BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Deborah V. Ortiz, Chair
BILL NO: AB 73
A
AUTHOR: Frommer and Chan
B
AMENDED: March 17, 2005
HEARING DATE: June 22, 2005
7
FISCAL: Business, Professions and Economic
Development / 3
/Appropriations
CONSULTANT:
Bohannon / ak
SUBJECT
Prescription drugs: importation: procurement
SUMMARY
This bill would establish the California Rx Prescription
Drug Web site Program, to be administered by the Department
of Health Services (DHS), and would require the department
to establish a Web site on or before July 1, 2006, to
provide information to California residents about options
for obtaining prescription drugs at affordable prices.
The bill would require the website, at a minimum, to
provide information about and establish electronic links
to, certain federal, state, and private pharmaceutical
programs, pharmacies located in Canada, the United Kingdom,
and Ireland that meet specified requirements, and other Web
sites. Additionally, the bill would authorize DHS to
assess a fee on international pharmacies that the
department reviews for possible inclusion on the Web site
to offset the cost of reviewing those pharmacies.
ABSTRACT
Existing federal law:
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
2
1.Establishes the Food and Drug Administration (FDA), an
agency within the United States Department of Health and
Human Services, to regulate the manufacture, labeling,
sale, and distribution of drugs in the United States
under authority of the Federal Food, Drug, and Cosmetic
Act (Act).
2.Under the Act, specifies that it is illegal to import
drugs into the United States that have not received FDA
approval to demonstrate they meet the federal
requirements for safety and effectiveness, are labeled
incorrectly, or that are dispensed without a valid
prescription.
3.Specifies that it is illegal for any person, other than
the original manufacturer of a drug, to import into the
United States a prescription drug that was originally
manufactured in the United States and sent abroad, even
if the drug were to comply with the Act in all other
respects.
4.Allows pharmacists and wholesalers to import prescription
drugs from Canada if the Secretary of Health and Human
Services certifies that importation will pose no
additional risk to the public's health and safety and
will result in a significant reduction to the cost of
prescription drugs to consumers.
Existing federal guidance:
1.Establishes the FDA's personal importation policy to help
guide the agency's enforcement discretion with respect to
imports by individuals of drugs for their personal use.
2.Authorizes FDA personnel to exercise discretion to allow
personal shipments of drugs or devices and to consider a
more permissive policy in specified situations.
Existing state law:
1.Establishes the California State Board of Pharmacy within
the Department of Consumer Affairs to license pharmacists
and to regulate the practice of pharmacy in the state.
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
3
2.Provides that any pharmacy located outside of California
that delivers prescription drugs into the state is
considered a nonresident pharmacy.
3.Requires a nonresident pharmacy to register with the
Board of Pharmacy and comply with all lawful directions
of and requests for information from the state in which
it is a resident.
4.Defines "pedigree" as a record, in electronic form,
containing information regarding each transaction
resulting in a change of ownership of a given dangerous
drug, from sale by a manufacturer, through acquisition
and sale by a wholesaler, until final sale to a pharmacy
or other person furnishing, administering, or dispensing
the dangerous drug.
This bill:
1.Makes the following legislative findings and
declarations:
a. Prescription drugs have become essential for
ensuring the health of millions of Californians;
b. Rising out-of-pocket costs for prescription drugs
are placing a growing burden on California consumers;
c. The rising cost of prescription drugs also places a
significant burden on state government;
d. The rising cost of prescription drugs jeopardizes
the health of seniors, the disabled, and other
consumers, who cannot afford the medication they need
to stay healthy;
e. The rising cost of prescription drugs places a
disproportionate burden on communities of color;
f. A prescription drug is neither safe nor effective
to an individual who cannot afford it; and,
g. California residents face a growing need for
assistance in finding information about sources for
prescription drugs at affordable prices.
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
4
2.Establishes the California Rx Prescription Drug Web site
Program, to be administered by DHS, to provide
information to California residents and health care
providers about options for obtaining drugs at affordable
prices.
3.Requires DHS to establish a Web site, on or before July
1, 2006, and at a minimum provide electronic links to all
of the following:
a. Prescription drug benefits available to Medicare
beneficiaries, including the Voluntary Prescription
Drug Benefit Program;
b. State programs that provide drugs at discounted
prices for California residents;
c. Pharmaceutical manufacturer patient assistance
programs that provide free or low-cost prescription
drugs to qualifying individuals;
d. International pharmacies that are located in
Canada, the United Kingdom, and Ireland that provide
mail-order services to the United States and who meet
the following requirements:
Are licensed by the province or country, as
appropriate, in which they are located;
Comply with the requirements of a nonresident
pharmacy, as specified;
Require a prescription from a patient's
personal physician who is licensed to practice in
the United States;
Require a signed patient agreement;
Ship prescription drugs in tamperproof original
manufacturer containers to individuals in the United
States, unless the consumer requests to receive the
drug in a childproof container;
Include a physical address and pharmacy license
number on its company Web site;
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
5
Do not furnish any of the following:
- A controlled substance;
- A biological product;
- An infused drug, including a peritoneal
dialysis solution;
- An intravenously injected drug;
- A drug that is inhaled during surgery;
- A drug that requires refrigeration or cannot
be safely shipped by mail;
- More than the prescribed amount of a drug or
more than a three-month supply of any drug;
- A drug that the consumer indicates he or she
has not previously taken; or
- A drug for which there is no equivalent drug
approved for sale in the United States by the FDA.
Sell only prescription drugs that have been approved
for sale in the country in which the pharmacy is located
by the agency responsible for ensuring the safety of
prescription drugs in that country;
Comply with state law regarding the documentation of
the pedigree of prescription drugs;
Does not require a consumer to sign a waiver of
liability or a release of liability for a negligent act
by the pharmacy;
Maintain a service department to respond to consumer
inquiries and provide information to consumers about how
they may file complaints with the provincial or other
applicable licensing authority;
Ensure that all physicians, pharmacists, and
technicians in its employ are properly licensed and their
licenses are in good standing;
Comply with all personal health and medical
information privacy law applicable to pharmacies located
in California; and,
Any other requirement established by DHS to ensure
the safety, accessibility, and affordability of
prescription drugs.
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
6
e. Other Web sites as deemed appropriate by DHS that
help California residents to safely obtain
prescription drugs at affordable prices, including
links to Web sites of health plans and health insurers
regarding their prescription drug formularies.
1.Requires the Web site to include price comparisons of at
least 50 commonly prescribed brand name prescription
drugs, including typical prices charged by licensed
pharmacies in the state and by international pharmacies
that provide mail-order service to the United States and
whose Web sites are linked to the department's Web site,
as specified.
2.Requires a pharmacy that seeks to be linked to DHS' Web
site, as specified, to apply to DHS.
3.Authorizes DHS to enter into a contract with a pharmacy
that meets the above requirements.
4.Allows the contract to be renewed annually upon payment
of a fee, as specified, provided that the pharmacy
continues to comply with the above requirements.
5.Authorizes DHS to terminate a contract with, and delete
an electronic link to, or information about, a pharmacy
that the department determines no longer complies with
the above requirements.
6.Requires DHS to review, within 30 business days, any
information it receives regarding a pharmacy's compliance
with the above requirements and to determine whether the
information constitutes grounds for removal of the
pharmacy from the Web site.
7.Authorizes DHS to access a fee on international
pharmacies that the department reviews to offset the cost
of reviewing those pharmacies.
8.Requires DHS to ensure that the Web site established by
this measure does not duplicate other Web sites that
provide information about prescription drug options and
costs.
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
7
9.Requires any information, including the identity of an
international pharmacy, to be posted on the Web site, to
first be approved by professional staff of DHS before it
is posted.
10.Requires DHS to include on the Web site a notice that
informs consumers about state and federal laws governing
the importation of prescription drugs and the FDA's
policy governing personal importation.
11.Requires the notice to also inform consumers that a
pharmacy linked to the Web site is licensed in the
country in which it is located and that DHS has the right
to remove a pharmacy from the Web site if it violates the
above requirements or the terms of any agreement between
DHS and the pharmacy.
12.Requires the notice to include a statement the that
state accepts no legal liability with respect to any
product offered or pharmaceutical services provided by a
pharmacy linked to the Web site.
FISCAL IMPACT
According to the Assembly Committee on Appropriations,
there will be General Fund costs of approximately $270,000
annually.
BACKGROUND AND DISCUSSION
Purpose of bill
According to the author, the Web site envisioned by AB 73
will provide Californians with better information about
options for obtaining affordable prescription drugs. He
asserts that every day, thousands of Californians are
buying drugs from internet pharmacies in Canada and
elsewhere because they cannot afford the high price of
drugs at their local pharmacies. The author argues that
these consumers currently have no assurance that the
pharmacies they are buying from are legitimate and properly
licensed by the relevant authorities. He insists that AB
73 would enable the state to provide a valuable service to
its residents by giving them information about safe,
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
8
reputable internet pharmacies located in Canada and
Britain. The author believes the experience of other
states such as Illinois and Minnesota, demonstrates that
such a Web site can improve access to affordable drugs in a
way that protects consumer health and safety.
Rising prescription drug costs
As a number of studies document, access to affordable
prescription drugs is a growing problem in California and
in the U.S. According to the Kaiser Family Foundation,
almost a quarter of Americans under age 65 have no
prescription drug coverage. In California, according to
the UCLA Center for Health Policy Research, nearly one in
five Californians under age 65 lacked health coverage
altogether in 2001, a substantial percentage of whom are
not eligible for most public assistance or drug assistance
programs due to excess income or assets. Of those who do
have health coverage, over 2 million report that they do
not have coverage for prescription drugs.
Further, prescription drugs represent one of the fastest
growing health care expenditures as drug prices continue to
grow at roughly twice the rate of inflation in California
and the rest of the U.S. Of the 50 drugs used most
frequently by seniors, the average annual cost as of
January 2003 was $1,439. The five most frequently
prescribed medications for the elderly all had annual costs
of between $500 and $1,500 per year. According to surveys,
substantial percentages of seniors forego taking their
medications due to the high cost.
Importation efforts last legislative session
In an effort to facilitate immediate access to affordable
prescription drugs for seniors and people with
disabilities, several members of the legislature introduced
bills that would have allowed the importation of
prescription drugs from Canada in some capacity. Although
it is currently illegal, an estimated 1 million Americans
buy drugs from Canada, accounting for at least $1 billion
in annual sales. According to various sources, comparable
drugs in Canada sell for 40 percent less than in the U.S.
on average, and can sometimes sell for 50 - 70 percent
less, because the Canadian government limits what drug
companies can charge for prescription drugs. In addition,
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
9
exchange rates can contribute to lower costs of Canadian
drugs.
The FDA's consistent policy has been that foreign medicines
are unsafe because they cannot assure that they are not
counterfeit, mislabeled, expired, or contaminated.
Although it cannot point to cases in which U.S. residents
have been harmed by drugs purchased from foreign
pharmacies, the FDA cites evidence from several border
checks of drugs bound for consumers in the U.S. that have
found large percentages of unidentified drugs, counterfeit
drugs, mislabeled drugs, and drugs not approved for use in
the U.S.
The FDA has adopted a personal importation policy which
permits individuals and physicians to import up to a
three-month supply of drugs for treatment of a patient's
condition for which effective treatment may not be
available domestically, which do not present an
unreasonable risk, and for which there is no intent to
market to U.S. residents. In practice, the FDA generally
has not prosecuted individuals who are importing drugs for
their own use.
In a letter dated August 19, 2004, the Secretary of the
Health and Human Services Agency expressed concern that the
importation measures were contrary to federal law and would
expose the state to potential tort liability. As an
alternative approach, the Secretary proposed amending the
bills to establish a state pharmacy assistance program to
harness the purchasing power of low-income seniors and
uninsured Californians to secure prescription drug
discounts from pharmaceutical manufacturers. The substance
of that proposal was contained in SB 19 (Ortiz) which
failed passage in the Senate Health Committee.
Importation Web sites in other states
In January 2004, Minnesota established a consumer Web site,
called "MinnesotaRxConnect". Wisconsin recently launched a
similar Web site, as have the states of North Dakota, New
Hampshire, Rhode Island, Washington and the City and County
of San Francisco. At this point, no state or locality has
been ordered by the FDA to discontinue their Web sites.
The FDA has, however, shut down a number of U.S. businesses
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
10
or storefronts that have served as middlemen for Canadian
pharmacies and has tried to dissuade governors and mayors
from establishing programs to buy Canadian drugs.
The need to move beyond Canada
The Canadian government had always taken a "Canadians
first" approach to the mail-order pharmacy industry -
meaning the practice was generally tolerated, as long as
it did not pose a serious threat to the domestic drug
supply. However, in late 2004, due to growing domestic
anxiety and increased international pressure from the U.S.
government and the pharmaceutical industry, the Health
Minister of Canada reversed his previous position that
existing levels of sales to Americans did not pose a threat
to the drug supply of Canada.
As a result, the Health Minister and the Canadian
government have begun to discuss the possibility of
shutting down Canadian mail-order pharmacies indefinitely.
Although no action has been taken to date, in light of this
threat to the supply of drugs sold to Americans, and in
response to continuing efforts by drug manufactures to
restrict the supply of drugs into Canada, a number of
states have examined whether their programs should
additionally link consumers to pharmacies in other
countries besides Canada.
In the past year, representatives of the state of Illinois
and of the state of Minnesota made separate visits to
Europe to assess the quality of European pharmacies.
Their evaluations found that:
European qualifications for pharmacist training are
substantially equivalent to those in the U.S.;
Pharmacy storage rules are similar;
The drug distribution system in Europe, as in Canada, is
a streamlined, closed system that offers fewer
opportunities for counterfeiting drugs than the more open
American system that has more middlemen handling drugs
between the manufacturer and the patient;
Drug dispensing in Europe is safer and less prone to
error than in the U.S. because pharmacies in Europe
dispense drugs that are supplied in the manufacturer's
pre-counted blister pack. In the U.S., pharmacists
typically must open the manufacturer's original container
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
11
and individually count out the number of pills to put in
a bottle for the customer. Otherwise European drug
dispensing systems were found to be similar to those in
the U.S.
These reports also found that parallel importation of drugs
in Europe did not compromise drug safety and, in fact, were
more tightly regulated.
Liability and federal preemption issues
In the Governor's veto message of AB 1957 (Frommer, 2004),
the Governor argued that assisting residents in their
efforts to import drugs from Canada would violate federal
law and could expose the state to civil, criminal and tort
liability. In response, the author received a Legislative
Counsel opinion last year which states that "the approval
by DHS that a Canadian pharmacy meets the requirements
listed would, in our opinion, be covered by the immunity
from liability provided" in existing law. The opinion
additionally states that "the potential exists, however
remote, for ministerial errors for which liability against
the state could be found."
The author additionally received a Legislative Counsel
opinion that states that the Canadian Web site described in
AB 1957 from last year would not violate federal law.
Specifically, the opinion states that the program proposed
in AB 1957 "would not have interfered or obstructed the
operation and enforcement of the Act with respect to
importation of prescription drugs?" Legislative Counsel
sees "no obstacle in complying with the proposed state
program? and federal law."
Arguments in support
Supporters of the bill believe drug prices have skyrocketed
out of control and as a result, many Californians are
already purchasing drugs from international pharmacies.
They believe the Web site created by AB 73 will simply
provide interested consumers with better information about
reputable pharmacies so that they can make informed
choices. They argue that existing information about
international pharmacies and various government and private
assistance programs are notoriously unreliable and
difficult to navigate. They believe AB 73 will give
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
12
Californians a valuable tool by providing the information
they need to readily access their needed medications in the
most affordable ways possible. Moreover, supporters of the
bill insist that Democrat and Republican governors across
the country have led the way in providing U.S. residents
with access to safe, affordable medications from other
countries and believe the time has come for California to
join the nationwide effort.
Arguments in opposition
Opponents of the bill have numerous concerns regarding
consumer safety, state liability, and the potential impacts
on biomedical research. They believe the bill will lead to
the importation of counterfeit or adulterated drugs that
may contain useless ingredients, improper dosages,
bacteria, or dangerously weak or super-potent ingredients.
Additionally, they fear the state would sacrifice its
general immunity and could potentially face lawsuits and
legal defense expenses as result of medication taken by
those participating in the program. They insist that
lawsuits alleging injuries resulting from the use of
contaminated drugs can yield multi-billion dollar verdicts
and settlements which would negate any savings realized by
the state. While the bill provides for a waiver of state
liability, opponents believe a court may find that this
provision is void and contrary to public policy given DHS'
directive to ensure the safety of these drugs. Further,
opponents state that California is home to over 2,500
biomedical companies whose research and development now
accounts for more than 225,000 California jobs. They
insist that as U.S. companies see declining rewards for
assuming financial risk, they will decrease investment in
medical innovation. Lastly, opponents maintain that the
Web site created pursuant to AB 73 would expressly violate
federal law.
Prior legislation
SB 1144 (Burton, 2004) would have required that Canadian
sources be included among the companies with which the
Department of General Services (DGS) is permitted to
contract for prescription drugs, that all contracts
include appropriate safeguards, and that DGS seek
appropriate federal waivers. This measure was vetoed by
the Governor.
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
13
SB 1149 (Ortiz, 2004) would have required the Board of
Pharmacy to develop an interactive Web site that includes
information on Canadian pharmacies that met recognized
standards for safe dispensing of drugs to California
residents and information concerning prescription drugs
suppliers outside the U.S. that violated safe dispensing
standards. This measure was vetoed by the Governor.
SB 1333 (Perata, 2004) would have allowed DHS to
reimburse pharmacies for drugs dispensed to Medi-Cal and
AIDS Drug Assistance Program beneficiaries that were
purchased from a Canadian pharmacy, and would have
established a new reimbursement rate for such drugs.
This measure was vetoed by the Governor.
AB 1957 (Frommer, 2004) would have required DGS to
coordinate a review of state agencies to determine
potential savings if prescription drugs were purchased
from Canada and to establish pilot programs.
Additionally required DHS to establish a California Rx
Program, including a Web site to facilitate purchasing
prescription drugs at reduced prices. Required the Web
site to include price comparisons, including Canadian
prices and links to Canadian pharmacies. This measure
was vetoed by the Governor.
Continued---
QUESTION AND COMMENTS
Do similar Canadian supply concerns exist in other
international markets? In response to increasingly limited
access to the Canadian drug supply, the author has expanded
the Web site created pursuant to AB 73 to additionally
include information and electronic links to pharmacies
located in the United Kingdom and Ireland. One factor
contributing to the decline of the Canadian mail-order
pharmacy industry is the fear that the Canadian market can
not bear additional drug importation pressures from
California consumers. What assurance does the author have
that similar market pressures and concerns do not exist in
these other international markets as well?
PRIOR ACTIONS
Assembly Floor: 46 - 31 Pass
Assembly Appropriations:11 - 5 Do Pass
Assembly Bus. & Prof.: 6 - 1 Do Pass
Assembly Health: 10 - 4 Do Pass
POSITIONS
Support: AFSCME
AIDS Healthcare Foundation
California Alliance for Retired Americans
California Federation of Teachers
California Labor Federation
California Medical Association
California School Employees Association
California Teachers Association
CALPIRG
City of Compton
Consumers Union
County of San Joaquin
Gray Panthers
Greenlining Institute
Health Access
Health Care for All - California
Lieutenant Governor, Cruz Bustamante
NAMI California
Protection and Advocacy, Inc.
Retired Public Employees Association
SEIU
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 73 (Frommer and Chan) Page
15
Oppose:BIOCOM
California Chamber of Commerce
California Department of Health Services
California Healthcare Institute
PhRMA
-- END --