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California Adds Its Clout to States Battling High Drug Prices

California Adds Its Clout to States Battling High Drug Prices

The hope is that pooling all the Medicaid recipients can lead to better deals. Under federal law, state Medicaid programs already get a rebate of at least 23 percent for prescription drugs. But many states, including California, negotiate for additional discounts.

Several states already do what California has proposed, “carving out” some portion of their drug benefits and directly negotiating with manufacturers rather than allow their managed care plans to do so, according to the Kaiser Family Foundation.

“I think it’s an example of what states can do now, under current law,” said Edwin Park, a research professor at the Georgetown Center for Children and Families.

But simply banding together won’t solve every problem.

“Lowering drug prices requires some kind of negotiated leverage over drug manufacturers, and generally the way you get that leverage is through the ability to say no to a particular drug,” said Larry Levitt, the senior vice president for health reform at the Kaiser Family Foundation. But Medicaid is required to cover nearly every drug, he said, so “that’s very difficult to do.”

Medicaid programs, including in California, have instead imposed restrictions on certain drugs — such as requiring prior approval, or that another drug be tried first — to negotiate additional discounts. Massachusetts recently applied to the federal government for permission to limit the number of drugs its Medicaid program covers, but its request was denied.

Nathan Click, a spokesman for Mr. Newsom, said that while the details were still being worked out, the plan could save up to $150 million in its first year and as much as $250 million in later years.

Mr. Newsom’s executive order also directs the state to study how California’s disparate agencies, including those that pay state employees or buy drugs for prisoners, could negotiate jointly. It also orders officials to develop a plan for how private insurers and employers could benefit from the bulk purchasing deals negotiated by the state. That would require legislative approval, Mr. Click said.

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