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January 13, 2020

California could become the first state to sell its own generic drugs

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    California Gov. Gavin Newsom (D) in his state budget plan for the 2020-2021 fiscal year unveiled a proposal to make California the first state to sell its own generic prescription drugs, as well as other proposals intended to shake up the state's prescription drug market and lower residents' health care costs.

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    Newsom's proposals

    Newsom so far has released few details on his proposal to allow California to sell its own generic drugs, the Wall Street Journal reports. However, Newsom said California under the proposal would contract with drugmakers to produce the generic medications on the state's behalf. The state then would sell the drugs to California residents under its own label. Newsom said the proposal is intended to increase competition in the state's generic drug market, which in turn could lower costs.

    Newsom did not provide details on which generic drugs the state would look to produce, nor how much the proposal would cost or save the state. Those aspects of the plan likely will be determined and evaluated more closely as state policymakers begin working on California's budget in the coming months, the Journal reports. 

    Newsom also proposed establishing a single market for drug pricing in California. Under the plan, California would require pharmaceutical companies to bid to sell their prescription drugs in the state at a uniform price, meaning both public and private payers would be able to purchase drugs at the same price.

    Newsom also proposed expanding the state's authority to negotiate prescription drug prices in certain public health insurance programs to include the state's public employees' purchasing entity and its public health insurance exchange, called Covered California. California under the proposal also could allow private insurers to access the negotiated prices. Currently, only California's Medicaid program has the authority to negotiate drug prices.

    Further, Newsom proposed giving the state's Department of Health Care Services the authority to negotiate those prices based on international prices for the drugs, rather than those paid in other U.S. states According to the Journal, the moved would mean California officials "could demand pricing competitive with countries such as Canada."

    Next steps

    California's Legislature, which is controlled by Democrats, would have to approve the proposals before the state could implement them.

    Democratic lawmakers in the state likely will support the proposals, the Journal reports. California Assemblymember Joaquin Arambula (D), an ED physician who chairs the state House Budget Subcommittee on Health and Human Services, said, "If Costco can have a Kirkland brand, why can't California have our own generic brand? I really do think there is quite a bit of merit in having us produce the medications."

    But some of the state's Republican lawmakers have criticized the proposal, raising questions about its costs and arguing that the state should not compete with private companies, the Associated Press reports. Assemblymember Devon Mathis (R), who also serves on the health subcommittee, said, "When the state runs it, it costs more money," and "[t]he money is coming out of families' pockets paying all those crazy taxes."


    While the proposal would make California the first state to contract with manufacturers to produce its own brand of generic drugs, the notion itself isn't new, Axios' "Vitals" reports.

    Sen. Elizabeth Warren (D-Mass.), who is seeking the 2020 Democratic nomination for president, has proposed creating a government-run pharmaceutical company to manufacture generic drugs at the federal level. In addition, a group of hospitals in 2018 launched a nonprofit generic drug venture, called Civica Rx, to increase access to affordable generic drugs. Civica Rx directly contracts with manufacturers to produce generic drugs for the organization.

    Still, experts say California is ripe for launching the first test of the concept at a government level in the United States, as well as Newsom's other proposals.

    Larry Levitt, executive vice president for health policy at the Kaiser Family Foundation, said, "Other countries control or negotiate the price of drugs, and if there is one state that could do it, it's California, which is the size of a country. A drug company could walk away from Rhode Island. It's much harder to walk away from California."

    Anthony Wright, executive director of Health Access California, said, "Consumers would directly benefit if California contracted on its own to manufacture much-needed generic medications like insulin—a drug that has been around for a century yet the price has gone up over tenfold in the last few decades."

    But some experts and industry stakeholders questioned whether Newsom's proposals would have a significant effect on drug costs.

    Jon Roth, CEO of the California Pharmacists Association, said state officials might be surprised by how much the state will need to charge for its generic drugs because of factors officials cannot control, including the cost of raw materials and supply chain disruptions, such as material shortages. "There are other factors in the actual manufacturing that the state may not be able to escape," he said.

    The Association for Accessible Medicines (AAM), a trade group representing the generic drug industry, said the association is excited to work with Newsom's administration on the proposal, but similarly noted some of the challenges facing generic drugmakers. AAM said, "If California enters the market itself, it will face the same market dynamics that have led to generic prescription drug price deflation in the past three years, as well as certain cases of patent abuse that have led to longer monopolies by select brand-name drugs."

    Jeff Joyce, chair of the Department of Pharmaceutical and Health Economics at the University of Southern California's School of Pharmacy, said, "What [Newsom] is proposing to do would help in specific cases, but it's not a panacea by any means." He explained that many generic drugs already have several manufacturers, meaning there is adequate competition for the drugs in the market. In order for Newsom's proposal to be most effective, the state would have to sell generic drugs with sparse competition, and those drugs typically are not widely-prescribed. As such, "[i]n terms of savings to a typical family, it would be very modest," he said.

    Rena Conti, a professor at Boston University, said Newsom's proposal to create a single drug market in the state could end up leading to higher prices for some purchasers or restrict patients' access to drugs, because companies could refuse to participate in the required bidding process.

    Pharmaceutical Research and Manufacturers of America (PhRMA), a trade group representing the brand-name drug industry, said the group is reviewing Newsom's proposals and did not yet have a comment on the plan, the Journal reports.

    Trish Riley—head of the National Academy for State Health Policy, which is an independent group of state policymakers focused on prescription drug pricing—said if the plan works, other states might look to implement similar proposals (Beam, AP/ABC News, 1/9; Mai-Duc/Hopkins, Wall Street Journal, 1/9; Owens, "Vitals," Axios, 1/10; Karlamangla, Los Angeles Times, 1/9; Silverman, "Pharmalot," STAT+, 1/19 [subscription required).

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