Editor's note: In a decision that upholds a prior Sacramento Superior Court decision, the Third District Court of Appeals has ruled that the California Department of Managed Care (DMHC) can't force Kaiser Permanente to cover drugs for sexual dysfunction, including Viagra. DMHC Director Dan Zingale says the ruling is "reasonable" and he will not seek any further appeals.

In a move that could have far-reaching implications for the insurance coverage of other expensive drugs, a California judge has ruled that the state's Department of Managed Health Care (DMHC) can't force Kaiser Permanente to pay for the anti-impotence drug Viagra.

According to Sacramento County Superior Court Judge Lloyd Connelly, state law doesn't require health plans to cover all prescription drugs or to provide drugs for conditions not covered by health plan members' insurance contracts.

While the ruling applies only to Viagra, it's too early to tell whether this decision will smooth the way for HMOs to begin dropping other drug benefits to cut costs and boost profits. "Practically speaking, we think this decision only affects Viagra, but it may have implications in the future," says Steven Fisher, DMHC spokesperson.

Matter of principle

Judge Connelly's ruling overturns a 1999 agreement between Kaiser and the DMHC that Kaiser would pay for 50 percent of the cost of Viagra. The agreement came about when Kaiser asked the state for permission to exclude sexual dysfunction drugs such as Viagra from its formulary, the list of medications for which it pays. At that time, Kaiser — the nation's largest nonprofit HMO — said the large number of men seeking prescriptions for the drug threatened to drive up its prescription costs by millions of dollars.

The state denied Kaiser's request and launched an investigation into whether dropping drug coverage because of economic concerns violated any state insurance laws. Although the HMO balked, it agreed to the compromise to cover half of the costs of the drug.

Kaiser attorney Tony Baretta says the HMO filed the lawsuit as a matter of principle. "[Connelly's] decision brings us to where most other states are today," says Baretta. "Most states already allow plans to exclude [Viagra] from coverage."

Health plans do indeed have great latitude in deciding which drugs they will cover and to what extent. So-called "lifestyle drugs" that treat such conditions as obesity, baldness, or sexual dysfunction are most often excluded. However, many health plans and employers who sponsor group health insurance do indeed cover the popular anti-impotence drug.

According to a 2000 prescription drug benefit cost and plan design survey conducted by drugmaker Wyeth, in 1999 31 percent of the 375 employers surveyed excluded Viagra from coverage under their group health plans, down from 36 percent in 1998. The exclusion figures were the same in both years for female oral contraceptives, another popular prescription drug benefit. By comparison, 92 percent of employer-sponsored group health plans excluded hair restoration drugs.

Although oral contraceptives are not considered "lifestyle drugs," the debate over their coverage has been closely linked with Viagra since many people argue both should be covered or neither.