Newsom’s big promises on drug prices are slow to materialize

When Governor Gavin Newsom took office in 2019, he promised to lower prescription drug costs for all Californians.

But now, as Newsom nears the end of his first term, his ambitious ideas — like requiring California to manufacture its own insulin and forging pharmaceutical partnerships across states — have either failed to take off or failed to produce the substantial savings he promised.

“There are powerful forces arrayed against us — not just politicians in Washington, but pharmaceutical companies ripping off Californians with exorbitant prices,” Newsom said on his inauguration day in January 2019. “Here in California, we have the power to stand up to them, and we will.

Months later, he swore that California would save “hundreds of millions of dollars right away — potentially billions” — by using the state’s enormous purchasing power to negotiate lower drug prices for California counties, its businesses and other states. But so far, only a few counties are participating in the program and the savings are far from sufficient. Another program, which began Jan. 1, aims to save the state hundreds of millions of dollars a year by consolidating drug purchases for the 14 million low-income Californians enrolled in Medicaid, but how which these savings will materialize is unclear.

Newsom’s third initiative is forcing the state to make generic drugs, but it hasn’t taken off.

Drug spending by public and private health insurers rose 5% in California in Newsom’s first year in office, according to the most recent state data available – and costs are expected to continue to rise in California. and nationwide due to rising pharmaceutical prices and prescription drug consumption.

Still, Newsom, a Democrat running for re-election in November, says California’s initiatives are leading the country and realizing cost savings can take years.

Newsom’s office declined to answer questions about the cost savings, but his administration provided written responses to some KHN questions.

Harnessing the power of government

When Newsom announced that California would contract with its counties, companies and other states to buy drugs in bulk — and expand existing bulk purchasing agreements between state agencies — he said the initiative would save ‘hundreds of millions’ or even billions.

Three years later, the state has achieved modest savings — but nothing close to what Newsom predicted.

Although it appeared Newsom was announcing a new partnership program with California counties, his companies and other states, he was building on state drug discount agreements that predated his administration.

“The state was already doing this,” said Jane Horvath, a consultant who advises state policymakers on health care costs. “They kind of opened the door for counties to participate.”

For years, California has negotiated with drug manufacturers to secure prescription drug discounts for public hospitals, prisons, and other entities that purchase and dispense drugs. Newsom’s Executive Order of 2019 expanded these agreements to allow other entities to benefit, which amounts to giving them a coupon code applied at checkout. Although Newsom initially said two other states were interested in joining the program, none did.

So far, three populated counties — Los Angeles, Orange and Sacramento — have joined. County officials and the Newsom administration say the state’s pricing deals saved money, but how much isn’t clear — they gave different numbers and timelines.

The state Department of General Services, which oversees the statewide pharmaceutical program, said the three counties saved about $500,000 from January 2021 to September 2021. But Sacramento County in February said he saved nearly $700,000 on drugs for his prisons “in just over a year. ”

It’s also unclear how many state agencies have banded together to buy cheaper drugs. The Newsom administration said the California State University system joined the program and saved $476,000 over five months. The governor’s office also said the state saved $3 million over five months on mental health drugs under an August 2021 bulk purchase agreement.

Other states have banded together for years to get discounts.

Trevor Douglass, director of pharmacy for the Oregon Health Authority leads a drug-buying consortium with Washington that has saved the two states at least $142 million since 2016. Nevada plans to join the consortium, and Douglass said he’s in talks with Delaware and Wisconsin – but has not heard from California.

“I would be happy to hear from California tomorrow,” Douglass said. “I would have been happy to hear them yesterday.”

Medicaid Drug Procurement Review

Starting in January, a single company began administering prescription drugs to all California Medicaid patients, most of whom previously received their drugs through about two dozen managed care plans.

But the state contractor, Magellan Health, was woefully understaffed and unprepared when the handover took place on Jan. 1, and thousands of patients were left without essential drugs. The state and Magellan have worked to fill in some of the gaps, but some doctors say the problems persist.

Newsom’s administration projects the state will save $414 million in the 2022-23 budget year, mostly by getting rebates from drug companies now forced to deal with the nation’s most populous state at the table. negotiations. The state expects to double these savings the following fiscal year.

“Here in California, we have the power to resist [drug companies]and we go.”

Governor Gavin Newsom, in his 2019 inaugural address

However, it is too early to tell whether Newsom’s experiment will succeed. Health insurance plans are skeptical, citing industry-backed studies that show high prescription drug costs in the few states that run their own programs.

“We think the assumptions, the savings, are overblown,” said John Baackes, chief executive of LA Care Health Plan, the nation’s largest public health plan. “That would be a polite way of putting it.”

Newsom isn’t the only one moving his state away from managed care as a cost-cutting measure.

In July, Ohio will begin using a single health contractor for its Medicaid program, which the state estimates will save Buckeye State $186 million in fiscal year 2022. -23. New York plans to make the switch in April 2023.

In Missouri, Josh Moore, director of the state’s Medicaid pharmacy, said there’s no question the state’s 2009 decision to purchase drugs for Medicaid enrollees helped taxpayers save money. save millions of dollars from rebates alone. Today, he said, the state collects 99% of drug rebates offered by pharmaceutical companies to state and federal governments, compared to the 90% to 95% that states typically claim through plans. managed care, which is not always supported or monitored. on billing errors.

“Small percentages make big numbers whenever we talk about the kind of money we’re talking about in Medicaid pharmacy systems,” Moore said.

Diving into the generic drug market

In 2020, Newsom’s proposal to create a California generic drug brand, CalRx, became law and required the state to manufacture the drugs or partner with drugmakers.

The law requires the state to “enter into partnerships” to produce or distribute generic prescription drugs and at least one form of insulin. The Newsom administration is in talks with drugmakers and has made progress, but no contract has been signed, according to prepared responses from National Health and Human Services Agency spokesman Rodger Butler. .

Vishaal Pegany, deputy secretary of the Health and Human Services Agency, told lawmakers at a hearing in January that the state was focused on developing insulin and other generic drugs that would serve a wide population, as well as expensive or shortage medicines. But the state isn’t sharing details about what other drugs California might produce, the names of drug companies it’s negotiating with, or how long it might take to produce the first CalRx drugs.

The state had previously been in talks with Utah-based nonprofit drug company Civica Rx, but senior vice president Allan Coukell declined to say whether the company was still working with the state.

State Sen. Richard Pan (D-Sacramento), author of the Generic Drug Bill of 2020, said California must also eventually develop the ability to manufacture its own generic drugs. “You can’t just set up a factory overnight, and we have a learning curve, so now we have to find a generic manufacturer that wants to play ball with California,” Pan said. “But hopefully in the long term we will build our own manufacturing capacity so that we are not constrained by a company willing to work with us.”

Phillip Reese, assistant professor of journalism at California State University, Sacramento, contributed to this article, which was produced by KHN (Kaiser Health News), one of the three major operating programs of the KFF (Kaiser Family Foundation).

Comments are closed.