Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committees on Consumer Protection and Commerce and Judiciary and Hawaiian Affairs, to which was referred H.B. No. 47 entitled:

beg leave to report as follows:

The purpose of this bill is to reduce the cost of prescription drugs for persons without drug coverage under health insurance plans or public programs. This measure establishes a Prescription Drug Access Program (PDAP), administered by the State Health Planning and Development Agency (SHPDA), with advice by the newly created Prescription Drug Advisory Commission composed of consumers, pharmacists, and representatives of government agencies.

Your Committees find that under PDAP, SHPDA negotiates rebates with prescription drug manufacturers and labelers who participate in PDAP as a prerequisite to participation in the Medicaid program. Pharmacists pass the rebates on to program participants in the form of drug discounts. PDAP beneficiaries present a prescription for a covered medication and a PDAP membership card. The pharmacist collects the PDAP discount price and a pharmacy copayment amount, then bills the State for the PDAP price plus a dispensing fee, less the copayment collected. The State reimburses the pharmacy on a quarterly basis and informs the manufacturer of the amount of medication prescribed and filled under the program. The manufacturer then reimburses the State for the agreed rebate, which is deposited into a PDAP account in the SHPDA Special Fund and expended to reimburse pharmacists for PDAP discounts.

This measure also authorizes SHPDA to evaluate drug prices and set maximum prices when the public health and welfare is endangered. Manufacturers, labelers, and distributors who charge unconscionable prices or discriminate unreasonably in distributing prescription drugs are subject to civil penalties.

The Legislative and Government Affairs Committee of the Office of Hawaiian Affairs, ILWU Local 42, and the Policy Advisory Board for Elder Affairs testified in support of this measure. Testimony supporting the intent of the bill and expressing concern about its various components was submitted by the State Health Planning and Development Agency, Department of Human Services, Executive Office on Aging, and the Hawaii Pharmacists Association. The Pharmaceutical Research and Manufacturers of America opposed the bill.

Your Committees find that this measure innovatively addresses the problem of escalating prescription drug prices which leave consumers on limited or fixed incomes with the difficult choice between spending for essential living expenses, such as rent and food, or buying prescribed medication. Upon examination of this bill, however, your Committees agree with the Department of Human Services' concerns that conditioning Medicaid eligibility on participation in PDAP might have the undesired effect of driving drug companies out of Hawaii's comparatively small Medicaid and PDAP market, to the detriment of both groups of consumers.

For this reason, your Committees have amended this measure by making PDAP a voluntary program, and by removing civil penalties and SHPDA's authority to set maximum prices. As amended, PDAP enables those without medical coverage to combine their purchasing power as do beneficiaries of Medicaid and group health insurance. PDAP beneficiaries thereby obtain the leverage needed to negotiate reduced prescription drug prices with voluntarily participating drug companies.

Although your Committees heard concerns that PDAP would require the state to subsidize "premiums" or pay other program costs, your Committees believe that these concerns reflect a misunderstanding of the program. Your Committees intend that the entire program, including its administrative costs, be financed by rebates negotiated under PDAP. In addition, no premiums are involved because the sole purpose of PDAP is to enable individuals without drug coverage to operate as a group and negotiate group discounts on prescription drugs.

As affirmed by the records of votes of the members of your Committees on Consumer Protection and Commerce and Judiciary and Hawaiian Affairs that are attached to this report, your Committees are in accord with the intent and purpose of H.B. No. 47, as amended herein, and recommend that it pass Second Reading in the form attached hereto as H.B. No. 47, H.D. 1, and be referred to the Committee on Finance.