EXECUTIVE ORDER: MEDI-CAL TO NEGOTIATE PRESCRIPTION DRUG COSTS

California's newly elected governor; Gavin Newsom (D) has recently taken a legislative measure to address skyrocketing drug prices. Shortly after he was sworn in last week, Newsom signed an executive order making the state responsible for negotiating drug prices directly with pharmaceutical drug companies. In addition, the governor is seeking increased funding for Medi-Cal and a state-level individual mandate.

The order outlines a singular purchasing model which intends to achieve better drug pricing for the state's Medicaid program. Newsom is attempting to making use of the purchasing power that comes along with a Medicaid population of over 13 million and growing. In addition, there is very little doubt that executing the order will have ramifications with California's relationship with big pharma. Under the order, California will develop a list of drugs to be purchased in bulk as well as target specific medications for negotiation. It would also enable private payers to enter into the public system and negotiate prices.

Advocates of the initiative view it as an opportunity to not only reduce costs locally but also at the federal level. Jack Hoadley, a researcher at Georgetown University's Health Policy Institute, believes that the order could encourage the use of costly pharmaceuticals and make them more common.

Hoadley explained, "States like California could bring a lot of leverage to a sole-source drug that is priced very high."

Friso van Reesema concentrates on Medicaid pharma at Cipher Health and sees Newsom's order as an "interesting move that shows that states are diving deeper into their budgets to identify ways to allocate funds to priority programs." Reesema believes that pharmaceutical companies will have to comply with the state's new purchasing model, thus allowing payers to negotiate drug pricing based on health outcomes rather than models that are based solely on volume.

On the other hand, some experts are concerned about the fact that managed care plans will no longer have complete control over their formularies. This could lead to denied prescriptions and could greatly impact patient and provider satisfaction.

Dr. Adam Fein from Pembroke Consulting is skeptical of the governor's order. Fein points out, "It sounds like a supplemental rebate play. States can negotiate supplemental rebates with manufacturers (either through state pools or via managed care). Nearly all states already do this as single states or as part of a multistate group."

Sandeep Wadhwa, MD, chief health officer and senior vice president of government programs at Solera Health, agrees with Fein's observation. According to Wadhwa, "This is a bit like other state-administered services such as long-term services or dental care which may not be part of managed care contract. This will almost certainly require a state plan amendment to be approved by feds."

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