Will California’s Bold Proposal to Manufacture its Own Generic Drugs Be the Answer to Lower Prescription Drug Costs?
California’s Governor Newsom (D-CA) has made a bold budgetary proposal to become the first state in the Union to manufacture its own generic prescription drug label. The purpose behind this is to make affordable medications accessible to the state’s 40 million residents.
His plan to essentially create a single market for prescription drug pricing where companies would likely have to bid in order to sell their particular medications at a low price.
According to the Governor’s Proposed 2020-21 State Budget “The Administration has announced a new CalRx generic drug program making California the first state to create its own generic drug label and making the state’s generic prescription drugs available for sale to all Californians. The Budget transforms Medi-Cal to a more consistent and seamless system by reducing complexity and increasing flexibility and establishes a single market for drug pricing within the state.” (Governor Newsom Proposes 2020-21 State Budget; January 10, 2020 click here for reference
The Governor’s bold approach has been foreshadowed by his plans announced last year via his Executive Order of N-01-19. This Executive Order established a few major policy objectives:
The Department of Health Care Services shall take all necessary steps to transition all pharmacy services tor Medi-Cal managed care to a fee-for-service benefit by January 2021
The Department of Health Care Services, in consultation with the Health and Human Services Agency and California Pharmaceutical Collaborative, shall review all State purchasing initiatives and consider additional options to maximize the State's bargaining power, including the Medi-Cal program.
The Department of General Services, in consultation with the California Pharmaceutical Collaborative, shall develop a list of prescription drugs that could appropriately be prioritized tor future bulk purchasing initiatives or reexamined tor potential renegotiation with the manufacturer.
Based on the prioritized list, the Department of General Services, in consultation with the California Pharmaceutical Collaborative, shall develop and implement bulk purchasing arrangements tor high-priority drugs. (Governor Newsom Proposes 2020-21 State Budget; January 10, 2020 click here for reference
The Governor's plan has echoes of a plan that Senator Warren (D-MA) introduced in the 115th Congress via the proposed Affordable Drug Manufacturing Act of 2018. This bill’s purpose was to establish an Office of Drug Manufacturing within the Department of Health and Human Services for the purposes of lowering prices, increasing access, and addressing shortages of prescription drugs, including insulin. According to the Senator’s announcement, “Public manufacturing of pharmaceuticals will lower drug prices for millions while improving competition. The Affordable Drug Manufacturing Act tasks the Department of Health and Human Services with the public manufacturing of generic drugs in cases where the market has failed and strengthens the generic market for the long term by jump-starting competition.” (AFFORDABLE DRUG MANUFACTURING ACT; Senator Elizabeth Warren and Representative Jan Schakowsky. Click here for reference. While this bill did not get much traction in Congress, it served as a model of things to come.
The question is whether the Governor’s proposal will pass the California legislature? At this point I think it is too early to tell. We have already seen multiple attempts to control prescription drug prices without having the government become a market player. We have seen the Administration via various policies such as the Administration’s Blueprint to Lower Drug Costs as well as an active FDA who has been advocating for greater generic and biosimilar utilization as ways to lower costs.
We have also seen various Congressional attempts to lower prescription costs via legislation aimed at Medicare Part D negotiation to bills attempting to benchmark foreign countries prescription drug costs against our own.
To date, there has been no silver bullet to deal with rising prescription drug costs. The difference here is that a manufacturer could leverage its influence over smaller states to stop legislation like Governor Newsom’s from advancing. California may be a harder market for a manufacturer to confront due to its size and the fact that its policies are very much likely to influence other state legislatures. I also have a question as to whether California’s efforts would further drive down an already deflated generic drug market and whether California would be able to determine how much it will charge for generics once manufacturing costs such as raw materials are concerned. Not to mention how much this is going to costs since that remains unknown at this point in time.
Notwithstanding whether I agree with this plan, I applaud California in trying to solve a problem that refuses to go away quietly. Whether this idea works without solving other ancillary issues such as pharmacy benefit manager transparency, drug rebates and patient adherence is another.