Attorney General Lockyer Announces Planned Legal Challenge of Flawed Federal Prescription Drug Plan Will Be Put on Hold

But State Will Join Multi-State Action If Federal Claim of Benefit to State Proves False

Thursday, February 23, 2006
Contact: (916) 210-6000,

(SACRAMENTO) – Attorney General Bill Lockyer today announced California will not join a multi-state lawsuit challenging the new federal prescription drug plan, unless state officials determine the Bush Administration, after recently revising a reimbursement formula, falsely promised state taxpayers would save money under a key provision, and not suffer a $131 million net loss.

“The Bush prescription drug plan has left pharmaceutical firms and HMOs rolling in profits, but left seniors out in the cold without medicine they need,” said Lockyer. “The provision we planned to challenge threatened to heap another indignity on California taxpayers by forcing them to pay the federal government more than the state supposedly would save under this flawed program. Faced with our legal challenge, the Bush Administration revised its formula, and the Governor determined the change seemed to ensure California will save more than it provides the federal government. As long as we’re satisfied the savings are real and significant, we will refrain from going to court on this issue.”

The Governor and Legislature already have taken action to provide more than $150 million in emergency funding from the state’s coffers to buy prescription drugs for eligible seniors who could not obtain their medicine under Part D of the federal Medicare Modernization Act (MMA). The program took effect January 1, 2006. The inability of many seniors to obtain prescriptions continues, Lockyer noted, and has been caused by the Bush Administration’s poor implementation and other problems with the program.

“The Bush Administration must fully reimburse California taxpayers for the expenditures they have been forced to make because of the federal government’s failures,” said Lockyer. “I will fully support efforts to make sure that happens, as well as reforms to provide seniors an effective prescription drug plan.”

The planned multi-state legal challenge involves a separate issue and targets the MMA’s so-called “clawback” provision. Under Part D, the federal government provides prescription drugs – through private-sector health plans – to approximately 1.1 million California seniors eligible to receive benefits under both Medicare (100 percent federally funded) and Medi-Cal (shared state-federal funding).

Theoretically, the federal plan is supposed to save California hundreds of millions of dollars it now spends under the Medi-Cal program to provide prescription drugs to poor and disabled seniors. But the clawback provision threatened not only to eliminate much of those savings, but actually put California in the red, at least in the program’s first few years.

The clawback provision requires states to pay back to the federal government most of their estimated savings. Further, the formula first used by the federal government to determine each state’s reimbursement requirement overstated how much California would save under Part D. As a result, the clawback provision would have imposed net costs on the state. The state Department of Health Services (DHS) estimated the state would incur net costs of $72 million in the 2005-06 fiscal year and $59 million in the 2006-07 fiscal year.

Faced with those numbers, and with support from the Schwarzenegger Administration, Lockyer on February 1, 2006 announced he planned to join other states in suing to challenge the clawback provision. Within days, the Bush Administration announced it had revised its clawback formula. The DHS’ initial estimates indicate the recalculation will produce a net savings for California of $357 million in the 2006 calendar year and $206 million in 2007.

After consulting with Governor Schwarzenegger and Attorneys General in other states, Lockyer decided to forego litigation for now. Lockyer stressed if state officials become convinced California will incur net costs under the revised formula, he either will join the multi-state action or file a separate lawsuit on behalf of California.

Litigation remains an entirely plausible scenario, Lockyer noted, given the Bush Administration’s history. “Time and again, this Administration has manipulated numbers, doctored data and suppressed science,” said Lockyer. “If it turns out they’ve done it again this time, we owe it to our seniors and taxpayers to not let them get away with it.”

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