Proposed California drug pricing program could shift 340B drug reimbursement away from hospitals

On January 8, 2019, California Governor Gavin Newsom issued an executive order requiring all state agencies to consolidate into a single drug purchasing entity that will negotiate with pharmaceutical companies together. The scale of such an entity would enable the negotiation of better deals for drugs purchased by the state. However, the executive order could lead to significant losses for California hospitals that are part of the 340B program as all Medicaid managed-care drugs would be moved to Medicaid fee-for-service and California currently has strict regulations governing hospital discounts under the Medicaid fee-for-service program.

While this California program is still only in the early stages of development, providers and analysts fear that it could have significant negative effects on both small and large entities that rely on 340B Program funding, particularly safety net hospitals with large Medicaid patient populations.

If successful, the California program could be a model for other states searching for ways to combat high drug costs, at the cost of 340B savings for struggling safety net hospitals.

For more information on this and other 340B issues see Bricker & Eckler’s prior 340B program updates.