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Drawing a Line in the Sand California Looks to Contract Directly with Generic Drug Manufacturers

Figure 1

California would become the first state to contract with generic drug manufacturers to make prescription medicines to sell to residents, under a plan proposed by Gov. Gavin Newsom that aims to control rising health costs.

Mr. Newsom, a Democrat, said it will be part of his new budget proposal. Few details were provided about how the plan would work, what kind of drugs it would produce, how much it would cost to enact or how much it might save the state—things that are likely to be studied in more depth as debate over the state budget begins in the coming months.

Tyrone’s Commentary:

I’ve long been a proponent of sophisticated plan sponsors taking a more active approach in managing their pharmacy benefit. So it goes without saying, “I like this governor.” The status quo does not sit well with him so he is constantly looking to make processes more efficient or cost-effective. For plan sponsors, this could mean carving out services usually controlled by the PBM (see figure 1).

But with a population of 40 million—nearly 1 in 3 of whom use the state’s Medicaid program for low-income people—Mr. Newsom is betting that California’s purchasing power can help it offer drugs at a lower price than they are offered commercially.

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Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

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