This story was originally published by CalMatters. Sign up for their newsletters.
Gov. Gavin Newsom announced today that he will seek to regulate prescription drug middlemen that he blames for driving up costs for patients, less than a year after he vetoed similar oversight for the companies called pharmacy benefit managers.
The plan — part of a revised state budget proposal that Newsom will unveil in full on Wednesday — calls for licensing pharmacy benefit managers through California’s Department of Managed Health Care and requiring them to report their operational and financial details.
“Prescription drug prices are out of control and we’re shining a light on hidden costs,” Newsom said in a statement.
California has long sought to more closely monitor pharmacy benefit managers, which serve as intermediaries between insurance companies and pharmaceutical drug manufacturers, controlling the list of drugs covered by health insurance plans, negotiating their prices and processing claims. Critics argue that these companies needlessly raise costs by tacking on fees and withholding manufacturer discounts as profit. They can also restrict access for patients to some higher priced name-brand drugs.
But legislative efforts to rein them in have repeatedly withered in the face of a powerful industry lobby, which contends that more stringent regulations would drive up health insurance premiums by billions of dollars annually.
Last year, a measure made it all the way to Newsom’s desk that would have required pharmacy benefit managers to get licensed through the state insurance department, disclose the prices they pay and the discounts they negotiate with drug manufacturers, and then pass on 100% of those discounts to insurance plans.
Newsom vetoed it in September, writing in a message that he was not convinced that the bill’s “expansive licensing scheme” would achieve the desired result of bringing down costs.
“We need more granular information to fully understand the cost drivers in the prescription drug market and the role that (pharmacy benefit managers) play in pricing,” the governor said at the time.
Change of heart over regulations?
The governor’s office did not explain why Newsom’s perspective on regulations had shifted in the eight months since. His proposal, according to a summary provided by his office, would also allow the state to review pharmacy benefit managers’ contracts, perform financial audits and issue penalties, and require the companies to report detailed drug pricing data to California’s Department of Health Care Access and Information.
Pressure has been growing on politicians nationally in recent years to take action on drug prices, which are one of the primary drivers of increased medical costs. In just one year, between 2022 and 2023, drug spending in the U.S. increased 13.6%, according to a study on national pharmaceutical trends. Other studies indicate that Americans pay nearly three times as much as people in other countries for the same drugs.
In California, prescription drug spending has increased 56% since the state first began tracking data in 2017. Spending between 2017 and 2023, the most recent year data is available, jumped by nearly $9 billion, according to a state report on drug costs.
President Donald Trump this week also signed an executive order demanding that manufacturers lower the price of prescription drugs in the next 30 days or face new limits on what the federal government will pay, though it’s unclear how it would work.
Another proposal, Senate Bill 41, reviving many of the provisions in the measure that Newsom vetoed last year is also moving through the Legislature this session and passed its first committee last month.
Newsom’s announcement also included an effort to expand the role of CalRx, a $100-million state effort to procure and manufacture certain highly used drugs like insulin and naloxone, the opioid reversal medication.
Currently, CalRx is tasked with securing lower prices for generic drugs, but the new proposal would allow the state to pursue cost savings on name-brand drugs. This would give California more flexibility to respond to supply chain issues or “politically motivated” federal restrictions placed on drugs like mifepristone, the abortion pill, according to a statement from Newsom’s office.
In 2023, Newsom ordered state agencies to stockpile 250,000 abortion pills after a federal court ruling in Texas temporarily overturned FDA approval of the drug. That stockpile was depleted in 2024, but the fate of the pill’s usage remains in question as conservative groups continue to pursue legal action to block its use.
font-size: 1.2em;
}
.wp-block-newspack-blocks-homepage-articles .entry-meta {
display: flex;
flex-wrap: wrap;
align-items: center;
margin-top: 0.5em;
}
.wp-block-newspack-blocks-homepage-articles article .entry-meta {
font-size: 0.8em;
}
.wp-block-newspack-blocks-homepage-articles article .avatar {
height: 25px;
width: 25px;
}
.wp-block-newspack-blocks-homepage-articles .post-thumbnail{
margin: 0;
margin-bottom: 0.25em;
}
.wp-block-newspack-blocks-homepage-articles .post-thumbnail img {
height: auto;
width: 100%;
}
.wp-block-newspack-blocks-homepage-articles .post-thumbnail figcaption {
margin-bottom: 0.5em;
}
.wp-block-newspack-blocks-homepage-articles p {
margin: 0.5em 0;
}
.wpnbha.ts-3 .entry-title{font-size: 1em}.wpnbha.ts-3 article .newspack-post-subtitle, .wpnbha.ts-3 article .entry-wrapper p, .wpnbha.ts-3 article .entry-wrapper .more-link, .wpnbha.ts-3 article .entry-meta {font-size: 0.8em;}
