California’s Innovative Approach to Address Rising Pharmaceutical Costs

Addressing rising prescription drug costs has been a top priority for California Governor Gavin Newsom’s administration. Health Policy News reported early in his term about the Governor’s Executive Order that authorized the state’s Department of Health Care Services to negotiate prescription drug prices for the state’s Medicaid program.

Governor Newsom’s efforts continued into 2020 with an announcement as part of his budget proposal that he will also seek to have the state to sell its own generic prescription drugs; an effort to increase competition in the generic market and drive down prices. The Governor’s proposal calls on the state to contract with generic drug manufacturers, which would develop medications on the state’s behalf. The state would then sell those drugs directly to state residents.

This proposal is similar to the Affordable Drug and Manufacturing Act, proposed by Senator and presidential candidate Elizabeth Warren and Representative Jan Schakowsky in December of 2018, that would have created an Office of Drug Manufacturing (ODM) within the federal Department of Health and Human Services. The ODM would have been charged with manufacturing generic drugs under certain circumstances enumerated in the bill and offering them at a “fair price.” Insulin would have been one of the manufactured drugs. That bill did not advance. Similarly, in 2018 a consortium of over 500 hospitals, including Intermountain Healthcare, the Mayo Clinic, Steward Health Care and HCA established a non-profit generic drug company, Civica Rx. Civica aims to address drug shortages and provide drugs at an affordable and transparent price by partnering with existing drug manufacturers to manufacture generic drugs. Civica Rx now has 18 medications in production and patients began being treated with those medications last fall.

While generic prices have been decreasing overall nationwide, the California Office of Statewide Health Planning and Development reported that increases in generic drugs’ list prices averaged 37.6% over the last three years.[1] Advocates are calling on Governor Newsom to target specific types of drugs, such as insulin, with his effort.

Governor Newsom’s proposal requires legislative approval before it moves forward.


[1] This is based on required manufacturer reporting of list price increases that exceed 16% and, therefore, does not factor in smaller price increases or price decreases.

Leave a Reply

%d bloggers like this: