LOS ANGELES (AP) – The pharmaceutical industry scored a huge victory this week in beating back a consumer-sponsored initiative that would have penalized drug companies unless they provided low-cost prescriptions to uninsured Californians.

Still, the ballot fight – the most expensive initiative campaign in state history – failed quell growing public anxiety over rising drug costs. Consumer and labor groups vowed to shift their fight for affordable medicine to Sacramento.

“The pharmaceutical industry may have succeeded in blocking prescription drug reform at the ballot, but we’ll be back next year to push even harder in the state Legislature,” said Anthony Wright, executive director of Health Access California, the Oakland nonprofit that led the failed campaign behind Proposition 79.

The measure would have required companies to give steep discounts to uninsured Californians if they wanted to participate in the state’s Medi-Cal program, which provides about $4 billion in drugs annually to the poor and elderly. Proposition 79 lost 61 percent to 39 percent.

The industry introduced a competing measure which was on the ballot: Proposition 78, would made such a discount program voluntary and would have covered about 5 million Californians, half the number that would have been affected under the consumer-sponsored Proposition 79. The industry-promoted measure lost 58 percent to 42 percent.

Price increases for popular brand-name prescription drugs rose at twice the general rate of inflation for the fiscal year ending June 30, according to the powerful senior citizens lobby AARP. Uninsured residents are charged the most at pharmacies because they don’t benefit from the discounts large insurance companies wrangle from drug companies.

Even the pharmaceutical industry acknowledges it has – at the very least – a public relations problem. It, too, is vowing to work with state lawmakers to design a discount program.

“We are committed to enacting a workable drug discount program for uninsured, low-income Californians,” said John Kehoe, who co-chaired the industry’s record-breaking $80 million election campaign.

But whether the Legislature and Gov. Arnold Schwarzenegger can pass a workable program is an open question, despite calls from the governor and leaders from both parties for discounted drugs.

Earlier this year, a Senate bill with nearly identical language to Proposition 78 and backed by Schwarzenegger was defeated because it couldn’t muster enough Democratic support, even though it was written by a Democrat, state Sen. Deborah Ortiz of Sacramento.

The bill’s backers, which included AARP, lost support of key Democrats because the proposal would have made the industry’s participation voluntary.

The consumer groups contend a financial “hammer” of some sort is needed to coerce the drug companies to participate. Proposition 79 would have punished drug companies who refused to discount drugs by making it harder for them to provide drugs to Medi-Cal patients.

But such a proposal failed in the Assembly with the threat of a Schwarzenegger veto hanging over it.

Ortiz spokeswoman Hallye Jordan said the senator wants to include some form of financial coercion in any new bill, although she opposes tying any drug discount program to Medi-Cal.

In a statement issued Wednesday, Ortiz said there is renewed interest by lawmakers to introduce legislation next year.

“The voters understand very clearly that we need a legislative solution to the problem of skyrocketing prescription drug prices, and they will expect the leadership of both houses to put politics aside and come together on a sound public policy that will cut these costs for millions of Californians,” Ortiz said.

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