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Can California beat the federal government in lowering drug prices?

Californian governor Gavin Newsom says he has already managed to wait for the federal government to lower the rising cost of prescription drugs.

Newsom has its own plan to alleviate this financial burden – one that he hopes other countries can join or replicate.

The Democratic Governor said he intends to use California's power as the fifth largest economy in the world to demand lower prices directly from pharmaceutical companies to millions of Medicaid followers, state employees and eventually Californians in the private sector.

"I deeply recognize the fear that so many of you have about the cost of prescription drugs," Newsom said on a live Facebook video as he announced his initiative. "And I hope that California's efforts here can show the way that other states are considering the same thing."

Newsom later said he is already talking "with other governors of the state about how they can participate."

Whether he can deliver on his ambitious promise to acquire large pharmaceutical companies is by no means certain. The plan he presented his first day in office is based on broad ideas, with few details and starting dates that may be years away.

States have taken smaller measures to contain drug prices and achieved limited savings. But the issue has hindered lawmakers at the federal level, including President Donald Trump, who called for a reduction in the cost of prescription drugs last week in his State of the Union address.

Lawmakers face a number of challenges that make reform difficult, such as the mysterious pricing of medicines and the political influence of the pharmaceutical industry, one of the country's most powerful lobbies, said Rachel Sachs, associate professor at Washington University in St Louis specializes in health law.

"Drug pricing is one of the most complicated areas in a complicated healthcare system," said Sachs.

In California, the amount spent by the state government on prescription drugs has increased 20 percent a year since 2012, according to Newsom's order.

To curb this increase, he wants the State Department of Health, which oversees Medi-Cal, the country's largest Medicaid program for low-income residents, to negotiate prescription drug prices by 2021 for all its approximately 13 million registered individuals.

Currently, the vast majority of Medi-Cal participants are receiving their prescription medicines through managed care plans that conclude a contract with the state to provide Medi-Cal – a fragmented system that does not bring the best price to consumers, argues the Newsom government.

According to the government, Medi-Cal could save $ 150 million per annum with the negotiating state, and Medi-Cal members could go to virtually any pharmacy, as opposed to the limited options offered by their health plans.

The concept of mass purchasing may sound good, health experts say, but the state faces barriers.

The federal law requires Medicaid programs to cover most of the Food and Drug Administration-approved medicines. This leaves states with one of the biggest trading opportunities available to the private sector: the ability to tell pharmaceutical manufacturers that they are not buying their products.

But California can get creative, said Jennifer Kent, director of the health department. For example, the state may create a list of preferred drugs that will encourage drug producers to lower their prices. When a drug is on the list, doctors do not need pre-authorization of Medi-Cal to prescribe it to make it more accessible and thus more likely to be used by patients, Kent said.

In addition, the sheer size of the Californian Medi-Cal program could cut prices, Kent said.

"I think of ourselves as the third largest public buyer in the nation" behind Medicare and the Department of Veterans Affairs, Kent said. "We have a very large number of people."

But representatives of California health plans and pharmacy benefit managers, middlemen negotiating with drug makers on behalf of health plans and government agencies, say their organizations are already working to find the best prices for consumers. They did not publicly reject Newsom's plan, but expressed skepticism.

The Pharmaceutical Care Management Association, representing pharmacy benefit managers, said in a written statement that their companies are expected to save the California Medi-Cal program by $ 8.59 billion in anticipated costs between 2016 and 2025.

Drug manufacturers have launched a nationwide campaign accusing insurers of distributing more than $ 150 billion a year in discounts and discounts to consumers.

Newsom wants to negotiate not only for Medi-Cal-Engeles, but also a better offer for state employees. He has instructed his government to investigate how agencies could pool drugs in a separate pool to buy prescription drugs as a single unit.

Currently, more than 20 state agencies are negotiating drug prices separately.

Newsom said he plans to have private buyers – including small businesses, health plans and self-insured Californians – join these government agencies at the negotiating table to "march" public and private parties for lower drug prices.

A National Academy of Sciences report last year found that spending on biopharmaceuticals accounts for almost 17 percent of the United States' annual health insurance bill and that many people have difficulty paying for the medicines they need.

Among the recommendations of the report on cost reduction: The federal government should consolidate its purchasing power and directly negotiate prices for all government health programs, including Medicare and the Department of Veterans Affairs. However, the Medicare legislation has stalled over the years and remains controversial.

Trump's proposal last year to link Medicare's spending on certain drugs to what other industrialized countries pay for has gone nowhere. Last month, the Trump government proposed a new prescription drug rebate plan designed to regulate discounts that drug companies now give to insurers directly to consumers.

Without government action, states have attempted to lower drug prices on their own. These efforts include a law by Connecticut obliging drug companies to justify price increases, a California law requiring price increases, and a cap on drug use in New York under the Medicaid state program.

Twenty-eight states and the District of Columbia belong to department stores with multiple countries, mainly for their Medicaid programs. However, data on how much money these pools have saved are scarce, said Edwin Park, a research professor at the Children and Family Center at Georgetown University.

"I think states have real opportunities and a genuine interest in using their purchasing power," said Trish Riley, executive director of the National Academy for State Health Policy. "States can not wait for federal action."

This KHN story was first published by California Healthline, a service of the California Health Care Foundation.

Related topics

Cost and Quality Healthcare in California Healthcare Medi-Cal Pharmaceuticals

Medicaid Cost Medicaid Prescription Medicines

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