The San Diego Union-Tribune

SACRAMENTO — A battle between consumer groups and the pharmaceutical industry over cheaper prescription drugs is threatening to escape the confines of the Legislature and escalate into a full-scale ballot war in the fall.

The industry and the consumer groups are touting the virtues of diplomacy and negotiation in the Legislature. But they are promoting rival initiatives that could end up on an already potentially crowded special election ballot in November.

The pharmaceutical industry, a close ally and big contributor to Gov. Arnold Schwarzenegger, is quietly amassing a $10 million campaign fund to bring his prescription drug program before voters.

The campaign may be an attempt by the industry to pressure the Legislature into passing Schwarzenegger’s more-limited plan to provide cheaper drugs, instead of broader proposals that would require companies to sell more drugs at lower prices.

Adding further intrigue, drug makers are sponsoring two other ballot measures long favored by Republicans because they target two Democratic constituencies: public employee unions and trial lawyers.

One would make it more difficult for the unions to collect dues. The other limits attorney contingency fees, which could reduce the income of trial lawyers and lower the number of lawsuits against pharmaceutical companies.

Drug company representatives insist they are serious about all three measures, but some lobbyists and legislators believe they are all part of a campaign to pressure consumer groups to drop their proposals.

“There’s certainly a lot of political brinksmanship. The question is: who blinks first?” Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights said in an interview earlier this month.

As it turned out, his group blinked. The foundation, which had submitted a ballot measure to negotiate drug discounts through bulk purchasing, decided Tuesday to drop its initiative, citing a lack of funds.

Another group, Health Access, began gathering signatures last week for an initiative providing a carrot-and-stick approach to encourage companies to sell lower-priced drugs.

All initiative proponents face tight deadlines.

They have to turn in about 400,000 valid voter signatures by late next month if they want to qualify for a special election Schwarzenegger has threatened to call for November.

So far, the fight over prescription drugs has been largely overshadowed by Schwarzenegger’s priorities.

He has focused on basing teacher pay on merit rather than tenure, implementing a 401(k)-style pension plan for state workers, requiring judges rather than legislators to draw legislative districts, and enacting a plan for automatic cuts when the budget falls out of balance.

Rob Stutzman, communications director for Schwarzenegger, said that even though the pharmaceutical industry has turned the governor’s plan into a potential ballot measure, Schwarzenegger hasn’t taken a position supporting it.

Schwarzenegger, he said, still wants to go through the Legislature.

“We’re hopeful that there’s a legislative solution,” Stutzman said.

Discounted drugs

Under the plan, uninsured Californians who earn up to 300 percent of the poverty level, about $56,000 a year for a family of four, would be eligible for discounted drugs. Companies would voluntarily supply lower-priced drugs to the program.

Schwarzenegger has pledged to use his influence to persuade the industry to participate.

Drug companies have contributed more than $350,000 to his campaigns and donated about $250,000 that went to Republican candidates he favored.

The top federal lobbyist for the same trade group backing the three ballot measures, the Pharmaceutical Research and Manufacturers of America, known as PhRMA, co-hosted a fund-raiser this month for Schwarzenegger.

During the past month, many large companies that belong to PhRMA began contributing to the ballot fund. Among the donors are Eli Lilly & Co., which chipped in $650,000; Johnson & Johnson, which donated $1.3 million; and Pfizer, which also contributed $1.3 million.

But why would an industry back a plan that calls on its members to voluntarily cut some prices?

Jose Hermocillo, a spokesman for PhRMA, said the industry wants “to make sure that consumers get the best prescription drug proposals” among the competing plans.

Critics say the industry wants to implement a narrow plan.

“Do you trust the most profitable industry in the world to voluntarily give you a fair price on drugs?” asked consumer advocate Flanagan.

Assemblyman Dario Frommer, D-Los Angeles, believes the initiative threat from the industry isn’t credible because drug companies are so unpopular.

“If this goes to the ballot, PhRMA … will lose. Voters understand that (the pharmaceutical industry) is flexing its political muscle to block real reform,” he said.

DIVERSE BACKERS

Yet the industry proposal has a diverse group of backers, ranging from Schwarzenegger to the seniors’ advocacy group AARP, to state Sen. Deborah Ortiz, D-Sacramento, who is running for insurance commissioner.

Ortiz is carrying the legislation, Senate Bill 19, which is based on the program outlined by Schwarzenegger last year just before he vetoed bills that would have opened up access to Canadian drugs.

Drug companies urged him to veto the bills.

Last year, Ortiz, who leads the Senate Health Committee, favored importing lower-priced Canadian drugs and carried one of the bills Schwarzenegger vetoed.

Now she has decided his approach can work.

“We as Democrats have to be open to being able to serve 5 million Californians and providing 40 percent discounts,” she said.

Ortiz’s change has some of her former allies puzzled.

“Sen. Ortiz’s about-face on prescription drug reform has a lot of consumer groups scratching their heads,” Flanagan said.

Ortiz, however, said she is still open to other plans and wants the Schwarzenegger administration to expand access to the program.

“I’m working with the administration,” she said. “But we may part ways.”

Assembly Democrats, meanwhile, believe Ortiz will have to change her bill if she wants to win approval from Democrats.

“I don’t see it moving to the governor’s desk,” Frommer said.

The pharmaceutical industry has also hired a bipartisan team of advisers to help it pass its initiative, including Bob White, who served as chief of staff to former Gov. Pete Wilson, a Republican, and former Assembly Speaker Willie Brown Jr., a Democrat.

Chances of a ballot war increased last week when a plan sponsored by Health Access won a pledge of full financial backing from a group of unions, the Alliance for a Better California, set up to battle Schwarzenegger’s agenda.

The alliance plan to support initiatives is generally favored by Democrats. Besides the drug proposal, it has endorsed a measure that seeks to protect car buyers and another that makes it more difficult to require a two-thirds vote for fee increases, said Jim Farrell, a spokesman for the alliance.

Supporters of the prescription drug plan say it will cover twice as many people, an estimated 10 million Californians, as Schwarzenegger’s proposal.

MAINE MODEL

Uninsured Californians who earn up to 400 percent of the poverty level, about $77,000 for a family of four, would be eligible. It also would cover those who spend more than 5 percent of their income on medical expenses.

The plan, based on a model adopted in Maine, contains a tough incentive for drug companies to participate.

Companies that don’t agree to provide discounted drugs may not be able to sell drugs to the state’s huge Medi-Cal program, a federal/state insurance program for more than 6 million low-income Californians.

“We believe we need a strong measure to get better discounts,” said Anthony Wright, executive director of Health Access. “The governor’s proposal has no hammer to bring the drug companies to the table.”

But not all groups support the hammer.

The Western Center on Law and Poverty opposes it, believing that the proposal might put the health of Medi-Cal recipients at risk by potentially denying them access to life-saving drugs. For some diseases, only one company makes an effective drug.

Hermocillo, the spokesman for the pharmaceutical industry, said it would “basically hold medical patients hostage.”

Ortiz said the pharmaceutical industry’s proposed ballot measures and Schwarzenegger’s plans to qualify initiatives create a hostile atmosphere around the Capitol that makes diplomacy difficult. She prefers a legislative solution.

“I’m in the middle of a political fight. It makes it difficult to have a policy discussion,” she said.

But some consumer advocates believe a special election presents a chance to bypass Schwarzenegger – he’s often accused of trying to bypass the Legislature – and exploit his close ties with the pharmaceutical industry.

“The special election presents an opportunity for us to put before voters some controls on price-gouging by the pharmaceutical industry,” Wright of Health Access said. “We’re going to take it.”