California’s Governor Gavin Newsom has proposed a new CalRx generic-drug program in his 2020–21 State Budget proposal that he submitted to California’s State Legislature, which would make California the first state to create its own generic-drug label.

The Administration said that the proposed a new CalRx generic-drug program would also make the state’s generic prescription drugs available for sale to all Californians. “The Budget transforms Medi-Cal [California’s Medicaid program] to a more consistent and seamless system by reducing complexity and increasing flexibility and establishes a single market for drug pricing within the state,” according to a January 10, 2020 press release from the Governor’s Office.

Medi-Cal is a program that offers free or low-cost health coverage for Californian children and adults with limited income and resources. Medi-Cal covers low-income adults, families with children, seniors, persons with disabilities, pregnant women, children in foster care and former foster youth up to age 26. California also has Covered California, which is the state’s health insurance marketplace, where Californians can purchase health plans and access financial assistance if they qualify for it.

According to the Governor’s budget proposal, the Administration plans to propose two new initiatives: the Golden State Budget Drug Pricing Schedule proposal and the Generic Contracting Program proposal in the spring of 2020.

Under the Golden State Drug Pricing Schedule proposal, the Administration would establish a single market for drug pricing within the state. This proposal would enable all purchasers–Medi-Cal, California Public Employee’s Retirement System, Covered California, private insurers, self-insured employers, and others–to combine their purchasing power. Drug manufacturers would have to bid to sell their drugs–at a uniform price–in the California market. Also, under the proposal, California would invoke a most-favored-nation clause in the manufacturer price bid, which would require manufacturers to offer prices at or below the price offered to any other state, nation, or global purchaser if they wish to sell their products in California.

Under the Generic Contracting Program proposal, the Administration will negotiate partnerships to establish the state’s own generic-drug label. The state would contract with one or more generic-drug manufacturers to manufacture certain generic drugs on behalf of the state and participating entities. The Governor asserts in his proposal that such a measure would increase competition in the generic market and result in lower generic drug prices for all purchasers.

In addition to these measures, the Governor is further proposing three other initiatives to address drug costs: a best price under Medi-Cal, rebates for non-Medi-Cal drug purchases, proposal, and increasing the state’s purchasing program.

Under the Medi-Cal Best Price proposal, current law authorizes the Department of Health Care Services to negotiate state supplemental rebates based, in part, on the best prices that manufacturers provide to other purchasers within the US. The Governor’s budget proposes to expand the Department’s authority to consider the best prices offered by manufacturers internationally when conducting negotiations for state supplemental rebates.

Under the proposal for rebates for Non-Medi-Cal drug purchases, the Department of Health Care Services currently receives federally mandated rebates and state-negotiated supplemental rebates from drug manufacturers for drugs purchased on behalf of Med-Cal enrollees only. The budget proposes to leverage the purchasing power of the Medi-Cal program to negotiate supplemental rebates on behalf of targeted populations outside the Medi-Cal program.

Under the proposal to increase the state’s purchasing program, the Department of General Services will continue expanding partnerships with local pharmaceutical purchasers to solicit participation in, and troubleshoot barriers to, the state’s pharmaceutical purchasing program.

Source: Office of Governor Gavin Newsom, Governor’s Budget Proposal 2020–2021