EXHIBIT 3
A. SCOPE OF WORK
General Description – As a result of recent legislation, the State of California has been mandated to
research its current policies and procedures on pharmaceutical products and services, and develop a
plan to improve upon them. Contractor will study issues pertaining to prescription drugs and identify an
alternative benefit program(s) for the State.
B. FOUR BASIC ISSUES THAT WILL BE EXAMINED BY THE CONTRACTOR:
1. Whether or not the State should establish or expand a third-party prescription benefit program or
programs. If so, for whom: seniors (low-income or all seniors), non-seniors (low-income or all
Californians), children (low-income or all-Californians), individuals in certain employment categories
(such as unemployed, transitionally unemployed, employees of small businesses, state employees)?
2. Whether or not the State should impose price controls on prescription drugs. If a third-party program
is established, price controls will become almost a necessity to keep program costs from spiraling out
of control. Even in the absence of third-party payment, some states have pursued this option for the
general market. This issue would include the question of whether statutorily-mandated lower-price
provisions, such as that required under federal law for Medicaid beneficiaries, should be extended to
other populations, as California did recently for all Medicare-eligible. The impact of each strategy
must be considered not just for consumers but also for industry sub-segments such as pharmacists
(chain or independent), separate from drug manufacturers, and how best to address the economic
realities of each.
3. Use of other cost-containment strategies such as substitution of generic drugs, prescription benefit
management, or therapeutic review system. Aggregation of purchasing power either through state-
created purchasing programs or authorization of private purchasing cooperatives. If such an
approach is utilized, for whom: seniors (low-income or all seniors), non-seniors (low-income or all
Californians), children (low-income or all Californians), individuals in certain employment categories
(such as unemployed, transitionally unemployed, employees of small businesses, state employees)?
Again, the impact of such strategies must be considered not just for consumers but also for industry
sub-segments such as pharmacists (chain or independent), separate from drug manufacturers, and
how best to address the economic realities of each.
4. Each of these areas will be studied from the standpoint of economic effect, administrative
implementation, legal constraints, and political feasibility. This will require, for each, undertaking a
review of other states’ experiences, federal limitations and requirement, and the California legal,
governmental, and political environments.
C. DELIVERABLES:
Contractor will study each of the four enumerated subject areas for a period of three weeks each,
resulting in a short background/decision memo being delivered to the State at the end of that period
(Weeks 3, 6, 9 & 12 respectively). The State’s responses on each of the options outlined in the
background/decision memo should be returned to and discussed with the Contractor on a rolling basis.
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