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California, Maryland Tackle Prescription Drug Prices

Recent actions to address high drug prices in California and Maryland demonstrate states’ continued interest in government-manufacturer negotiation and all-payer rate-setting to lower prescription drug costs.

Calif. Establishes Single-Payer Drug Purchasing System

On Jan. 7, California’s newly-elected Gov. Gavin Newsom (D) signed an executive order to establish a single-payer prescription drug purchasing system.

The state will prioritize the 25 highest-cost prescription drugs for future bulk purchasing or potential renegotiation. To build negotiating leverage with drug manufacturers, the order directs the state’s Medicaid agency, Medi-Cal, to transition all pharmacy services from a managed care to a fee-for-service benefit by January 2021.

It is unclear whether the state plans to create a mechanism to coordinate existing prescription drug discounts, including those that are part of the 340B Drug Pricing Program, under this new system.

SCOTUS Strikes Down Md. Anti–Price Gouging Law

On Feb. 19, the Supreme Court struck down Maryland’s anti-pricing gouging law, the first of its kind in the United States.

The law would have required justification for annual price increases above 50 percent for certain generic or off-patent drugs, including those paid for by Medicaid.

The law was first ruled unconstitutional after its enactment in October 2017 for attempting to regulate trade that occurs beyond the state’s borders. Thereafter, the state’s attorney general asked the Supreme Court to uphold the law, but the appeal was denied based on the same rationale.

Meanwhile, the Maryland state legislature is considering a bill, S.B. 759 (companion H.B. 768), to establish a prescription drug affordability board that would assess whether certain high-cost drugs or those with significant price increases pose “affordability challenges.” If found to pose such challenges, the board would set a statewide upper payment limit for drug purchasers, such as the state’s Medicaid program, in an attempt to make the drugs affordable. A similar bill was introduced in 2018 but failed before the state legislative session ended.

Contact Senior Director of Policy Erin O’Malley at eomalley@essentialhospitals.org or 202.585.0127 with questions.

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About the Author

Kelcie Jimenez is a state policy analyst at America's Essential Hospitals.