Many Californians today experience the pain of skyrocketing drug prices while drug companies post record profits, and patients struggle to afford lifesaving medications as their health insurance premiums increase year after year.
The CalRx initiative, a groundbreaking solution to improve affordability, empowers the state of California to develop generic drugs and sell them at low cost. Through state-led manufacturing, CalRx will be the backstop for markets that fail to deliver affordable medications for Californians by promoting increased generic manufacturing to address such market failures as low competition, drug shortages and fragile supply chains.
CalRx’s first drug priority is insulin. As Gov. Gavin Newsom stated in January’s California Blueprint budget announcement, insulin has long epitomized the worst failures of the pharmaceutical industry. Excessively high barriers for new market entrants, hyperconsolidation and industry abuses of the legal/regulatory system have resulted in exorbitant price increases for insulin over the last two decades.
Insulin inaccessibility affects the 10.7% of Californians with diabetes — roughly 200,000 of whom are uninsured or underinsured — and disproportionately harms low-income, Black and Latino Californians. For uninsured consumers and insured consumers with high deductibles, a five-pen pack of insulin (roughly a month’s supply) can cost well over $500, crowding out household budgets for other necessities, such as housing and food.
The physical, emotional and financial tolls of such excessive insulin prices can be devastating; the physiologic impact of the emotional stress alone can worsen one’s diabetes.
Inaccessibility often leads to the practice of rationing or skipping insulin doses. These choices, never recommended by clinicians, lead to poorly regulated blood sugars and contribute to severe disease, such as diabetic ketoacidosis, renal failure and neuropathies that lead to limb loss. The excessive cost of insulin drives racial, ethnic and economic disparities deeper and feeds into a devastating cycle of skipped insulin doses, poor glucose control, worse diabetes-related disability, the inability to work and participate in normal activities, loss of income and life chances, and a worsened ability to afford other life expenses.
A healthy California for all calls us to do what we can to put good diabetes control within financial reach of all Californians. That’s why CalRX is a key program for the Newsom administration.
Through the CalRx Biosimilar Insulin Initiative, California can remedy the market failure for affordable insulin by investing $50 million to develop the most popular short- and long-acting types of insulin. An additional $50 million will be used to support the construction of an insulin manufacturing facility in California.
This facility will have the added benefit of enhancing economic development through high-paying jobs and a strengthened supply chain for insulin. With the Legislature and administration’s support, these products could reach pharmacies, retailers and other channels, such as mail-order pharmacies, in the next two to three years.
Independent analyses by experts at Johns Hopkins University have found that savings for payers — such as employers and health care plans — and patients would be substantial. Uninsured and underinsured people living with diabetes could reduce their annual out-of-pocket costs by up to 90%. On the payer side, commercial insurers could reduce insulin expenditures by up to 66% — slowing the trend of annual health premium increases that fall on the shoulders of workers and employers and passing those savings on to employers and enrollees through lower premiums and/or lower cost-sharing for drugs.
Most importantly, the entry of CalRx insulin products would inject steep price competition and help shift the industry from obscure, rebate-based pricing toward low, transparent pricing. As a first-of-its-kind project utilizing state capital to correct a severe market failure burdening millions of Californians, the proposal includes a number of tools to mitigate risk, including strong contracting requirements that link payment to a contractor fulfilling concrete milestones.
There is a human cost to inaction. The status quo has contributed to countless unnecessary health complications and deaths. The Newsom administration understands exactly what the end goal should be: low-cost insulin available and affordable for every Californian who needs it.
In order to get there, we need the state to correct market failures so that cost is never a barrier to lifesaving medications. With support from stakeholders — from the public to the Legislature — we can deliver such products and improve health outcomes for millions of Californians with diabetes.
Dr. Mark Ghaly is the secretary of the California Health & Human Services Agency. He wrote this for CalMatters, a public interest journalism venture committed to explaining how California’s Capitol works and why it matters.