As one of his very first acts as Governor of California, Gavin Newsom signed an executive order that directed state officials to set up a program that would “ultimately be the nation’s largest single-purchaser system for prescription drugs.”
The executive order directs California’s large Medicaid system to negotiate prescription drug prices for all 13 million recipients, changing their benefits from a managed-care or HMO approach to an approach that makes the state responsible for all purchases. Governor Newsom requested that the Department of Health Care Services take the necessary steps to ensure a smooth transition by January 2021.
The state would also create a list of drugs to be purchased in bulk or targeted for price negotiations, via the Department of General Services in consultation with the California Pharmaceutical Collaborative. According to the executive order, prioritization shall be based on criteria such as: the price of the drug and the extent to which it is subject to competition. The Department has been directed to specifically consider the 25 highest-cost prescription drugs, which currently account for roughly half of California’s prescription drug expenditures. If the Department does not recommended prioritization of any one of those 25 drugs, it is expected to provide a brief rationale behind the decision.
The executive order directs state agencies to purchase prescription drugs together, as opposed to negotiating with drug companies one by one, beginning with the results of the prioritized list created by the Department of General Services. In addition to making those changes to Medicaid, the executive order also took the first steps to allow private companies and other governmental agencies to participate in the process of negotiating drug prices with pharmaceutical companies. The Department of General Services is expected to provide a written status report outlining the progress by April 12, 2019, to the Governor.
Lastly, when it comes to making strides towards the first single-purchaser system in the country, Governor Newsom requested that the Department of General Services work with the California Pharmaceutical Collaborative to develop a framework that would allow private purchasers to benefit from State bulk pharmaceutical pricing, including incorporating the opportunity for private purchasers to opt in to a State purchasing program. Newsom has asked for a status report on this effort by May 17, 2019.
According to Governor Newsom, “These reforms will mean that instead of facing big drug companies alone, Californians — including budget-constrained government agencies and struggling small businesses — can sit together at the bargaining table across from drug companies when negotiating for life-saving and life-preserving prescription drugs. By working together, we can effectively contain costs and make prescription drugs more affordable for all.”
This executive order may have implications much further than initially imagined, as Newsom also asked the state legislature to allow all undocumented immigrant young adults (under the age of 26) to be included as participants in the state’s Medicaid program. If the legislature acts on this request by Governor Newsom, California would be the only state in the country to provide Medicaid coverage to undocumented young adults.
As noted above, this executive order seems to be laying the groundwork for an eventual single-purchaser system, as it states, “WHEREAS establishing a single-purchaser for the highest-cost prescription drugs will yield valuable insights into the design of a broader single-payer system, and move the State one step closer to a comprehensive solution for affordable and accessible health care for all.”