Newsom Moves To Bring Down Drug Costs, Expand Affordable Coverage

Following his inauguration speech Monday, California Gov. Gavin Newsom announced a number of health care proposals, including plans to improve premium subsidies in Covered California, expand health coverage for some undocumented adults and pave the way for a single-payer system.

Consumer groups and universal health care advocates have applauded the new governor’s plans, but experts warn most of these steps require budget allocations, legislative backing and in some cases federal approval that’s unlikely to take shape.

But experts say an executive order Newsom signed Monday to consolidate drug pricing negotiations for Medi-Cal patients may have the most potential to bring down health care costs.

“Just like when any of us go to buy larger volumes of things in big stores, you typically get a better price,” said Dr. Andrew Bindman, a physician and health policy expert at the University of California, San Francisco. “That is the idea that the governor is putting forward here, to make California a stronger purchaser when it comes to pharmaceuticals.”

Currently public and private insurance plans that cover Medi-Cal patients must negotiate drug costs with pharmaceutical companies separately. A single plan might go in to purchase drugs for just a hundred thousand enrollees. Under Newsom’s proposal, all negotiations would be handled by the Department of Health Care Services on behalf of the state’s 13 million Medi-Cal enrollees.

This could be a cost-saver for the state, which currently pays health plans back for some of what they spend on their Medi-Cal enrollees.

“If those health plans aren’t getting a good deal on pharmaceuticals, then ultimately the state is providing them with more funds than they otherwise would need to,” Bindman said.

Rising prescription drug costs have long been a concern in California, and lawmakers have battled the pharmaceutical industry in recent years on bills they hoped would stem the problem.

In his executive order, Newsom states that “bargaining asymmetry,” in which powerful pharmaceutical monopolies prosper from the “absence of a strong counterparty at the bargaining table,” is a key driver of the high costs.

Representatives from the drug industry say prices are going down because of the competitive marketplace in California and elsewhere, but patients don’t always see lower out-of-pocket costs after negotiations.

“We are still reviewing the proposals, and look forward to seeing additional details,” said Priscilla VanderVeer, deputy vice president of public affairs for industry group PhRMA, in an email. “We welcome the opportunity to work with the governor and his administration on comprehensive solutions to the problems patients are facing accessing and affording their medicines.”

The order, effective immediately, calls for the Department of Health Care Services to review options to increase the state’s bargaining power by July 2019. The department must transition to negotiating on behalf of all Medi-Cal enrollees by January 2021. The Department of General Services and the California Pharmaceutical Collaborative are tasked with creating a list of high-cost drugs that could be eligible for bulk purchasing, and must reach out to health plans to invite them into the state purchasing arrangement.

The California Association of Health Plans said in a statement that they support the governor’s efforts and “share his concern about tackling the high cost of prescription drugs.”

Much of Newsom’s health care proposal addressed expanding health coverage options under the Affordable Care Act. It included a letter to President Donald Trump’s administration asking for fewer restrictions on the waiver process that states must go through in order to make major changes to their health care systems, including moving to single-payer. Experts say it could take years, and maybe even a new federal administration, for that to materialize.

The governor also signed an executive order establishing a California Surgeon General to oversee serious health conditions and “marshal the insights and energy of medical professionals, public health experts, public servants, and everyday Californians to address health inequity as early as possible.”