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Last updateMon, 20 Apr 2020 1pm

In one of his first official actions, Gov. Gavin Newsom has directed state agencies, including the one that oversees Medi-Cal, to negotiate as a block to demand prescription drug-makers lower their prices.

The move will make California the nation’s largest negotiator with pharmaceutical companies, and could become a model for other states—if it works.

“Right now, with all the gridlock in Congress, we are seeing quite a bit of state action on prescription-drug pricing—and we hope that advances as much as it can until we can see some change in Congress,” said Peter Maybarduk, who specializes in medicine access at Public Citizen, a consumer advocacy group based in Washington, D.C.

“California government has power,” he continued. “It is a large enough economy and large enough state to influence pharma behavior and dictate terms.”

It’s such an attractive idea that it seems to have united the progressive Newsom with his political nemesis, President Donald Trump. Both have espoused the wisdom of the government consolidating its massive purchasing power so it can bargain hard with drug companies and cut the best deal for taxpayers.

Trump campaigned on the notion of harnessing the federal government’s bargaining power to reduce drug prices for programs like Medicare, but the idea went nowhere, because it’s prohibited by federal law: Congress specifically barred the federal government from negotiating Medicare drug prices—a restriction defenders describe as free-market protection and critics deride as a giant pacifier to Big Pharma.

Still it remains a simple and appealing idea in a nation confronted by rapidly rising prescription drug costs. A recent Harvard/Politico poll found the No. 1 priority voters have for the new Congress is reducing the cost of prescription drugs.

There’s a reason it’s top of mind. A study released this month in the Journal of Health Affairs found that the cost of brand-name drugs rose each year between 2008 and 2016—by more than 9 percent per year for oral medicine, and more than 15 percent for injectable medicine. Specialty drug prices soared even higher each year.

In his executive order, Newsom said California has seen prescription drug prices rise 20 percent annually since 2000—and that the 25 most expensive drugs account for half of the state’s spending on pharmacy costs. So far, Newsom’s office has not released any estimates of how much it expects the new bargaining plan to save.

“We will use both our market power and our moral power to demand fairer prices for prescription drugs,” Newsom said during his inauguration speech Monday.

That same day, he told the state’s Department of Health Care Services to begin negotiating the purchasing of prescription drugs for all 13 million recipients of Medi-Cal, the state’s health-care system for low-income patients. Currently, the state only represents 2 million of them, while the rest are on managed health plans that negotiate their own drug rates.

“The governor is the only one that can do this; he is the only one that can force everybody to the table,” said Democratic Assemblyman Jim Wood of Healdsburg, who heads the state Assembly’s health committee.

He said the consolidated bargaining power is vital to address skyrocketing drug prices. With nearly one in three Californians on Medi-Cal, and its budget of $250 billion, even small savings could be significant.

“The savings we’ll be able to enjoy from less spending on prescription drugs,” Wood said, “will help offset some of the additional costs that we’re going to be incurring to expand coverage for other people in California.”

Massachusetts was the first state to enact a “bulk Rx buying plan” in 1999. States eventually started joining forces, and now there are five bulk-buying programs that include multiple states, with some reporting significant savings. Three of those are focused on buying drugs for Medicaid recipients, according to the National Conference of State Legislatures.

The oldest one, focused on Medicaid pooling, was created in 2003 with four states and has now grown to 10, including Michigan, Minnesota, Montana, New York and North Carolina. It represents 3.8 million Medicaid recipients—still less than a quarter of the Medi-Cal recipients California will be bargaining on behalf of.

In its last session, the California Assembly approved a bill that would have created a prescription drug bulk-purchasing program for the state, but it was then held by its sponsor, San Francisco Democratic Assemblyman David Chiu. His office cited a lack of support from then-Gov. Jerry Brown. And nearly two decades ago—in another effort to decrease drug expenses—the state authorized the Department of General Services to buy prescription drugs for state or local agencies through a bulk purchasing program, but the program hasn’t been used much.

The governor’s plan also calls for eventually giving private employers the option to join the consolidated purchasing block, although how that would work is still vague.

As for the expected drug-industry opposition, the Pharmaceutical Research and Manufacturers of America said it’s reviewing the proposal.

“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,” said spokeswoman Priscilla VanderVeer.

Gerald Kominski, senior fellow at the UCLA Center for Health Policy, lauded the idea of using market power to obtain the lowest prices possible, but predicted that drug-makers would unleash a campaign against it inside and outside of California.

“They will start running ads that are going to scare people—that if you are on Medi-Cal, you are no longer going to get this drug or this drug,” he said. “There will be dark music and maybe a doctor in the scene shaking their head 'no' saying you are no longer eligible for this or for that.”

For the health plans that currently serve the majority of Medi-Cal patients, efforts to get better prices are welcome, said John Baackes, CEO of L.A. Care Health Plan. With 2.5 million Medi-Cal patients, it is the largest Medi-Cal managed plan in the state.

“We are supportive of investigating the idea, because logically it says if the state is negotiating for 13.5 million people, they can do a lot, maybe more than what we can do for 2 million people,” he said. “It’s worth it to see if it will produce better pricing.”

But the details are going to matter, Baackes said. There has been no information yet on how it will be administered or how the state would handle customer service.

Even California, with super-sized buying power, can only bargain so far. Larry Levitt, senior vice president of the Kaiser Family Foundation, called Newsom’s approach “promising.” But he noted that the state can’t walk away from a negotiation, because it has an obligation to make sure that Medi-Cal recipients can access the drugs they need.

“Leveraging the purchasing power of the state is certainly a smart move,” said Sacramento Democratic Senator Richard Pan, chair of the Senate Health Committee. But he added a caveat: “We want to make sure it’s done in a way that ensures that people have access to the medication they need.”

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Politics

In a scramble to keep people enrolled in health-care plans, what did New Jersey, Vermont and the District of Columbia do earlier this year that California has not done?

They began requiring that their residents carry health coverage or face a state penalty for going without it. Such “individual mandates” aim to replace the federal mandate—perhaps the most controversial but essential part of the Affordable Care Act, often called Obamacare —that sought to force people to sign-up for health insurance or pay a tax penalty. The Republican Congress and the Trump administration have repealed that federal penalty, effective next year.

The clock is ticking. Obamacare has led to a record number of Californians having medical coverage. But a new study warns that if the state does nothing to counteract the Trump administration’s moves to undermine Obamacare, up to 1 million more Californians could be without health insurance within the next five years.

What’s kept California from enacting its own mandate? Some state Democratic leaders are wary of enacting a state mandate without also making health insurance cheaper for Californians.

“Providing subsidies is a better reality for members of our community than providing penalties,” said Assemblyman Joaquin Arambula, a Fresno Democrat who co-chaired the select committee on universal healthcare that conducted town halls across the state last summer. “It’s the carrot versus the stick.”

Sacramento State Sen. Richard Pan, a Democrat who chairs the Senate Health Committee, said the Legislature is focused on keeping the state’s insurance market exchange, known as Covered California, strong. Some 2 million Californians buy health coverage through the exchange, which provides federal subsidies to low-income purchasers.

“We are going to do what we can in California to stabilize the insurance market, to do what we can to make health insurance, particularly on Covered California, affordable,” said Pan, who has not yet endorsed any particular remedy. “We are up against a federal administration that is doing the opposite and forcing people to pay higher premiums.

“As we look at options—like do we want to do an individual mandate?—we also need to recognize part of what is driving that is not only the removal of the federal mandate, but also actions taken to increase insurance premiums,” said Pan.

Since the Affordable Care Act was implemented in 2013, the state’s uninsured rate has dropped from 20 percent to 7 percent. Currently, 3.4 million Californians are uninsured, with undocumented immigrant adults making up the majority of that group.

But without more aggressive state intervention to counter Washington’s retreat from the program, an estimated 500,000 to 800,000 more Californians under 65 will be uninsured by 2023, according to the new study from the UC Berkeley Center for Labor Research and Education and the UCLA Center for Health Policy Research.

A mandate and state subsidies are among options the Legislature will be exploring to combat the expected exodus from insurance. But both are controversial. An Economist/YouGov poll found that 66 percent of Americans oppose a mandate. And although a few other states such as Vermont and Massachusetts do offer state subsidies, in California, state subsidies could cost up to an estimated $500 million, at a time when an incoming Democratic governor and Democratic supermajorities in the Legislature have promised pricey programs such as universal healthcare and universal preschool.

So far, Covered California enrollment, now underway through Jan. 15, is meeting projections—with a big caveat. As of the end of November, more than 90,000 newly insured people signed up, said Peter Lee, its executive director. But those projections already were lowered by 10 to 12 percent compared to last year, because it was unknown what effect the removal of the penalty would have on sign-ups.

“There’s no question that a penalty imposed on individuals for whom health insurance is affordable is a good policy,” said Lee, who said he would follow whatever rules the Legislature adopts. “The penalty encourages people to participate in a system that, if they don’t, we all bear the cost. And it encourages people to do the right thing for themselves.”

Covered California is working on a report commissioned by the Legislature on how to best bolster the system. It’s due in February, and Lee said a variety of options are on the table including a mandate, expanding subsidies and using state money to lower premiums, a process called reinsurance.

Some of those ideas echo the recommendations UC researchers offered in their study: incorporate a state mandate with penalty funds going to toward making insurance more affordable, state-funded subsidies in addition to the existing federal subsidies, and a Medi-Cal expansion to include low-income undocumented immigrants.

These are not new ideas, but they are politically and financially costly, said Gerald Kominski, a fellow at the UCLA Center for Health Policy Research.

“We know that the mandate drives people into the market,” said Kominski. “If you’re going to pay a tax penalty and not have health insurance, why not look for insurance when almost 90 percent of those who buy in through Covered California received some sort of subsidy?”

“The state could consider bringing the whole threshold down for everybody,” he continued. “The point is to lower the thresholds and make people pay less out of pocket. That would increase affordability for lots of families.”

Some advocates agree that a potential state mandate must also include a mechanism for making insurance more attainable.

“We don’t want to require people to buy coverage that they can’t afford. And what they can afford may be different in a high-cost-of-living state like California,” said Anthony Wright, executive director of Health Access, which advocates for consumers. “That’s why it’s hard to have a conversation about a mandate without affordability assistance.”

Under the federal mandate, Americans were compelled to carry health insurance or pay a penalty of $695 per adult, or 2.5 percent of household income, whichever is higher, unless insurance costs more than 8 percent of a household’s income.

With the repeal of that ultimatum, California is bracing for the biggest dropouts among its residents who have been buying insurance through the subsidized Covered California program. The program projects it could lose 10 to 30 percent of its participants.

But the state also expects wider losses, including among the 46 percent of Californians who get insurance through employers, because they also will no longer be required to have it. Even Medi-Cal, the state-paid program for low-income Californians, will lose about 350,000 people, the study estimates, because the lack of a federal mandate may deter people from seeking health coverage at all—meaning they’ll never discover they qualify for Medi-Cal.

Last year, the California Legislature considered creating a state mandate as part of budget discussions that included making insurance more affordable, but neither idea made it into the final budget proposal submitted to the governor.

Experts and advocates are hopeful that these ideas may gain traction under Gov.-Elect Gavin Newsom, who has talked a big game on health care and access pledging during his campaign to support single payer and universal coverage.

If more Californians drop their health insurance, everyone pays. People most likely to drop out are the young and the healthy, expert say. But they are critical to keeping the whole operation afloat, because the system cannot be made up of only sick people.

California already has taken steps to shore up the Affordable Care Act: banning short-term health plans, adopting legislation barring work requirements for Medi-Cal, and offering a longer open enrollment period.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Politics