Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committees on Commerce, Consumer Protection and Housing and Health and Human Services, to which was referred H.B. No. 2834 entitled:

beg leave to report as follows:

The purpose of this measure is to establish a discount pharmaceutical drug program for all state residents.

Your Committees received testimony in support of this measure from the following: Office of the Lieutenant Governor, Insurance Commissioner, Department of Health, Executive Office on Aging, Hawaii State Teachers Association, Hawaii State AFL-CIO, AARP Hawaii, Hawaii Catholic Conference, Hawaii Government Employees Association, Hawaii Alliance for Retired Americans, Policy Advisory Board for Elder Affairs, Kokua Council, Healthcare Association of Hawaii, The Medicine Bank, Unity House, Inc., Longs Drugs, ILWU Local 142, Hawaii State Council of Senior Citizens, and three individuals.

The Pharmaceutical Research and Manufacturers of America opposed the measure. The Board of Pharmacy and Office of Information Practices opposed specific provisions in the measure.

In statewide hearings convened last year and in hearings on this and similar measures, your Committees received compelling and often poignant testimony time and time again from or about Hawaii residents without prescription drug coverage who cannot afford to buy the medicines they need. Many uninsured are forced to choose between paying for medicine and other basic necessities such as food and shelter. Others undermedicate themselves to make their medicines last longer, at the expense of their health. Although your Committees learned that the elderly are among the hardest hit by the high cost of drugs, it also heard that younger adults with disabling or terminal illnesses face similar problems. Statewide, it is estimated that 228,000 Hawaii residents lack drug coverage.

The statistical evidence shows that drug prices will continue to rise, thereby making the affordability issue even more critical. According to the AARP Public Policy Institute, prescription drug prices rose at a rate over one and a half times the rate of general inflation between 1995 and 2000, prescription drug spending per American is expected to rise at an average rate of eleven and two tenths per cent in the next ten years, and prescription drugs account for the single largest component of out-of-pocket expenses for older Medicare beneficiaries.

While consumers find it increasingly difficult to afford the medicines they need, the pharmaceutical industry continues to enjoy substantial profits. Research by the Henry J. Kaiser Family Foundation shows that the drug industry, which spends more than any other industry on consumer advertising in the United States, is also the most profitable. More than eighteen per cent of the industry's revenue is profit, compared to only four and a half per cent for all Fortune 500 firms in 2000. While drug companies attempt to justify high drug prices on the costs of research and development, the Foundation reports that only fourteen per cent of revenues are spent on research and development. Additionally, taxpayer dollars help to finance these activities.

Currently, no state or federal program addresses the problem of drug affordability for the majority of the uninsured. Medicare does not provide drug coverage to the over seventy thousand Hawaii seniors and disabled for whom it provides basic health coverage. Discount programs offered by some drug companies have strict income and asset limits and are aimed at the indigent population. Although legislation at the national level has been considered, including Medicare reform, the states cannot afford to wait for relief from the federal government, and as of June 2001, twenty-nine states have established some version of a state pharmacy assistance program.

This measure establishes a pharmaceutical discount program open to all state residents called the Hawaii Rx program, which is modeled on a program currently operating in the state of Maine. The program would make prescription drugs available to program participants at discounted prices by using the State's purchasing power to negotiate rebates from drug manufacturers and reimbursing pharmacies that sell these drugs at discounted prices. The proposed program does not contain price control measures, a component of the Maine program that resulted in legal challenges, but does require all manufacturers who dispense drugs in this State to disclose their marketing costs in order to assist the State in its administration of the program.

The proposed program stands to benefit all of its participants. Manufacturers who negotiate rebates will benefit from volume sales to the State and will not be subject to prior authorization requirements. Participating pharmacists will gain the patronage of persons seeking discounted prices and will be reimbursed for discounted sales. Most importantly, thousands of Hawaii residents who presently lack drug coverage will be able to purchase pharmaceuticals at affordable prices and to obtain the medicines needed to prevent illness, alleviate pain, control disease, and prolong life.

Upon careful consideration, your Committees have amended this measure by replacing its contents with the language of a similar measure, S.B. No. 2520, S.D. 2. As amended, this measure:

As affirmed by the records of votes of the members of your Committees on Commerce, Consumer Protection and Housing and Health and Human Services that are attached to this report, your Committees are in accord with the intent and purpose of H.B. No. 2834, as amended herein, and recommend that it pass Second Reading in the form attached hereto as H.B. No. 2834, S.D. 1, and be referred to the Committee on Ways and Means.