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Newsom: 40% discount on states first drug purchase under new purchasing model

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(The Center Square) – California Governor Gavin Newsom announced a state contract to buy naloxone, the opioid overdose reversal drug, at a 40% discount to the current retail cost due to the state’s “market power” as the world’s fifth largest economy.

“California is disrupting the drug industry with CalRx — securing life-saving drugs at lower and transparent prices,” said Newsom in a statement. “As we continue the effort to bring $30 insulin to the market, the state is now set to purchase life-saving naloxone for almost half of the current market price — maximizing taxpayer dollars and saving more lives with this miracle drug.”

At $24 per pack from drugmaker Amneal Pharmaceuticals, the state’s contract is 40% cheaper than the overdose reversal drug’s standard price. Newsom’s first executive order upon taking office called for the state to use its market power to adopt bulk purchasing discount agreements for drugs, a program that eventually evolved into CalRx, a program allowing the California Health and Human Services Agency to, even in conjunction with other states, “increase competition, lower prices, and address shortages” for drugs.

The first two major CalRx efforts have focused on naloxone and insulin. Newsom announced a contract with Civica Rx in March 2023 to sell 10 ml vials of Virginia-manufactured insulin to Californians at a retail price of $30 each; a typical diabetes patient requires two vials per month that used to cost $600 altogether at retail prices.

However, at the beginning of 2024, the nation’s three largest insulin manufacturers started selling insulin for $35 per month for all Americans, even uninsured individuals, thus preempting Newsom’s insulin deal, which would have been available only to Californians and residents of future partner states. California continues to move forward with its insulin project.

State data released at the end of 2023 says Californians spent $12.1 billion on prescription drugs in 2022, $2.1 billion of which was kicked back to pharmacy benefit manager middlemen. In recent years, drug manufacturers have tended to raise their prices because these middlemen demand larger rebates to include drugs in their rosters. PBMs are the middlemen between drug companies, insurers, and pharmacies, determining which drugs are covered by insurance plans and at what cost.

Newsom’s effort contrasts with laws passed by the Biden administration at the federal level to require drug manufacturers to reduce prices for targeted drugs. Under the Inflation Reduction Act, drug manufacturers that do not accept government price requests would face taxes on 65% to 95% of targeted drug sales income.

Research from the University of Chicago suggests that drug companies could cut their investments in new drugs leading to fewer new drugs. Losses could be as high as 135 drugs in coming decades and produce a loss of “331.5 million life years in the US” from defunded drug development.