California Is on the Right Track When it Comes to Lowering the Cost of Critical Drugs for its Citizens

The Key is in Shortening the Supply Chain; Bringing more Generics to Market

Despite a busy political news cycle, California’s efforts to launch its own prescription drug label has dominated the news since the beginning of the year. Under a plan introduced by Governor Gavin Newsom, California would become the first state to offer its own version of prescription medicines created in partnership with a generic drug maker. The goal would be to provide a solution to the prohibitive costs of drugs for many citizens. 

The rising costs of drugs are indeed becoming a national crisis. Perhaps these efforts could follow the same path as other government procurement processes, which ask contractors, tradesmen and other goods or service providers to bid on projects. 

Yet while the efforts in California could be a great starting point, what’s really needed is a nationwide program to address the problem. The efforts in California could very well become a benchmark for the rest of the country.

What it seems that Governor Newsom really is proposing is a more direct channel to bringing critical drugs to patients who need them, while cutting out the many middlemen in the system.

There is no doubt that drug makers and those that develop Active Pharmaceutical Ingredients  (APIs) do (and should) turn a profit from the drugs they commercialize, but many drug costs spiral out of control as a result of the many stops along the way.  

 Consider that once a molecule is created, and a Contract Development & Manufacturing Organization (CDMO) has helped a drug maker secure approvals to commercialize the drug, the supply chain becomes long and complex. 

The Long and Winding Road from Drug Supplier to Buyer

By the time a drug reaches its consumer, its cost has been marked up many times because of the complexity of the growing after-market. Health insurance providers, pharmacists, pharmacy benefit managers (such as CVS Caremark, Express Scripts, and OptumRx) and marketers offering rebates and other promotions.  They all receive their share of the drug’s cost, causing it to snowball along the way. 

In fact, Healthcare Finance interviewed an independent pharmacist and Alex Azar, the Health & Human Services secretary, who agreed that Pharmacy Benefit Managers are largely to blame for spiraling costs. According to the article Azar recently told the New York Post, “There is a shadowy third player in the transaction between patients and their pharmacists: middlemen who have taken a big kickback from the drug manufacturer, which may or may not be reflected in patients’ out-of-pocket costs.”

Pharmacy benefit managers work closely with insurers to create formularies. To get on those lists of approved drugs, however, drug makers offer rebates to the pharmacy benefit managers and subsequently insurers, yet very little translates into savings for consumers.

While California’s initiative is getting a lot of interest, it’s not the only one. According to Kaiser Health News, in 2019, 33 states enacted more than 51 laws to address rising drug costs.  In New Jersey, more than 20 laws have been proposed.  Some of the suggestions include importing drugs from other countries, conducting more aggressive oversight of drug makers, price transparency and setting price caps. 

Generics Rise to the Occasion

While providing a more direct path between drug maker and consumer is a good remedy, the development and availability of generic alternatives when patents expire, remains the current best solution. Healthy competition almost always brings costs down. Over-regulation, however, is sometimes seen as an obstacle to lower generic costs.    

While rigorous testing and review of new generics must be conducted to ensure their safety and reliability, as well as assurance that they provide a perfect substitute to brand-name drugs, this has to be balanced with the need to get alternative treatments to market.

The companies seeking to provide a more cost-effective alternative for life-saving treatments are required to meet different requirements, lower levels of impurities, stringent manufacturing processes, inspections and controls as compared to some of the brand-name drugs which may not have had to follow the same strict controls when they were first developed. Ironically, in many cases the existing product  on the market and approved years ago would never meet the standards that the generic version must meet today.


The move to prescription drug price caps won’t happen overnight, but the initiatives of states such as California, are a step in the right direction.  By shortening the supply chain between manufacturer and consumer and fostering a healthy competitive climate through the availability of more generic drug alternatives, we can begin to see prices decline – or at least stop rising – so that consumers don’t need to choose between filling their vital prescriptions or heating their homes.