Honolulu, Hawaii

, 2002

RE: H.B. No. 2834

S.D. 2

C.D. 1



Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii


Your Committee on Conference on the disagreeing vote of the House of Representatives to the amendments proposed by the Senate in H.B. No. 2834, S.D. 2, entitled:


having met, and after full and free discussion, has agreed to recommend and does recommend to the respective Houses the final passage of this bill in an amended form.

The purpose of this measure is to create the Hawaii Rx program to reduce prescription drug costs for all state residents who choose to participate.

In statewide hearings on this and similar measures, legislative 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.

Testimony was heard regarding individuals who have suffered as a result of the high cost of prescription drugs. In many instances, families who are unable to afford prescription medications must forego filling their prescriptions in order to buy food and other necessities. Others try to "stretch" medications by taking less than the prescribed dosage, thereby reducing their effectiveness. When access to prescription drugs is restricted due to prohibitive costs, public health problems arise and Medicaid and overall health-care costs increase.

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.

Pharmaceutical drug manufacturers, who generally oppose state prescription drug assistance programs, contend that many pharmaceutical companies have already implemented patient assistance programs through which medications are either provided free of charge or at reduced prices. Your Committee on Conference recognizes that manufacturer-sponsored programs help some individuals, but program income limits and strict eligibility requirements, exclude many. Furthermore, pharmaceutical companies may terminate their programs at any time. The Hawaii Rx program is designed to provide Hawaii residents with uninterrupted access to affordable prescription drugs.

Manufacturers further contend that "prior authorization," an essential component of this bill, will greatly limit access to medicine. This component authorizes the Department of Human Services to exclude a manufacturer's products from State prior authorization lists if the manufacturer and Director of Human Services fail to reach a drug rebate agreement. Manufacturers argue that prior authorization would remove the profit incentive for companies to research and develop new medicines.

Your Committee on Conference finds that this argument is contradicted by data released by the Henry J. Kaiser Family Foundation which includes:

(1) The pharmaceutical industry, which spends more than any other industry on consumer advertising in the United States, is also the most profitable;

(2) Profits as a percent of revenues for the pharmaceutical industry have been greater than four times the median rate for all Fortune 500 firms in the late 1990s (18.6 percent of revenues compared to 4.5 percent for all Fortune 500 firms in 2000); and

(3) Fourteen percent of pharmaceutical company revenues are spent on research and development, the same amount spent on marketing and advertising.

Finally, concern has been expressed regarding lawsuits challenging the legality of state prescription drug assistance programs. Specifically, in the State of Maine, PhRMA filed a lawsuit challenging the constitutionality of the Maine Rx program, the same program upon which the Hawaii Rx program is modeled. The Maine Rx program was upheld by the First Circuit United States (U.S.) Court of Appeals, which found that the program did not violate the Supremacy or Commerce Clause of the U.S. Constitution.

Your Committee on Conference agrees with the following quote of Supreme Court Justice Louis Brandeis, in the Court of Appeals' opinion:

"To stay experimentation in things social and economic is a grave responsibility. Denial of the right to experiment may be fraught with serious consequences to the nation. It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country."

Your Committee on Conference has amended this measure by:

(1) Removing the provision creating a drug advisory commission. Your Committee on Conference does not believe that it is necessary at this time to create an advisory group but this may be desirable in the future;

(2) Removing the requirement that manufacturers of prescription drugs report their marketing costs;

(3) Removing the rebate dispute resolution provisions;

(4) Removing amendments to chapter 346, Hawaii Revised Statutes, that require pharmacies to disclose how much is being saved by consumers and that reference the professional fee. Your Committee on Conference believes that it is more appropriate for the Department of Human Services (DHS) to publicize the savings of participants in the Hawaii Rx program. Under this measure, dispensing fees are to be set by DHS at no less than the Medicaid dispensing fee;

(5) Specifying that the Hawaii Rx program will begin on July 1, 2004, and that additional discounts will be available to participants on or before July 1, 2005; and

(6) Adding a general fund appropriation of $200,000 to be used by DHS to develop a plan for implementation of the program, and requiring DHS to report to the Legislature on its progress before the 2004 Regular Session.

Your Committee on Conference has also made technical, nonsubstantive amendments for purposes of clarity, consistency, and style.

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of H.B. No. 2834, S.D. 2, as amended herein, and recommends that it pass Final Reading in the form attached hereto as H.B. No. 2834, S.D. 2, C.D. 1.

Respectfully submitted on behalf of the managers: