Politics of medication may prove bitter pill for governor.

THINK it's tough for businesses grappling with drug costs?

Consider the position of Gov. Arnold Schwarzenegger, sandwiched between Republican-backed pharmaceutical industry interests and consumers, especially seniors, who are outraged over the high cost of prescription medicine.

The Democratic-dominated Legislature has sent four bills to the governor's desk that promote re-importation of prescription drugs from Canada, much to the dislike of the pharmaceutical industry.

While Schwarzenegger has not stated his plans, indications are he will wield his veto pen and instead push a compromise that would seek to lower prices by utilizing the state's bulk purchasing power--a plan that already has critics.

"If there is anything left at all for the governor to salvage for his populist image, prescription drugs would be the place to demonstrate his allegiance to voters," said Jerry Flanagan of the Foundation for Taxpayer & Consumer Rights, which has calculated that the governor has received $341,000 in campaign contributions from the pharmaceutical industry.

The controversy over prescription drugs has finally hit California. Last month, the taxpayer foundation led a train full of seniors to Vancouver to buy discount Canadian drugs. Dissatisfied with President Bush's Medicare drug benefit, older Californians are pushing for the state to make it easier and safer to buy cheaper Canadian prescription drugs, but there has been resistance by the pharmaceutical industry and other business interests.

Gap in coverage

The Medicare drug benefit, which does not go into effect until 2006, will pick up about a quarter of the cost of prescription drugs for Medicare recipients who spend up to $2,200 a year. But there is a gap between $2,250 and $5,100 that leaves consumers paying up to 100 percent. Beyond the $5,100, the government will pick up 95 percent of the costs.

Consumer advocates say the gap in coverage was unnecessarily created by a ban in legislation that prohibits the federal government from using its bulk purchasing power to negotiate lower prices for the Medicare drugs.

A survey last month by the Kaiser Family Foundation found that 47 percent of Medicare beneficiaries had a negative view of the law, with 26 percent holding a favorable view. Also viewed unfavorably are drug discount cards Medicare recipients are supposed to use to gain some moderate discounts until the benefit kicks in.

What was strongly supported in the poll was re-importation--though it was specifically prohibited in the Medicare drug benefit legislation.

Two of the re-importation bills would require the state to establish Web sites with comparative prices and lists of pre-screened Canadian pharmacies. Other measures would allow the state to directly and indirectly buy Canadian drugs for prisoners, youthful offenders, Medi-Cal beneficiaries and AIDS patients.

Late last month Health and Human Services Secretary Kim Belshe echoed industry arguments in a letter to the four Democratic legislators carrying the bills. The letter noted re-importation was prohibited by federal law and potentially unsafe.

The letter also included a last-minute proposal that would have established a state bulk-purchasing program aimed at lowering drug costs for low-income and uninsured seniors and other residents. The proposal was rejected by the Legislature but the Senate and Assembly Health Committees plan to hold a joint hearing on it as early as this month.

"There is a safety issue," said Barbara Morrow, general counsel for the California Healthcare Institute, a trade group that includes biotech and pharmaceutical companies. The institute has lobbied against the re-importation bills.

The safety issue has grown in importance as reports have surfaced about Canadian Internet pharmacies, facing a shortage of drugs resulting from demand in California, sourcing supplies from countries as far away as Chile.

Safety issues overblown 

The pharmaceutical industry also has argued that allowing Canadian drugs into the U.S. market would discourage research and development into new drugs by lowering profits and thereby discouraging investment.

State Sen. Deborah Ortiz, D-Sacramento, who carried one of the Web site bills, maintains that safety issues are overblown, and that her bill includes safeguards that would require pharmacies listed on the state Web site to source medications only from Canadian suppliers.

She thinks the real opposition stems from concerns over profitability. "Their R&D is only 1 (percent) or 2 percent of their costs. It's really their marketing and advertising costs (that would be affected)," said Ortiz, chair of the Senate Health Committee.

Ortiz said an initial analysis by her staff indicated that the governor's alternative bulk purchasing plan would only trim 15 percent of the cost of prescription drugs.

On one point both sides appear to agree: re-importation is only a temporary solution, given that the Canadian market cannot indefinitely supply the vastly larger U.S. market with cheap drugs.

The industry maintains that prices in Canada, the European Union and other foreign countries are abnormally low due to unfair price controls exercised by those governments, and it would like the U.S. government to push for fairer pricing.

That, combined with a lifting of the bulk discount ban included in the Medicare bill, could eventually lower U.S. retail drug prices--something that would benefit even businesses that purchase drug benefits for employees.