Reed Smith Client Alerts

On January 7, 2019, hours after taking office, California Governor Gavin Newsom signed an Executive Order creating an initiative to “create the nation’s biggest single purchaser system for drugs. ...”1 The proposal contemplates that the state would negotiate with manufacturers on behalf of its Medicaid (Medi-Cal) program, other state purchasers such as the California Public Employees’ Retirement System (CalPERS), and private purchasers electing to opt in to the purchasing program, to strengthen their bargaining power and “make prescription drugs more affordable for all.”2

Authors: Robert J. Hill Joseph W. Metro Edward B. Schwartz Paul W. Pitts Karl E. Herrmann Debra A. McCurdy

Medication bottles full of pills

Specifically, the Executive Order requires the following:

  • The California Department of Health Care Services (DHCS) shall “take all necessary steps to transition all pharmacy services for Medi-Cal managed care to a fee-for-service benefit by January 2021 in order to create significant negotiating leverage on behalf of over 13 million Californians and generate substantial annual savings.” Accordingly, the Governor apparently intends to carve out the pharmacy benefit from California Medi-Cal managed care plans and have Medi-Cal provide that benefit directly.
  • DHCS, in consultation with the Health and Human Services Agency and California Pharmaceutical Collaborative (CPC), “shall review all State purchasing initiatives and consider additional options to maximize the State’s bargaining power....” This review “may include recommended changes in state law or current processes for procuring and reimbursing for pharmacy services.” This review is to be completed by July 12, 2019.
  • The Department of General Services (DGS), in cooperation with CPC, “shall develop a list of prescription drugs that could appropriately be prioritized for future bulk purchasing initiatives or reexamined for potential renegotiation with the manufacturer.” Prioritization must be based upon, among other things, “the price of the drug and the extent to which the drug is subject to competition, such as a sole-source drug without a generic or alternative option.” The list of prioritized drugs is to be delivered to the Governor by March 15, 2019, with a brief rationale for why any of the 25 highest-cost drugs have not been included.3
  • Based on the prioritized list, DGS, in consultation with CPC, “shall develop and implement bulk purchasing arrangements for high-priority drugs.” DGS is directed to encourage local governments to participate, and provide a written status report on the effort to the Governor by April 12, 2019.
  • DGS, in consultation with CPC, shall “develop a framework for enabling ... private purchasers—including small businesses, health plans, and the self-insured—to opt in to a State purchasing program.” If appropriate, DGS “should recommend legislative changes to make prescription drugs more affordable for all.” DGS must provide a written report to the Governor by May 17, 2019.