New drug plan would curb exorbitant pharmaceutical costs

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California’s governor unveiled plans to establish a state-run generic-drug wholesaler, as part of a series of measures that together would constitute one of the furthest-reaching attempts to curb pharmaceutical costs in the U.S.

Gov. Gavin Newsom on Thursday also proposed creating a single market that would allow drug buyers to pool their bargaining power to drive down costs. And Newsom suggested using low prices obtained by the state’s Medicaid program to aid other buyers, among other steps.

The most populous U.S. state, California has a history of using its economic muscle to try to influence national policy on everything from auto emissions to health care. The drug-pricing proposals, which in some cases appear to require new law, are likely to be opposed by a pharmaceutical industry that has formidable economic and legal wherewithal of its own.

“These nation-leading reforms seek to put consumers back in the driver seat and lower health care costs for every Californian,” Newsom, a Democrat, said in a statement.

The plans, released as part of the state’s proposed 2020-2021 budget, are almost certain to face substantial practical, political and legal hurdles. For example, the proposal to create a state-run drug label would rely on drug companies to supply inventory on a contract basis.

Companies could balk at that notion if it stands to further compress their margins. Major generic manufacturers, including Mylan NV and Teva Pharmaceutical Industries, have struggled to turn a profit on some widely used medications. For higher-cost generic drugs, there can be few competing manufacturers with the licenses to produce the pills for the U.S. market.

Creating a single buying pool could run into difficulties, as well. Newsom’s proposal says state programs, health insurers and private employers would band together as a sole buyer, and that drugmakers would have to offer their products at one price to the entire market.

But that could limit patient access to medications if pricing disputes lead drug companies to withhold their products. In Europe, negotiations between drugmakers and government health programs have resulted in some expensive drugs not being available, one of the trade-offs for the continent’s typically lower costs. It’s unclear if California could successfully hold together a large pool of independent buyers in the face of pressure from patients unable to access treatments.

Bloomberg News