California Gov. Gavin Newsom wasted no time taking steps to fulfill his campaign promise to lower the price of prescription drugs. One of his first actions as governor was to sign an executive order proposing a plan to allow the state to negotiate directly with drug manufacturers.
The proposal would allow the state Department of Health Care Services to negotiate drug prices on behalf of more than 13 million Californians covered by Medi-Cal. Newsom also wants all other state agencies that purchase drugs — covered state workers and prisoners, for example — to take part in the single-purchaser system.
Newsom’s executive order also calls for the Department of General Services to develop a way to allow private purchasers — small businesses, health plans and the self-insured — to participate.
“We think this is a significant step forward,” Newsom said in a video address announcing the proposal. “It’s the right thing to do, and I recognize deeply the anxiety so many of you feel around the issues related to the cost of prescription drugs, and I hope California’s efforts here can lead the way for other states to consider the same.”
Prescription drug prices have increased dramatically in recent years. Newsom’s executive order said state spending on prescription drugs has increased 20 percent per year since 2012, and spending on the 25 most expensive drugs account for half of the state prescription drug expenses.
Several life-saving drugs have seen prices double, triple or worse. Insulin, for example, tripled in price between 2002 and 2013, and has gone up even more since.
This single-purchaser program could save California — and Californians — hundreds of millions of dollars by using huge buying power to negotiate lower prices. A similar New York law allowed state officials to cut deals that saved the state $175 million last year.
The proposal is like an idea once embraced by Donald Trump to allow Medicare to negotiate drug prices, something federal law now forbids. As with Newsom, Trump made changing that a campaign promise.
Unlike Newsom, he failed to deliver. Instead, he proposed allowing drug companies to exclude more drugs from coverage in the hope that would encourage them to lower prices. Unsurprisingly, that hasn’t worked. Neither, apparently, have scolding tweets from the president.
Trump suggested another approach on the eve of the midterms, a demonstration project that would have Medicare establish an “international pricing index” to use as a benchmark in determining how much to pay for drugs covered under Medicare Part B — mostly drugs administered in a doctor’s office.
Not much has been heard about that plan since the election. Given the inevitable pushback from the pharmaceutical industry and Trump’s history of bowing to such pressure, we’d be surprised if anything more comes of it.
Besides, the reason that drug prices tend to be lower in other countries is because those countries do negotiate with drug companies. Eliminating the prohibition against that for Medicare would be far simpler and far more effective.
Perhaps if the California model proves successful and lowers drug prices for millions of Californians, Congress will gain the courage to stand up to Big Pharma and finally allow Medicare to use its massive purchasing power to lower prices for consumers nationwide.