Image for California to Address Drug Prices by Making Its Own Drugs

Generic drug makers have a new and a new kind of competitor – the State of California. Governor Gavin Newsom signed legislation this week empowering the state to make or distribute drugs and biosimilars such as insulin as a way to combat high prices and chronic shortages. It’s the first such law in the nation.

Senate Bill 852, authored by Senator Richard Pan, a Sacramento Democrat, follows the legislative prescription written by Newsom earlier this year. “Prescription drug prices are too high,” Newsom said. “I’m proposing California become the first state in the nation to establish its own generic drug label. It’s time to take the power out of the hands of greedy pharmaceutical companies.”

The new law authorizes the state to manufacture generic drugs, though it’s likely to start by partnering with existing manufacturers, which generally took a neutral stance on the legislation that passed with solid majorities in both houses of the California Assembly.

Before proceeding, California must first petition the US Department of Health and Human Services to identify a list of drugs the state can manufacture, which could take up to 18 months. SB 852 specifically mentions insulin, which supporters say has experienced a 1,200 percent price increase over the last 20 years.

I’m proposing California become the first state in the nation to establish its own generic drug label. It’s time to take the power out of the hands of greedy pharmaceutical companies.

Entering the generic drug business is a strategy few, if any states have the market power to emulate. With a population close to 40 million, California pays for prescription drugs for 12.5 million Medicaid enrollees, 236,000 state employees and nearly 130,000 prison inmates.

Oregon approved legislation in 2018 requiring greater transparency on prescription drug pricing. Minnesota subjects generic drug manufacturers to a review by the state attorney general for enacting steep price increases in the commercial health insurance market. Nevada passed a measure in 2017 requiring drug companies to report and justify large price increases. Nevada has levied more than $17 million in fines for failure to comply.

A number of states are looking at regulation of pharmacy benefit managers who negotiate drug prices. Last year, Newsom signed an executive order directing all Medicaid managed-care organizations to work collectively to negotiate drug prices for California’s Medicaid enrollees.

However, many attempts by states to rein in drug prices have faltered. Allowing importation of drugs from foreign countries, which Vermont, Oregon and other states have explored, bumps into federal authority.

Massachusetts passed a law allowing it to narrow the list of approved drugs available to Medicaid enrollees as a means to pressure lower prices from drug makers. The Trump administration rejected that plan, forcing the state to comply with federal law and pay for every drug approved by the Federal Drug Administration.

Maryland’s 2017 statute aimed at curbing unwarranted prescription drug price increases was overturned in the 4th Circuit Court of Appeals, which ruled states lack constitutional authority to regulate interstate commerce.

California’s latest idea sputtered earlier this year, but was revived after gaps were exposed in combatting the coronavirus pandemic, including shortages of some prescription medicines. For example, President Trump’s endorsement of hydroxychloroquine to ward off COVID-19 depleted the supply of the drug used by lupus patients.

As expected, pharmaceutical companies opposed SB 852, claiming it was more likely to increase, not decrease drug prices. Growth in prescription drug spending in the United States has outstripped GDP growth since 2012.