Sacramento, California. When Governor Gavin Newsom took office in 2019, he promised to lower the cost of prescription drugs for all Californians.
But now that Newsom is nearing the end of his first term, his ambitious ideas, such as requiring California to make its own insulin and creating interstate drug partnerships, haven’t gotten off the ground or brought in the hefty savings he promised.
“Powerful forces are lining up against us — not just politicians in Washington, but drug companies that are cheating Californians with sky-high prices,” Newsom said on his inauguration day in January 2019. “Here in California we have the strength to endure. them, and we will.”
After a few months, he swore that California would save “immediately hundreds of millions of dollars—potentially billions”—by using the state’s vast purchasing power to negotiate lower drug prices for California counties, its businesses, and other states. But so far, only a few districts are participating in the program, and savings are not enough. Another program, which debuted Jan. 1, is designed to save hundreds of millions of dollars a year by consolidating drug purchases for 14 million Medicaid-enrolled low-income Californians, but it’s not clear how those savings will materialize.
Newsom’s third initiative requires the state to make generic drugs, but it hasn’t gotten off the ground.
Expenditure on medicines by public and private insurance companies up 5% in California during Newsom’s first year in office, according to the most recent government data available, and spending continued growth expected in California and across the country due to rising pharmaceutical prices and the use of prescription drugs.
However, Newsom, a Democrat running for re-election in November, argues that California’s initiatives lead the nation and that cost savings can take years to achieve.
Newsom’s office declined to answer questions about the lack of cost savings, but his administration provided written responses to some of KHN’s inquiries.
Use of government power
When Newsom announced that California would contract with its counties, businesses and other states to buy drugs in bulk — and expand existing bulk buying agreements between state agencies — he said the initiative would save “hundreds of millions,” if not billions.
Three years later, the state has made some modest savings, but nothing close to what Newsom predicted.
Although Newsom appeared to be announcing a new partnership program with California’s counties, businesses, and other states, he relied on state drug rebate agreements that predated his administration.
“The state has already done this,” said Jane Horvath, a consultant who advises government policymakers on health care spending. “They kind of opened it up to county participation.”
California has been negotiating with drug manufacturers for years to get prescription drug discounts for public hospitals, prisons, and other organizations that buy and dispense drugs. Newsom 2019 order extended these agreements to allow other organizations to benefit, similar to giving them a coupon code that is applied at checkout. Although Newsom initially stated that two other states were interested in joining the program, neither showed interest.
At the moment, three densely populated counties have joined it – Los Angeles, Orange and Sacramento. County officials and the Newsom administration say the state’s price agreements saved money, but it’s not clear how much – they cite different numbers and timings.
The state Department of General Services, which oversees the state Pharmaceutical Program, said the three counties saved about $500,000 from January 2021 to September 2021. But Sacramento County reported savings in February nearly $700,000 for drugs for their prisons “just over a year”.
It’s also unclear how many government agencies have banded together to buy cheaper medicines. Newsom’s administration said the California State University system joined the program and saved $476,000 in five months. The Governor’s Office also said the state saved $3 million over five months on mental health medications through an August 2021 bulk purchasing agreement.
Other states have been merging for years to get discounts.
Oregon Health Authority Pharmacy Director Trevor Douglas leads a drug procurement consortium with Washington that has saved both states at least $142 million since 2016. Nevada plans to join consortium, and Douglas said he was in talks with Delaware and Wisconsin, but hadn’t heard from California.
“I would be happy to hear from California tomorrow,” Douglas said. I would have been happy to hear from them yesterday.
Revisiting Medicaid Drug Procurement
Beginning in January, one company began distributing prescription drugs to all Medicaid patients in California, most of whom previously received drugs from about two dozen managed care plans.
But the government contractor, Magellan Health, was desperate. understaffed and unprepared when the transfer happened on January 1st and thousands of patients were left without critical drugs. The state and Magellan worked on a solution some flaws, but some doctors say problems persist.
Newsom’s administration projects that the state will save $414 million in fiscal year 2022-23, mostly from receiving rebates from pharmaceutical companies, which now have to deal with the nation’s most populous state at the negotiating table. The state expects to double those savings in the next fiscal year.
However, it is still too early to talk about the success of Newsom’s experiment. Health insurance plans are skeptical, citing industry research which show the high cost of prescription drugs in the few states that have their own programs.
“We think the speculation and savings are overblown,” said John Baaks, CEO of LA Care Health Plan, the largest public health plan in the country. — That would be a polite way of saying it.
Newsom is not alone in pushing his staff away from managed care as a cost-saving measure.
In July, Ohio will begin using one medical contractor for its Medicaid program, which the state estimates will save the Buckeye $186 million in fiscal year 2022-23. New York plans to make the transition in April 2023.
In Missouri, Josh Moore, director of the state Medicaid pharmacy, said there was no doubt that the state’s 2009 move to buy drugs for Medicaid members saved taxpayers millions of dollars through rebates alone. Today, he says, the state collects 99% of drug rebates offered by drug companies to state and federal governments, compared to the 90% to 95% that states typically require through managed care plans that don’t always capture or track. about billing errors.
“Small percentages add up to big numbers whenever we talk about money, which we talk about in drugstore Medicaid systems,” Moore said.
Dive into the Generic Drug Market
The law calls on the state to “partner” to manufacture or distribute generic prescription drugs and at least one form of insulin. The Newsom administration is in talks with drug makers and has made some progress, but no contracts have been signed, according to prepared responses from Roger Butler, a spokesman for the State Health and Human Services Agency.
Wishaal Pegani, assistant secretary of the Health and Human Services Agency, told lawmakers at a hearing in January that the state is focused on developing insulin and other generic drugs that will serve the majority of the population, as well as drugs that are expensive or in short supply. But the state won’t share details about what other drugs California might produce, the names of drug companies it’s in talks with, or how long it might take to produce the first CalRx drugs.
The state had previously been in talks with Utah-based nonprofit pharmaceutical company Civica Rx, but senior vice president Allan Cookell declined to say if the company was still working with the state.
State Senator Richard Pan (D-Sacramento), author generic drug bill 2020, said California should also eventually develop the ability to manufacture its own generic drugs. “You can’t just lift a plant overnight, and we have a learning curve, so right now we have to find a generic manufacturer that wants to play ball with California,” Pan said. “But I hope that in the long term we will maintain our own manufacturing facilities so that we are not constrained by a company willing to work with us.”
Phillip Reese, Associate Professor of Journalism at California State University, Sacramento, contributed to this article.