Illustration: Sarah Grillo/Axios

California Gov. Gavin Newsom wants the state to become the first to create its own generic drug label, an attempt to create more competition and bring down prices.

The big picture: California already has enacted insurance reforms that could be a model for the federal government, and is now doing the same on drug prices.

Between the lines: Having the government contract directly with manufacturers isn't a new idea; Sen. Elizabeth Warren has proposed doing so at a federal level.

  • The private market has also created a similar arrangement through Civica Rx, a nonprofit funded by hundreds of hospitals that contracts with private manufacturers to produce generic drugs.
  • “To the extent that Civica Rx has been able to do this for its hospital systems, the state of California could engage in similar kinds of arrangements, at least at some level," said Rachel Sachs, a law professor at Washington University.

How it would work: The state would contract with private manufacturers to make certain generic drugs.

  • It would also create a single market for drug pricing within the state, meaning that all participating payers — private or public — would receive the same price for the same drug.

What they're saying: Northwestern University professor Craig Garthwaite said California's approach probably wouldn't drive down prices in large, competitive markets, but it likely could in smaller markets without much competition — where prices tend to be higher.

The other side:. "This is not a new ‘entrant,’ it is just a labelling change," said Rena Conti, a professor at Boston University.

  • Conti added that establishing a single drug market could backfire by raising prices for some purchasers, or creating a situation where access to drugs is restricted because some companies refuse to bid.

The bottom line: We've told you this before, but the most interesting action on health policy is in the states.

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