CalPERS Delays Launch of Two Programs to Lower Drug Costs

Citing disruption from the coronavirus, the California Public Employees’ Retirement System (CalPERS) postponed a planned summer launch of initiatives aimed at lowering the pension fund’s drug costs.

The new programs have been moved to January, though a fund spokesperson said the delay could be even longer.

One of the initiatives, called reference pricing, allows insurers to pay for the low-cost versions among a similar category of drugs. Plan participants who choose the more expensive substitute would pay the difference, though CalPERS said it would make exceptions for medical reasons.

It will cover four classes of pharmaceutical products that treat cholesterol, stomach acid, acne, and nasal congestion. Initially, reference pricing was planned to be phased in, starting in July and applying to a small group of members. That debut now will be pushed back to January at the earliest.

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Eventually, the pension fund intends on applying this system to all its members. The pension giant offers health care to current state employees and retirees.

CalPERS also intended to launch a biosimilars plan in July. Biosimilar medicines are considered comparable and cheaper alternatives to approved biological drugs that use living organisms, such as blood and tissue, as their origin. (For comparison, a generic drug is a copy of a synthetic pharmaceutical.)

“The success of these two pharmaceutical programs is predicated on effective communication with health care providers, pharmacists, and members,” a fund spokeswoman said.

“With the disruption of COVID-19, the message won’t be heard and may detract from more urgent needs, so both have been delayed,” she added.

CalPERS hopes the reference-based pricing program, which the board approved in 2018, would save the retirement system money in health care. In 2018, the pension fund spent $2.2 billion on retail drugs, roughly 24% of the $9.2 billion the retirement system spends on health care.

That’s a bigger allocation than other large groups, which typically use 19% to 21% of their health care spend on retail drugs. Some businesses, such as health care company Kaiser, spend just 10%.

“We know there’s a lot of room for improvement,” Don Moulds, chief health director at CalPERS, told trustees during a board meeting in November.

But the pension fund said reference pricing does not help the fastest growing sector of pharmaceutical spending, which is specialty drugs.