Bronzan said the legislators might be willing to "split the difference or something" in that figure. PMA is going into California budget discussions with information on potential unrealized savings for the Medi-Cal program from already authorized programs. For example, the state has been making the first steps toward implementing a retrospective drug utilization review program in several counties which could be extended statewide to help generate some off the budget savings. If PMA focuses on drug utilization review, it will be mirroring one of the positions taken by organized pharmacy in California in regards to the proposed cuts. On March 15, the California Pharmacists Association (CPhA) wrote to the state Health & Welfare agency suggesting that the utilization program be implemented statewide. CPhA pointed out that "the initial development costs will already have been met through the pilot project contract." Through the identification and reduction of "inappropriate use or misuse" of prescribed drugs, CPhA said, the state might be able to save almost one-quarter of its $ 80 mil. target. Bronzan credited two health care associations -- the California Medical Association and the California Hospital Association -- with taking the lead in working with the legislature on the budget problem. Those groups have been particularly active on the overriding problem of how to handle the state's 5.4 mil. uninsured people in a period of declining health budget. "In California right now, for the first time ever," Bronzan said, "the California Medical Association is taking a very aggressive role . . . in trying to pull parties together to try to deal with the problems of the uninsured." He said the hospital association "is two or three steps behind, but trying." Most of the rest of the providers, he maintained, have not approached the legislature. While they agree on the implementation of drug utilization review in lieu of more drastic changes to the drug benefit program, PMA and the state pharmacy organization may very well be at odds on other proposals. CPhA, for example, also proposed that the state seek rebate contracts for single source products (with an estimated savings of $ 30 mil.) and guaranteed half-year or full-year drug prices ($ 45 mil. savings). CPhA proposed that the "listing of a drug product in the Medi-Cal drug formulary be contingent upon agreement by the drug manufacturer or repackager to maintain a constant price to the Medi-Cal program for six months to one year." The pharmacist association noted that it is "not likely that manufacturers would maintain a constant price to drug wholesalers for such a period." However, the group suggested a rebate system could be instituted to maintain stable prices to the state. CPhA Exec VP Robert Johnson took a position at odds to the manufacturing sector in his cover letter to the Health & Welfare Agency on March 15. Johnson, an active candidate for presidency of the national APhA, told the state: "We feel that this constant harassment of the pharmacist without any attempt to secure similar contributions from the pharmaceutical manufacturing industry is patently unfair." Johnson contended that two-thirds of the "average Medi-Cal prescription charge is accounted for by the ingredients alone." In addition to Johnson, one of the top CPhA officials is Victor Boisseree, a veteran of previous California attempts to restrict the Medi-Cal drug cost while he worked for the state. CPhA also suggested that the state consider tightening the current AWP/public charge reimbursement formula by adding in the lowest reimbursement level by third party payors. That redefinition could save $ 15 mil. annually, CPhA said. The big cuts in the state health budget are necessitated, Bronzan told PMA, by a state initiative linking overall government spending limits to CPI increases. That initiative has forced Governor Deukmajian to propose a budget with overall cuts of $ 1.6 bil. More than 60% of those cuts ($ 1 bil.) are aimed at the state's health care budget. About 8% of the health cuts will come from the state drug benefit. "The prognosis for the state of California" over the next several years, Bronzan said, "is that it is going to get much worse before it gets better. I think that the Medi-Cal program will probably be reduced by another $ 80 mil. to $ 100 mil. this year." He predicted further and steeper cuts in the following year, "maybe another $ 100 mil. to $ 200 mil." From the manufacturing sector, Bronzan said, "the governor is proposing a cut of some $ 40 mil. in the elimination of about 10 products on the Medi-Cal formulary that will no longer be able to be prescribed automatically but will have to go through the treatment authorization process." The California legislator described the lengthy seven-step treatment authorization process as a form of "bureaucratic guerilla warfare that is very successful against providers." Bronzan asked rhetorically: "Why do we do this? Is it because we are concerned about quality of care? No. We do it in order not to have prescriptions filled." Bronzan told the PMA audience that, in general, he views pharmaceuticals as a potential cost saver in the overall health care budget. "I have a very different view, in general, of pharmaceuticals than many people do," Bronzan said. "I hold with the notion," he said, "that for the most part pharmaceutical products are the most inexpensive, the most cost effective form of medical care, second only to exercise and nutrition. There is nothing cheaper." He noted that the after-the-fact cost of treatment of certain medical problems greatly exceeds the cost of preventive drug therapy. "When the access to care is reduced, particularly in the area of prenatal care, the cost of taking care of those problems in the emergency room is sometimes 200,000 times greater than the cost of giving simple types of care," Bronzan maintained. The Fresno Democrat said he has sponsored a bill for several years running to put prenatal vitamins on the state's drug formulary. That bill, he reported, has been vetoed three years in a row. "Prenatal vitamins," he maintained, "cost about $ 8 per term a pregnancy. A high-risk pregnant mother that has a low birth weight baby costs the same state of California on the average $ 250,000 for one low birth weight baby. What is the sense of that?"
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