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CA moves to lower rx costs?

When we evaluate health plans, we consistently see that prescription drugs are the fastest growing cost driver in healthcare. So, I was excited to see that Governor Newsom, On September 28, 2020, signed legislation that is intended to lower prescription drug costs for Californians. Then I read the bill (yes I actually read it) and the excitement went away. What can we expect from this in our day to day lives? How soon?

Consider some of these key components of the new law:
“The bill would require CHHSA to enter into partnerships to produce or distribute generic prescription drugs and at least one form of insulin

It doesn’t take a degree in healthcare (just a quick Google search) to realize that one of the reasons that this law was able to make it through is the fact that it is targeting the smallest revenue generator for drug companies – generics. It leaves out specialty and brand drugs – the biggest contributor to increased costs and 80% of overall drug costs in most plans.

“The bill would, subject to appropriation by the Legislature, require CHHSA to submit a report to the Legislature on or before July 1, 2023, that, among other things, assesses the feasibility and advantages of directly manufacturing generic prescription drugs and selling generic prescription drugs at a fair price”

Based upon this part of the bill, we will not know until 2023 whether it is deemed feasible for the state to get into the generic drug business… So, no changes expected soon!

“The bill would exempt all nonpublic information and documents relating to this program from disclosure under the California Public Records Act in order to protect proprietary, confidential information regarding manufacturer or distribution costs and drug pricing, utilization, and rebates ”

One of the largest contributing factors to the high cost of healthcare in our country is the systemic lack of transparency. In fact, in prescription drug distribution, there are 32 ways that the supply chain adds cost to a drug before it gets to the member. This bill specifically maintains that secrecy. And the same is true for the meetings that will be held – as it requires that they be private.

In summary, this new law will not do much to change the trajectory of drug prices in CA or around the country. There is good news, however, the marketplace is solving this problem every day. While the average plan spends about $100/member/month on prescriptions (also a quick Google search), top performing plans run at $32 –68% less. And it does not take a feasibility study. It only takes transparency and supply chain management.


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