OPINION: Newsom is overplaying his hand in bid to lower drug prices

April 21-- Apr. 21--When it comes to prescription drugs, California is a big customer, and big customers should get the best prices, or so the thinking goes.

The state provides health insurance or health care to state employees and to prison inmates, and then there are 13 million people -- one third of the state's population -- on Medi-Cal, the safety-net health insurance program for low-income residents.

Gov. Gavin Newsom wants all California state agencies to negotiate as a block to force pharmaceutical companies to lower their prices.

The majority of Medi-Cal patients are currently in a managed health plan, such as LA Care Health Plan, the largest in the state with 2.5 million enrollees. Currently, Medi-Cal managed care plans negotiate their own price agreements with pharmaceutical companies.

But Newsom issued an executive order in January that would "carve out" the pharmacy services benefit from Medi-Cal managed care plans and convert it to fee-for-service, paid for and administered by the state of California.

Would that be less expensive? Newsom hopes so, because health care spending currently absorbs a crushing share of California's budget. Some Sacramento Democrats want to use the savings on prescription drugs to expand full Medi-Cal coverage to undocumented immigrants up to age 27, or even to all undocumented residents living in California.

Bulk-buying programs are not new. California law already allows the state to negotiate discounts, and other states have created co-operative buying agreements. Judge for yourself how well it's all working to reduce prescription drug costs.

In 2017, Assemblyman David Chiu, D- San Francisco, introduced Assembly Bill 587, which would have required the Department of General Services to convene the "California Pharmaceutical Collaborative." This bureaucratic creation would have been co-chaired by the deputy director of the Procurement Division and the assistant secretary of the state's Health and Human Services Department, and it would have included a representative from each of the relevant bureaucratic agencies plus a couple of political appointees named by the legislative leaders of the majority party.

The collaborative would have been tasked with "coordinating best value clinical treatment protocols" and "leveraging state and local government efficiencies to achieve best value procurement."

The bill passed in the Assembly but was left to die in the Senate after then-Gov. Jerry Brown let it be known that he wouldn't sign it.

Gavin Newsom ran for governor with the slogan, "Courage. For a change." One of his first official acts was this executive order directing state agencies to take over the prescription drug negotiations for more than 13 million Californians.

Perhaps we're about to find out why "courage" is sometimes another word for "political suicide."

Negotiating the prices of drugs means the state will have a list of preferred drugs, and anything that's not on the list won't be available to people on Medi-Cal or otherwise covered by the state.

That's pretty much the way it works now for everybody. Managing costs has meant managing availability, making choices to have limited choices.

But the premise of Newsom's order is that the full force of California's negotiating power will be able to bring down the price of prescription drugs. His plan calls for eventually allowing private employers to join the cooperative purchasing group. California is a big market, and drug makers won't want to lose all those customers, right? So they'll agree to cut their prices, right?

This thinking may turn out to be wildly wrong.

The state can't really storm out of a negotiation. California provides health care to a lot of people, and it has an obligation to make sure these patients have access to the medications they need. Legalizing grow-your-own only goes so far.

Prescription drugs are sold at different prices under different negotiated agreements with the federal government, other states and private health plans. Some of these contracts have provisions that tie pricing to what some other entity is paying. If California demands a particular drug at a much lower price, pharmaceutical companies may choose to stop selling that particular drug in California rather than set off a chain reaction of greater discounts across the country.

That's the point at which a California voter goes to the pharmacy and is told, "Sorry, you can't have the drug your doctor prescribed, because it's no longer sold in California."

And that's why "courage" is not always a prescription for long-term success in politics.

Susan Shelley is an editorial writer and columnist for the Southern California News Group. Susan@SusanShelley.com. Twitter: @Susan_Shelley.

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