by Carina Belles

California’s new governor, Gavin Newsom (D), on Jan. 7 signed an executive order directing the Dept. of Health Care Services to transform the state’s Medicaid pharmacy benefit to an entirely fee-for-service system by January 2021. Medi-Cal, California’s Medicaid program, is served by more than 20 managed care organizations. MCOs are currently able to contract with a pharmacy benefits manager (see a full breakdown of the state’s Medicaid PBM relationships below), but the new plan would allow the state to directly negotiate drug prices, purchase drugs in bulk and develop transparency on drug cost reimbursement.

With nearly 90% of the state’s 12.1 million Medicaid beneficiaries enrolled in managed care, a shift to fee-for-service would entirely upend existing PBM relationships in Medi-Cal, the largest managed Medicaid program in the U.S. “We suspect that the fee-for-service aspect may have an adverse impact on PBMs and potentially MCOs that provide managed Medicaid services in the state,” wrote securities analyst George Hill, in a Jan 8. research note from RBC Capital Markets, LLC. “Given the size of California, its actions draw significant investor attention.”

SOURCE: AIS’s Directory of Health Plans (DHP). Visit for more information.