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Negotiating Drug Prices: Should State Agencies Band Together? ~KHN

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April 27, 2017 – Citing budget-busting drug costs, a California lawmaker wants state health programs to band together to negotiate better prices with drug companies.

Assemblymember David Chiu (D-San Francisco) has introduced a bill that would strengthen intra-agency collaboration on drug cost-saving strategies. Lawmakers will consider the bill at an Assembly Health Committee hearing on Tuesday.


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“Californians and Americans are frustrated with the lack of progress around drug prices,” Chiu said, citing the uproar over EpiPen and hepatitis C medications.

He said state agencies should pool their efforts “so that we can leverage that consumer power and get the best deal for our money.”

While the proposed California Drug Costs Reduction Act does not mandate that various California health programs such as Medi-Cal or Covered California purchase drugs together, it would require administrators of those programs and 17 other state agencies to convene twice a year to strategize about ways to keep costs down.

Through the California Pharmaceutical Collaborative (CPC), state officials would consider a uniform state drug formulary and look at paying for drugs based on the value they bring to the health system.

A pharmaceutical collaborative by that name already exists within the California Department of General Services and purchases drugs for state prisons, hospitals and universities. This bill would expand on those efforts.

Chiu says it’s unclear what the current program is doing, and if it has been successful in bringing down drug costs. The 2002 legislation that created the collaborative required only a few agencies to participate, and only one report back to the legislature in 2005.

A 2005 report from the California State Auditor suggested the Department of General Services could do more to bring down pharmaceutical costs for California.

A more recent analysis from the nonpartisan Legislative Analyst’s Office showed spending by the Department of General Services has increased at a relatively high rate — about 20 percent annually between 2012 and 2016, although that trend may have been skewed by the release of high-cost hepatitis C drugs during that time.

“I haven’t had transparency about the work that’s happened,” Chiu said. During a February 2017 California legislative hearing about drug prices, the lawmaker expressed frustration about not being able to get information about the workings of the CPC.

Chiu’s bill would require annual reports from the pharmaceutical collaborative, which the lawmaker says would ensure more accountability.

A spokesman with the Department of General Services, Brian Ferguson, wrote in a statement that it has been meeting “regularly” to create a “roadmap” to cut drug costs.

The proposal so far has no registered opposition. Priscilla VanderVeer, a spokeswoman with the drug company trade association Pharmaceutical Research and Manufacturers of America (PhRMA) had no comment on the proposal.

Other states such as Massachusetts have bulk purchasing programs for drugs, according to the National Academy for State Health Policy. And Oregon and Washington have joined together to create a bulk purchasing program. It is one of five multi-state pharmaceutical programs in the country, according to the National Conference of State Legislatures.

About a third of Californians have health care coverage through Medi-Cal alone. Together with Covered California, and the California Public Employees’ Retirement System (CalPERS), these agencies insure more than 16 million people.

Experts say the diverse ways state programs pay for drugs would make it hard to implement an across-the-board prescription drug purchasing system in California.

Ben Johnson, fiscal and policy analyst with the Legislative Analyst’s Office said that the Medi-Cal program has different rules for payment and coverage than the state’s prison system. Medi-Cal is also entitled to deep drug discounts that other state agencies don’t receive.

“A lot of work would have to be done to be able to actually harmonize and create a uniform system of drug procurement in the state,” Johnson said. His agency does not take positions on legislation.


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Advocates for AIDS patients and retired people support the bill. The California Public Interest Research Group (CALPIRG), which sponsored the initial legislation to create the collaborative in 2002, supports the current proposal as well. In a letter to the bill’s author, the group said the measure would provide “additional tools and direction” and increase accountability on the state government’s actions to reduce drug prices.

This story was produced by Kaiser Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.


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