California seeks to become first state with own generic drug label in bid to lower prices

A sign reading 'Welcome to California'
California is proposing to manufacture its own generic drugs in a bid to lower prescription drug prices. (Getty/ChrisBoswell)

California is taking a page from hospital-led Civica Rx—the state wants to become the first to have its own generic drug label in order to gain access to cheaper medicines.

California’s Democratic Gov. Gavin Newsom unveiled the proposal Thursday as part of a slew of reforms aimed at lowering drug prices. If enacted, the state would use its buying power to contract with existing generic manufacturers to gain exclusive lower prices on certain generic products.

“These nation-leading reforms seek to put consumers back in the driver seat and lower healthcare costs for every Californian,” Newsom said in a statement Thursday.

It remains unclear how many drugs California would select when or if the proposal gets through the state’s legislature. California's governor's office refused to comment on the estimated cost of the proposal or how the state would pick the drugs. But the proposal belies a major problem for a state with nearly 40 million residents. A state report showed generic drug prices increased by 37.6% over three years in California. 

"The state is a very big buyer of generic drugs so they are scratching for anything they can do to keep those costs low," said Dan Mendelson, founder and former CEO of consulting firm Avalere Health.

RELATED: Trump administration releases plan for states to import (some) drugs from Canada

But the exact impact on drug prices may be minimal, because the drug label proposal doesn't address the underlying causes of generic price spikes that have taken place in recent years, he said.

Generic costs have been going up for a variety of reasons that range from the cost of manufacturing to producing safe drugs, Mendelson said. 

"I don’t think this proposal would change the dynamic in generic drug markets for the states," he said.

The roots of the proposal are similar to the business model for Civica Rx, a nonprofit created by hospital systems that include Trinity Health, Mayo Clinic and Intermountain Healthcare. The nonprofit contracts with manufacturers to produce 18 drugs for nearly 50 health systems.

Civica Rx aims to have more than 100 essential generic medications in production in the near future.

RELATED: Civica Rx’s first CEO, Martin VanTrieste, talks about the company’s ambitions for 2019 and beyond

The nonprofit’s CEO Martin VanTrieste, a former executive at drugmaker Amgen, told FierceHealthcare that he is looking forward to learning more about California's proposal.

“Civica was created to make quality generic medications available and affordable,” VanTrieste said. “Far too often those attributes are not met and we’re very encouraged by any and all participants who want to ensure they are met.”

Many states are searching for ways to lower prescription drug prices as action in Washington on the issue has been minimal. 

Some, such as Vermont and Connecticut, have passed laws in recent years aimed at increasing transparency on how drug companies set prices. Other states such as Florida are exploring the creation of a drug importation program to import cheaper drugs from Canada.