ASSEMBLY THIRD READING

ATR Bill Id:ACR 105

Author:(Chiu)

As Introduced Ver:June 17, 2019

Majority vote

SUMMARY:

States the Legislature's commitment to lower the cost of prescription drugs for all Californians and to support the expansion of California's single-purchaser system for prescription drugs, and encourages the Governor to engage with the States of Washington and Oregon and others who wish to partner with our state to lower prescription drug prices across the nation.

COMMENTS:

Governor's Executive Order on State Prescription Drug Spending. In January 2019, Governor Newsom released an executive order to both study and change how the state pays for prescription drugs, with the goal of reducing the state's prescription drug spending. The executive order can be separated into two distinct initiatives, both of which aim to leverage the purchasing power of California to obtain better prices on prescription drugs:

Transition Medi-Cal pharmacy services entirely into a fee-for-service (FFS) benefit. This initiative aims to transition the pharmacy services benefit in Medi-Cal, the state's largest low-income health care program, to entirely a FFS benefit. As such, most Medi-Cal enrollees (who are enrolled in managed care) would now have this benefit directly administered by the state through FFS as opposed to by their managed care plan; and,

Expand the State's Bulk Drug Purchasing Program. This second initiative would expand the state's existing bulk purchasing program for prescription drugs. Currently, the Department of General Services negotiates drug prices on behalf of multiple state agencies and programs, such as the California Department of Corrections and Rehabilitation, the Department of State Hospitals, and others. Under this second initiative, state agencies with significant spending on prescription drugs are tasked with evaluating existing prescription drug procurement strategies and outcomes, and developing new strategies to reduce prescription drug costs going forward. In addition, the second initiative envisions private entities that pay for prescription drugs, such as commercial health insurers and hospitals, joining together with the state in order to leverage greater collective purchasing power to lower prescription drug costs on behalf of all the participating public and private entities.

Partnership with the States of Washington and Oregon. This year, the State of Washington enacted HB 1224 which directs its administration to contact specified departments in California to develop strategies to reduce prescription drug costs and increase prescription drug cost transparency. Additionally, HB 2679 in pending in the State of Oregon which directs the administrator of the Oregon Prescription Drug Program to cooperate with State of California in the bulk purchase of prescription drugs.

According to the Author:

According to the author, the nation is grappling with a prescription drug costs crisis. Six-figure price tags for medications that treat complex chronic diseases such as rheumatoid arthritis, multiple sclerosis, cancer, and Hepatitis C are becoming a regular occurrence. And while the $1,000-per-pill Hepatitis C drug, Sovaldi, and the $600 EpiPen represent important breakthroughs in treatments for patients, the prices for these drugs are a significant burden on patients, the health care system, businesses, and government.

In January, Governor Newsom took bold action to tackle outrageous drug prices in his first executive order by laying out plans to rein in prescription drug costs through a statewide purchasing system. However, the executive order didn't include major players from other states. Both Oregon and Washington have introduced legislation urging their states to partner with California to reduce drug prices across the region. This resolution confirms the Legislature's commitment to lower the cost of prescription drugs and encourages the Governor to engage with the States of Washington and Oregon, who wish to partner with our state to lower prescription drug prices across the region. If California truly wants to lead the nation on the prescription drug crisis, we must coordinate efforts across state lines, to better align strategies and increase cost savings on pharmaceuticals.

Arguments in Support:

According to the California Alliance for Retired Americans, an alliance of our state and the State of Washington could produce large prescription drug savings for both states.

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, negligible costs.

VOTES:

ASM HEALTH: 11-0-4

YES: Wood, Aguiar-Curry, Bonta, Burke, Carrillo, Limón, Nazarian, Ramos, Rodriguez, Santiago, Waldron

ABS, ABST OR NV: Mayes, Bigelow, Flora, McCarty

ASM APPROPRIATIONS: 15-0-3

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Diep, Eggman, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ABS, ABST OR NV: Bigelow, Brough, Fong

UPDATED:

VERSION: June 17, 2019

CONSULTANT: Rosielyn Pulmano / HEALTH / (916) 319-2097 FN: 0001323

Date of Hearing: August 14, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:ACR 105

Author:(Chiu) – As Introduced Ver:June 17, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This resolution notes the Governor’s executive order related to a statewide drug purchasing system and states there are further opportunities to expand the negotiation and purchase prescription drugs with states outside of California

It also encourages the Governor to engage with the states of Washington and Oregon and others who wish to partner to lower prescription drug prices.

FISCAL EFFECT:

Negligible.

COMMENTS:

1. Purpose. According to the author, the nation is grappling with a prescription drug costs crisis and, in January, Governor Newsom, in his first executive order laid out plans to reduce prescription drug costs through a statewide purchasing system. However, the executive order didn’t include major players from other states.
2. Background. In January 2019, Governor Newsom released an executive order to both study and change how the state pays for prescription drugs, with the goal of reducing the state’s prescription drug spending. The executive order includes the transition of Medi-Cal pharmacy services entirely into a fee-for-service (FFS) benefit to be purchased directly by the state, as well as expanding the state’s existing bulk purchasing program for prescription drugs. State agencies with significant spending on prescription drugs are tasked with evaluating existing prescription drug procurement strategies and outcomes and developing new strategies to reduce prescription drug costs. In addition, the second initiative envisions other public and private entities that pay for prescription drugs joining the bulk purchasing arrangement in order to leverage greater collective purchasing power.
3. Washington and Oregon. This year, the State of Washington enacted HB 1224 which directs its administration to contact specified departments in California to develop strategies to reduce prescription drug costs and increase prescription drug cost transparency. Additionally, HB 2679 in pending in the State of Oregon which directs the administrator of the Oregon Prescription Drug Program to cooperate with State of California in the bulk purchase of prescription drugs.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: July 2, 2019

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:ACR 105

Author:(Chiu) – As Introduced Ver:June 17, 2019

SUBJECT: Prescription drug prices.

SUMMARY: States the Legislature’s commitment to lower the cost of prescription drugs for all Californians and to support the expansion of California’s single-purchaser system for prescription drugs, and encourages the Governor to engage with the States of Washington and Oregon and others who wish to partner with our state to lower prescription drug prices across the nation. Specifically, this resolution makes a number of findings and declarations related to prescription drugs, including the following:

1. The State's spending on prescription drugs has increased at an unsustainable rate, including hikes of approximately 20% per year since 2012, constituting a substantial fiscal drain on the pockets of all Californians and the entire state;
2. A relatively small subset of high-cost drugs accounts for a disproportionate amount of spending, with the 25 most expensive drugs accounting for approximately one-half of state prescription drug expenditures;
3. The rising prices of prescription drugs impact not only the state and individuals enrolled in state programs but all Californians and Americans, including small businesses and families who are forced to make sacrifices to access lifesaving and life-preserving treatments;
4. A major cause of skyrocketing prescription drug prices is bargaining asymmetry, by which the pharmaceutical industry, often wielding monopoly power, is left unchecked in the absence of a strong counterparty at the bargaining table;
5. The state can marshal public and private parties to counterbalance corporate bargaining power not only to address rising prescription drug prices, but, more broadly, to promote access to affordable health care for all;
6. The Governor, through his first Executive order, created a statewide single-purchaser system for prescription drugs to ultimately allow all Californians, including private employers, to sit together at the bargaining table across from big drug companies when negotiating prescription drug prices;
7. There are further opportunities to expand the negotiation and purchase prescription drugs with states outside of California;
8. The State of Washington enacted House Bill (HB) 1224 in May 2019 which directs its administration to work with the States of California and Oregon to develop joint strategies to reduce prescription drug costs and increase prescription drug cost transparency; and,
9. The State of Oregon introduced HB 2679 in 2019, which directs the administrator of the Oregon Prescription Drug Program to cooperate with State of California in the bulk purchase of prescription drugs.

EXISTING LAW: Establishes the Department of General Services (DGS), which among other functions, enters into exclusive or nonexclusive contracts on a bid or negotiated basis with manufacturers and suppliers of single source or multisource drugs. Establishes the Medi-Cal program, administered by the Department of Health Care Services (DHCS), under which low income individuals are eligible for medical coverage. Covers under Medi-Cal, prescription drug benefits for its beneficiaries.

FISCAL EFFECT: This resolution has not yet been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS RESOLUTION. According to the author, the nation is grappling with a prescription drug costs crisis. Six-figure price tags for medications that treat complex chronic diseases such as rheumatoid arthritis, multiple sclerosis, cancer, and Hepatitis C are becoming a regular occurrence. And while the $1,000-per-pill Hepatitis C drug, Sovaldi, and the $600 EpiPen represent important breakthroughs in treatments for patients, the prices for these drugs are a significant burden on patients, the health care system, businesses, and government.
   
   In January, Governor Newsom took bold action to tackle outrageous drug prices in his first executive order by laying out plans to rein in prescription drug costs through a statewide purchasing system. However, the executive order didn’t include major players from other states. Both Oregon and Washington have introduced legislation urging their states to partner with California to reduce drug prices across the region. This resolution confirms the Legislature’s commitment to lower the cost of prescription drugs and encourages the Governor to engage with the States of Washington and Oregon, who wish to partner with our state to lower prescription drug prices across the region. If California truly wants to lead the nation on the prescription drug crisis, we must coordinate efforts across state lines, to better align strategies and increase cost savings on pharmaceuticals.
2. BACKGROUND.
   1. Governor’s Executive Order on State Prescription Drug Spending. In January 2019, Governor Newsom released an executive order to both study and change how the state pays for prescription drugs, with the goal of reducing the state’s prescription drug spending. The executive order can be separated into two distinct initiatives, both of which aim to leverage the purchasing power of California to obtain better prices on prescription drugs:
      1. Transition Medi-Cal pharmacy services entirely into a fee-for-service (FFS) benefit. This initiative aims to transition the pharmacy services benefit in Medi-Cal, the state’s largest low-income health care program, to entirely a FFS benefit. As such, most Medi-Cal enrollees (who are enrolled in managed care) would now have this benefit directly administered by the state through FFS as opposed to by their managed care plan; and,
      2. Expand the State’s Bulk Drug Purchasing Program. This second initiative would expand the state’s existing bulk purchasing program for prescription drugs. Currently, DGS negotiates drug prices on behalf of multiple state agencies and programs, such as the California Department of Corrections and Rehabilitation (CDCR), the Department of State Hospitals, and others. Under this second initiative, state agencies with significant spending on prescription drugs are tasked with evaluating existing prescription drug procurement strategies and outcomes, and developing new strategies to reduce prescription drug costs going forward. In addition, the second initiative envisions private entities that pay for prescription drugs, such as commercial health insurers and hospitals, joining together with the state in order to leverage greater collective purchasing power to lower prescription drug costs on behalf of all the participating public and private entities.
   2. Partnership with the States of Washington and Oregon. This year, the State of Washington enacted HB 1224 which directs its administration to contact specified departments in California to develop strategies to reduce prescription drug costs and increase prescription drug cost transparency. Additionally, HB 2679 in pending in the State of Oregon which directs the administrator of the Oregon Prescription Drug Program to cooperate with State of California in the bulk purchase of prescription drugs.
   3. Informational Hearing. On February 14, 2017, the Assembly Health Committee held an informational hearing entitled, “Impact of Rising Drug Costs on Public and Private Payers.” At that hearing the Legislative Analyst (LAO) delivered a presentation on the DGS’ effort to control state drug spending. LAO reported that DGS spent a total of $286,734,247 in 2015-16 for departments that participate in DGS pharmaceutical contracts. The breakdown of that spending by department is as follows:
      1. CDCR–California Correctional Health Care Services $239,454,095
      2. Department of State Hospitals 34,895,455
      3. Department of Developmental Services 8,539,096
      4. California State Universities 3,569,905
      5. CDCR–Division of Juvenile Justice 275,695
         

According to LAO, prescription drugs purchased under DGS contracts account for between 5% and 10% of total state prescription drug spending. The major state spenders that do not pay for prescription drugs through DGS contracts are Medi-Cal and California Public Employees' Retirement System (CalPERS). A high portion of state prescription drug expenditures under DGS contracts are for drugs that are delivered to and used at state-run facilities, in contrast to being dispensed at non-state pharmacies to state program beneficiaries with reimbursement to the pharmacy from the state. To a more limited degree, DGS works with a pharmacy benefit manager (PBM) to obtain discounts on the small proportion of drugs paid for under DGS contracts that are dispensed by non-state pharmacies. By contrast, Medi-Cal and CalPERS primarily reimburse pharmacies for the drugs they pay for. CalPERS uses a PBM for a portion of its drug expenditures while Medi-Cal does not use a PBM.

LAO notes that a limited number of high-cost prescription drugs account for a high portion of state drug expenditures under DGS contracts. Single source brand name drugs tend to have the highest prices while multi-source, generic drugs typically have lower prices. In 2016, one Hepatitis C drug, Harvoni, accounted for 15% of state drug expenditures under DGS procurement contracts. Two-thirds of state drug expenditures under DGS contracts were concentrated in the following six therapeutic classes:

1. PREVIOUS LEGISLATION. AB 587 (Chiu) of 2017 would have required DGS to convene the California Pharmaceutical Collaborative to address the rising cost of pharmaceutical drugs, co-chaired by the Deputy Director of the Procurement Division of DGS and the Assistant Secretary of California Health and Human Services and to coordinate the efforts of state and local government entities to identify and implement opportunities for cost savings with regard to the purchase of pharmaceuticals, particularly pharmaceuticals that are considered high-cost drugs. AB 587 was never heard in the Senate Appropriations Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file.

Opposition

None on file.

Analysis Prepared by: Rosielyn Pulmano / HEALTH / (916) 319-2097