California Proposes Selling Prescription Drugs Under a State Label to Lower Healthcare Costs

A California Strategy to Make Prescription Drugs More Affordable

The Governor of California, Gavin Newsom, held a press conference on January 10 to present his proposals for the state’s budget in 2020. The $222.2 billion budget sets forth policies to solve many of California’s most serious problems, including homelessness, skyrocketing costs of rent, and wildfires. The budget also addresses a problem which affects the entire nation as well as California: the diminishing affordability of prescription drugs.

“A trip to the doctor’s office, pharmacy, or hospital shouldn’t cost a month’s pay. The cost of healthcare is just too damn high, and California is fighting back,” Newson said. Without offering many details, the Governor explained that California will sign contracts with drug companies to manufacture certain drugs for the state. California will then sell those drugs to state residents at lower prices than those at which they are now available.

As part of the plan, California would become the first state to establish its own generic drug label. Pharmaceutical corporations would then lower their prices to stay competitive, according to supporters of the plan. Newsom did not say which prescription drugs California will sell or how much the program will cost the state.

The Single Market for Prescription Drugs in California

However, the Governor did reiterate his intention to lead California in organizing a single market for prescription drugs. Under this arrangement, California will consolidate state agencies which purchase prescription drugs into a negotiating bloc to bargain with drug companies for lower prices. The state government in California administers its own Medicaid program, Medi-Cal, which serves over 13 million people. California has the largest population and economy of any state in America. Given the size and power of California, Newsom believes his state can force corporations to charge less money for drugs that people need.

California government has power. It is a large enough economy and large enough state to influence pharma behavior and dictate terms … We will use both our market power and our moral power to demand fairer prices for prescription drugs.

- Gavin Newsom, Governor of California, 2019

The concept of a single market for prescription drugs is not new. In 1999, Massachusetts implemented a “bulk Rx plan” to consolidate drug purchasing and strengthen the state government’s position against Big Pharma. Since then, Alaska, the District of Columbia, Kentucky, Michigan, Minnesota, Montana, New Hampshire, New York, North Carolina, South Carolina, and Rhode Island have formed a “National Medicaid Pooling Initiative” to execute the same strategy on an interstate level.

Although there is bipartisan support for a similar scheme at the federal level, the law forbids the federal government from negotiating drug prices for Medicare, a provision designed to support the free market.

Responses to Newsom’s Proposal

The Governor’s prescription drug proposals require approval from the state legislature, where his fellow Democrats hold a majority of seats in both the State Assembly and the State Senate. Joaquin Arambula, the Chairman of the State Assembly’s Budget Subcommittee on Health and Human Services, quickly indicated his support for the plan. “I really do think there is quite a bit of merit in having us produce the medications,” he said. However, some Republican lawmakers condemned Newsom’s proposals as a waste of taxpayer dollars and an act of government overreach into healthcare.

The Pharmaceutical Research and Manufacturers of America and the Association for Accessible Medicines, organizations which represent brand-name and generic drug manufacturers, respectively, declined to comment on the proposals. Nevertheless, pharmaceutical corporations have a history of spending millions of dollars in California to lobby against similar policies. Consumer advocacy groups welcomed Newsom’s plan. However, the CEO of the California Pharmacists Association predicted the state would not be able to charge lower prices than Big Pharma due to costs of production beyond the state’s control.

The Rising Costs of Prescription Drugs

According to California’s Office of Statewide Health Planning and Development (OSHPD), list prices for prescription drugs in California increased by about 8% annually from 2017 to 2019. Specifically, at least 114 drugs have become more expensive within that timeframe. One drug, Ativan, has increased in price by a staggering 370% in California since 2014.

Across the country, Americans are paying higher deductibles as drug prices rise. Approximately 60% of Americans use prescription drugs, and about 80% of them say they cost too much. GoodRx, a company which tracks drug prices, reports that pharmaceutical companies have already increased the list prices of over 500 medications by more than 5% this year. This trend is the result of several factors, including high costs of developing and distributing drugs, limitations in insurance coverage, and a lack of federal regulation.

The effects of escalating drug prices are detrimental to public health. People who rely on increasingly-expensive drugs sometimes cannot fill prescriptions or neglect to sign up for other important medical services. Many Americans have even taken second jobs to pay for medications. Additionally, the high costs of drugs in the American market have compelled some Americans to order drugs online from overseas vendors. While they may be cheaper, imported drugs often lack FDA approval and most websites which sell them do not comply with American pharmacy laws. As a result, online markets for prescription drugs abound with counterfeit pills.

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