Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 2520 entitled:

begs leave to report as follows:

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

Your Committee received testimony in support of this measure from the following: Office of the Lieutenant Governor, Department of Health, Insurance Commissioner, Executive Office on Aging, AARP, Kokua Council, Hawaii Alliance for Retired Americans, ILWU Local 142, Medicine Bank, AARP Hawaii Advocacy Action Team, Hawaii State Teachers Association, Hawaii State AFL-CIO, Hawaii Academy of Physician Assistants, Policy Advisory Board for Elder Affairs, Hawaii Government Employees Association, Legal Aid Society of Hawaii, Unity House, Inc., Hawaii Catholic Conference, and five individuals.

The Board of Pharmacy supported the measure's intent, but raised concerns regarding certain provisions. The Pharmaceutical Research and Manufacturers of America opposed the measure.

In statewide hearings convened last year and in the hearing on this measure, your Committee 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 Committee 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 Committee has amended this measure by:

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2520, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2520, S.D. 1, and be referred to the Committee on Ways and Means.