Governor Gavin Newsom’s Budget Ambitious on Healthcare Issues, Including Pharmacy Benefits

By Brett Johnson
Jan. 17, 2019

The Governor’s Proposed 2019-2020 Budget Summary contained many items of interest to the life sciences industry, though it also contained some notable exclusions, such as a lack any funding for precision medicine, which had been accounted for in Governor Brown’s budget proposals from the past several years.

During the press conference to introduce the proposed budget, in response to a question challenging whether his healthcare proposals would produce savings, Governor Newsom offered what he called a “warning shot” for the pharmaceutical industry, stating, “I can guarantee you [my pharmaceutical purchasing plan] was not well received by [pharma/PhRMA] for a reason. I can promise you I’m not done with [the plan] and I’m talking to other state governors about how they can participate [in our bulk purchasing program].” He went on to add, “How dare . . . big pharma deny the ability for this state to leverage its resources to drive down costs when in fact that’s exactly what they do in their daily business practices.”

With regards to the proposed budget itself, the Legislative Analyst’s Office notes that, because the Governor’s pharmaceutical purchasing plan is still in development, it is not reflected in the budget’s bottom line. The Budget Summary, however, claims the shift to a fee-for-service Medi-Cal pharmacy benefit alone is “estimated to result in hundreds of millions of dollars in annual savings starting in fiscal year 2021-22.” No further detail beyond that contained in the executive order, which was signed earlier in the week, was provided on the proposal to strengthen California’s bulk pharmaceutical purchasing program.

The budget projects Medi-Cal to grow to cover 13.2 million Californians in 2019-2020 (roughly one-third of the state’s population) at a cost of $100.7 billion (a decrease of $2.3 billion). The budget cites “higher-than-expected drug rebate savings” as a contributing factor to the decrease. One source of the projected beneficiary growth in Medi-Cal is the Governor’s proposal to expand expand full-scope Medi-Cal coverage to undocumented adults aged 19 through 25 in 2019-20, adding an estimated 138,000 undocumented adults to the rolls in the first year. Additionally, the budget proposes the creation of the Medi-Cal Drug Rebate Fund as a fiscal management tool to help alleviate the General Fund volatility resulting from pharmacy rebates.

To reduce costs and better manage the care of high cost Medi-Cal enrollees, the budget invests $360 million in a program to encourage Medi-Cal managed care providers to meet chronic disease management and behavioral health integration goals, among others. It also provides $100 million for supportive housing and other supports through the Whole Person Care Pilot Program.

With regards to Covered California, the state mechanism through which Californians may purchase individual and small group coverage qualifying for various incentives, the budget aims to increase subsidies for individuals with incomes between 250 and 400 percent of the federal poverty level (FPL) and expand subsidies to individuals with incomes between 400 and 600 percent of FPL. The increased subsidies will be funded by revenues generated by establishing a state individual mandate, modeled on the federal requirement enacted as part of the Affordable Care Act.

To address mental health, the budget includes $25 million in one-time funding to improve detection and intervention when young people have had, or are at high risk of experiencing, psychosis. The funds will be used for projects that demonstrate innovative approaches to detect and intervene when a young person has experienced a first episode of psychosis.

The budget includes an additional $3 million in ongoing funds for the Alzheimer’s Disease Program to support research grants focusing on women and communities of color. The funding will also support the creation and implementation of the Governor’s Task Force on Brain Health – with further details forthcoming.

Other budget items of note include: $2 million to local health jurisdictions for the prevention of sexually transmitted diseases; $30.5 million to expand the California Home Visiting and Black Infant Health programs; and $1.2 million for the Department of Rehabilitation’s Traumatic Brain Injury program, which provides specialized services and supports through local entities to individuals who have suffered a traumatic brain injury.

For additional information on the Governor’s Proposed Budget, please contact Oliver Rocroi, Senior Director, State Government Relations, or Brett Johnson, Senior Director, Policy and Regulatory Affairs.