States Plan Lawsuit over Federal Drug Plan

SAN FRANCISCO (Reuters) – A group of states aims to challenge the new federal prescription drug plan in the U.S. Supreme Court, California’s attorney general said on Wednesday, alleging the plan could cost his state $750 million over the next three years.

California Attorney General Bill Lockyer said his state will bring the lawsuit and other states are expected to join in arguing to the high court that a provision requiring states to pay back some of their potential longer term savings from the plan is unconstitutional.

"We are going to challenge it to ensure the state does not have to pay the federal government for a program that has more flaws than prescriptions," he said in a statement.

The drug program, the Medicare Modernization Act, took effect on January 1. It has come under fire from California Gov. Arnold Schwarzenegger and state lawmakers, who have agreed to pay for drugs for seniors not covered by the program.

"When Congress passed this federal drug program, states were promised we would save 10 percent of what we otherwise would have paid to provide prescription drugs to this population," Schwarzenegger said in a statement.

"I have worked in good faith with the federal government for more than a year to address this issue. Despite these efforts, California still stands to be charged $183 million more each year than Congress intended when they passed this legislation," Schwarzenegger said. "Our state is poised to take action to ensure California does not pay more than its fair share."

Efforts to reach a Medicare representative to comment on California’s threatened legal challenge were not immediately successful.

The U.S. Senate’s Special Committee on Aging is due to hold a hearing on Thursday on the implementation of the Medicare drug benefit.

In a one-month progress report on the benefit issued on Wednesday, U.S. Health and Human Services Secretary Mike Leavitt said Medicare was extending the transitional coverage period for a beneficiary’s current drugs to 90 days from 30 days.

Leavitt said the extension would give beneficiaries more time to find out if they could use drugs that work in a similar way to their existing medication but cost significantly less.

He said Medicare would continue to work to establish a reimbursement plan for the states.

"The measure of our success should not be that we have unexpected problems at the outset," said Leavitt in a statement, "but rather that we find, fix and finish with these problems quickly."

(Additional reporting by Tim Dobbyn in Washington)