Shortly after being sworn in as California’s new governor last year, Gavin Newsom ordered the state to take over Medicaid’s prescription drug program. In fact, it’s one of the first things Newsom did as governor.
This past week — perhaps a way for Newsom to celebrate his first year in the state’s top political job, he wants to change the prescription drug landscape in California by turning the state into its own de facto drug manufacturing machine.
The proposal isn’t to actually have the state manufacture prescription drugs, but to make deals with generic drug companies to compete on a level playing field with the big pharmaceutical companies, which Newsom has referred to as “greedy.”
The end game in Newsom’s budget proposal is to lower prices for the state’s 40 million or so consumers, who under current conditions are shelling out billions of dollars a year for prescription drugs, a cost Newsom hopes can be substantially reduced.
As one might expect, spokespeople for the big pharmaceutical companies don’t agree. They explain there are “hidden costs” that could end up making Newsom’s plan a net loser for taxpayers.
It seems evident that something needs to be done about high health care costs in the United States, nearly 20 percent of which consists of what Americans pay for prescription drugs. Whether states can go it on their own with generic manufacturers has yet to be proven.
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California has a distinct advantage in terms of leverage. As the state with the world’s fifth-largest economy, California wields — or could wield — considerable muscle when it comes to making deals more favorable to consumers. Or as a health policy expert for the Kaiser Family Foundation put it: “A drug company could walk away from Rhode Island. It’s much harder to walk away from California.”
The prescription drug plan is part of Newsom’s proposed budget, and thus needs approval from the Democrat-controlled California Legislature. Republican lawmakers are predictably skeptical of Newsom’s scheme, taking the conservative view that everything costs more when government runs a program.
There is some truth to that, but at least state programs spread the costs over a wide base of taxpayers. In the case of prescription drugs, health-care consumers now carry that burden. It’s a liberal concept that could work.
Among prescription drug consumers who could immediately benefit from Newsom’s plan are those afflicted with diabetes. A “California generic drug” label could lower the cost of insulin, a common medicine that has steadily increased in price. At present just three drug companies control most of the market for insulin.
A spokesman for the California Pharmacists Association said state officials might be surprised at how much the government will need to charge for its own generic drugs because of factors beyond state control. Fair enough, perhaps, but that should not keep policy makers from trying to make life-saving prescription drugs more affordable.
The key to Newsom’s proposal is that it could, and likely would create an atmosphere of competition that includes all pharmaceutical makers, not just the behemoths of the industry.
Many Americans, perhaps most, rely on generic prescriptions, but that represents just a small part of the total drug spending across the United States. Unlike the name-brand drug market, the generics playing field is extremely competitive, according to the Department of Pharmaceutical and Health Economics at USC’s School of Pharmacy.
The governor’s plan may not be the perfect solution to what has become a crisis for prescription drug consumers, but like most everything else in life, competition likely won’t make matters worse.