SACRAMENTO, Calif. 鈥 When Gov. 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 鈥 such as requiring California to make its own insulin and forging drug partnerships across state lines 鈥 have failed to get off the ground or haven鈥檛 produced the hefty savings he promised.
鈥淭here are powerful forces arrayed against us 鈥 not just politicians in Washington, but drug companies that gouge Californians with sky-high prices,鈥 Newsom said on his inauguration day in January 2019. 鈥淗ere in California, we have the power to stand up to them, and we will.鈥
A few months later, 鈥渉undreds of millions of dollars right away 鈥 potentially billions鈥 鈥 by using the state鈥檚 massive purchasing power to negotiate lower drug prices for California鈥檚 counties, its businesses, and other states. But so far only a few counties are participating in the program, and savings have fallen far short. Another program, which debuted Jan. 1, is intended to save the state hundreds of millions of dollars a year by consolidating drug purchasing for the 14 million low-income Californians enrolled in Medicaid, but how those savings will materialize isn鈥檛 clear.
Newsom鈥檚 third initiative requires the state to manufacture generic drugs, but it hasn鈥檛 gotten off the ground.
Drug spending by public and private health insurers during Newsom鈥檚 first year in office, according to the most recent state data available 鈥 and costs are in California and across the country because of increases in both pharmaceutical prices and prescription drug use.
Yet Newsom, a Democrat who is running for reelection in November, argues that California鈥檚 initiatives are leading the nation and that realizing cost savings can take years.
Newsom鈥檚 office declined to answer questions about the cost savings shortfalls, but his administration provided written responses to some KHN queries.
Leveraging the Power of Government
When Newsom announced that California would contract with its counties, its businesses, and other states to buy drugs in bulk 鈥 and expand existing bulk purchasing agreements across state agencies 鈥 he said the initiative would save 鈥渉undreds of millions,鈥 if not billions.
Three years later, the state has seen some modest savings 鈥 but nothing near what Newsom predicted.
Although it seemed as though Newsom was announcing a new program to partner with California鈥檚 counties, its businesses, and other states, he was building on state drug discount agreements that predated his administration.
鈥淭he state was already doing it,鈥 said Jane Horvath, a consultant who advises state policymakers on health care costs. 鈥淭hey鈥檝e sort of opened it up to counties to participate.鈥
California for years has negotiated with drug manufacturers to get discounts on prescription drugs for state-run hospitals, jails, and other entities that buy and dispense drugs. Newsom鈥檚 2019 expanded those agreements to allow other entities to benefit, akin to giving them a coupon code that is applied at checkout. Though Newsom initially said two other states were interested in joining the program, none have.
So far, three populous counties 鈥 Los Angeles, Orange, and Sacramento 鈥 have joined. County officials and the Newsom administration say the state鈥檚 pricing agreements have saved money, but how much is unclear 鈥 they have given different figures and time frames.
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 reported saving on drugs for its jails 鈥渋n a little over a year.鈥
How many state agencies have banded together to buy cheaper drugs is also unclear. The Newsom administration said the California State University system joined the program and saved $476,000 over five months. The governor鈥檚 office also said the state saved $3 million over five months on mental health medications under an August 2021 bulk purchasing arrangement.
Other states have been banding together for years to get discounts.
Oregon Health Authority pharmacy director Trevor Douglass runs a drug purchasing consortium with Washington that has saved both states at least $142 million since 2016. Nevada the consortium, and Douglass said he is in talks with Delaware and Wisconsin 鈥 but hasn鈥檛 heard from California.
鈥淚 would be happy to hear from California tomorrow,鈥 Douglass said. 鈥淚 would have been happy to hear from them yesterday.鈥
Overhauling Medicaid Drug Purchasing
Starting in January, a single company started administering prescription drugs for all of California鈥檚 Medicaid patients, most of whom previously got their medications through about two dozen managed-care plans.
But the state contractor, Magellan Health, was woefully understaffed and unprepared when the transfer occurred Jan. 1, and thousands of patients were left without critical medications. some of the shortfalls, but some physicians say problems persist.
Newsom鈥檚 administration projects the state will save $414 million in the 2022-23 budget year, mostly by securing rebates from drug companies now forced to deal with the nation鈥檚 most populous state at the negotiating table. The state expects to double those savings the following budget year.
However, it鈥檚 too soon to tell whether Newsom鈥檚 experiment will succeed. Health insurance plans are skeptical, citing that show high prescription drug costs in the few states that run their own programs.
鈥淲e think the assumptions, the savings, are exaggerated,鈥 said John Baackes, CEO of L.A. Care Health Plan, the largest publicly operated health plan in the country. 鈥淭hat would be a polite way to say it.鈥
Newsom isn鈥檛 alone in pushing his state away from managed care as a cost-saving measure.
In July, Ohio will begin using a single health contractor for its Medicaid program, which the state estimates will save the Buckeye State $186 million in fiscal year 2022-23. New York is planning to make the switch in April 2023.
In Missouri, Josh Moore, the state鈥檚 Medicaid pharmacy director, said there鈥檚 no question that the state鈥檚 move in 2009 to buy drugs for Medicaid enrollees has saved taxpayers millions of dollars through rebates alone. Today, he said, the state collects 99% of drug rebates offered by drug companies to state and federal governments, compared with the 90% to 95% that states typically claim through managed-care plans, which don鈥檛 always catch or follow up on billing errors.
鈥淪mall percentages make large numbers whenever we talk about the kind of money that we’re talking about in Medicaid pharmacy systems,鈥 Moore said.
Diving Into the Generic Drug Market
In 2020, to create a California generic drug brand, CalRx, became law and required the state to manufacture the drugs or partner with drug manufacturers.
The law calls on the state to 鈥渆nter into partnerships鈥 to produce or distribute generic prescription drugs and at least one form of insulin. The Newsom administration is in discussions with drug manufacturers and has made some progress, but no contracts have been inked, according to prepared responses from Rodger Butler, a spokesperson for the state Health and Human Services Agency.
Vishaal Pegany, assistant secretary for the Health and Human Services Agency, told lawmakers at a hearing in January that the state is focusing on developing insulin and other generic drugs that would serve a large population, as well as drugs that are high-cost or in short supply. But the state isn鈥檛 sharing details about which other drugs California might produce, the names of the drug companies it鈥檚 negotiating with, or how long producing the first CalRx drugs might take.
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 is still working with the state.
State Sen. Richard Pan (D-Sacramento), who authored , said California must also eventually develop the ability to manufacture its own generic drugs. 鈥淵ou can鈥檛 just stand up a factory overnight and we have a learning curve, so right now we have to find a generic manufacturer that wants to play ball with California,鈥 Pan said. 鈥淏ut I hope in the long run we will stand up our own manufacturing capacity so we鈥檙e not constrained by a company willing to work with us.鈥
Phillip Reese, an assistant professor of journalism at California State University-Sacramento, contributed to this article.
This story was produced by , which publishes , an editorially independent service of the .
