California’s Governor Gavin Newsom (D) has presented a new proposal to help lower overall healthcare costs for the state. His idea is a radical one – to start a California State generic drug label. California has a billion-dollar drug industry, so the idea of lowering the cost of even a few common drugs could make a huge impact. Lowering drug costs could eventually lower premiums, so the savings could be passed on to the state’s residents.
How would it work?
The initial proposal would be for the state of California to negotiate a contract with existing manufacturers. The drug would be the same, but under a different “California State” label. Although it seems counterintuitive for the manufacturer to produce a second label for a single drug, California has such a large healthcare market, securing their business would be beneficial almost any way you swing it. Producing the drug under a California label would guarantee their business with the State. In turn, this could decrease market prices because other manufacturers may lower their prices to try and secure the next contract, further decreasing the cost to the State of California.
What would be the downside?
While the Governor has good intentions, he may not be in tune with all the issues facing drug manufacturing processes. There are other matters that affect cost besides market competition. Shortages of raw materials and difficulties with good manufacturing practices (GMPs) may cause an increase in production cost, which in turn drives up the price of the medication. One of the best examples that comes to mind is when Hurricane Sandy hit the Northeast United States. Generic doxycycline, which has always been reasonably priced, skyrocketed due to complications with flooding at one of the manufacturing facilities. A stock bottle increased from about $20 to about $2000 wholesale price. Unforeseeable natural disasters will always be costly, and a generic state label cannot protect all aspects of drug prices.
Is it possible?
The idea is definitely idealistic, but could potentially work. Focusing on several high-priced medications first would give the opportunity to assess the process and work out the kinks. Then they could add more medications on a rolling basis. If done properly, other states may follow suit or team up with California, making the buying group even more powerful. The process won’t be easy, but has the potential to transform the healthcare market in a major way.