Gavin Newsom unveils health plan to form California’s own generic prescription drug label

California would get into the business of selling prescription drugs under a sweeping plan to reduce health costs that Gov. Gavin Newsom unveiled Thursday.

Newsom’s office provided a memo summarizing the proposal but declined to answer questions about how it would work and how it would be funded. Even some supporters say it will be hard to accomplish.

The plan, which will be part of Newsom’s 2020-21 budget proposal, would make California the first state to create its own generic drug label. Newsom also wants state agencies and private insurers to negotiate drug prices together to leverage lower prices.

“A trip to the doctor’s office, pharmacy or hospital shouldn’t cost a month’s pay,” Newsom said in a written statement. “The cost of health care is just too damn high, and California is fighting back.”

Under the plan, California would contract with existing drug manufacturers to produce pharmaceuticals for the state. Newsom’s office argues that would increase competition and lower prices in the market for generic versions of brand name drugs.

Generics companies were surprised by Newsom’s announcement Thursday, said Jeff Francer, general counsel for the Association for Accessible Medicines, which represents generics manufacturers.

State government partnering with generics companies could help California leaders address problems the manufacturers face related to patents and anti-competitive practices by brand-name pharmaceutical companies, Francer said. But he added he’s waiting to see more details from Newsom’s office before taking a position on the plan.

Newsom also wants state agencies that purchase drugs, including Medi-Cal, CalPERS and Covered California, to team up with private insurers and other entities to negotiate as a group with pharmaceutical manufacturers.

His plan would create a single market for drug purchasing in California, forcing drug manufacturers to sell their drugs at the same price to everyone in the state. To sell drugs in the California market, Newsom’s office says the state would require manufacturers to sell drugs at or below the prices they charge other states, nations or global purchasers.

Priscilla VanderVeer, a spokeswoman for the pharmaceutical trade group PhRMA, declined to comment on Newsom’s proposals until his office releases more information.

Mary Ellen Grant, spokeswoman for the California Association of Health Plans, which represents insurers, said the association is waiting to see more detail.

“California’s health plans share the Governor’s concern about the high cost of prescription drugs,” Grant wrote in a statement. “The governor’s proposal to create a state generic drug label could serve as another tool in the toolkit the state can use to make health care more affordable which would be good news for all Californians. We look forward to learning more.”

California has an opportunity to move the needle on the issue, said Anthony Wright, executive director of consumer advocacy group Health Access.

The state spends billions of dollars every year on prescription drugs, giving it significant negotiating power. That scale means the state could save money by producing its own generic versions of drugs like insulin, which has surged in price over the last decade, Wright said.

But he acknowledged that the proposals are ambitious and will face opposition from the powerful pharmaceutical industry.

“Each one of these proposals are big deals. Together, they’re game-changing,” Wright said. “If any of this were easy, it would have already been done.”

Assemblyman Devon Mathis, R-Visalia, called Newsom’s prescription drug plans “unrealistic,” and criticized the governor for not saying how he would pay for them. Pharmaceutical policy at the scale Newsom is proposing should be tackled by the federal government, not California, Mathis said.

“The governor needs to stay in his lane and focus on the crises at hand,” Mathis said. “He hasn’t talked about providing disadvantaged communities with more doctors, he hasn’t talked about the doctor and nurses shortage… Those are things that need to be discussed.”

Newsom also wants to create a new Office of Health Care Affordability tasked with cracking down on sectors of the health care industry that aren’t doing enough to reduce costs.

Newsom’s proposal would steer more money to Medi-Cal, the state’s health care program for low-income Californians, to increase preventative health services, boost assistance for homeless people and improve mental health care.

The health care announcements come a day after Newsom previewed his plans for homelessness in the budget. His proposal will direct $750 million to organizations that help homeless Californians. That money could be used to pay rent, build housing and improve shelters, according to Newsom’s office.

During his campaign for governor, Newsom called for a universal health care system and endorsed an unsuccessful single-payer bill. Since taking office, he hasn’t called for lawmakers to take up new single-payer legislation and has instead argued the state needs federal approval to pursue a single-payer system in California.

He’s characterized his efforts to expand health care coverage and to consolidate drug price negotiations as steps toward universal coverage.

Newsom’s full proposal for the 2020-21 budget is due Friday.

This story was originally published January 9, 2020 at 6:00 AM.