State of California: Its Containment of Drug Costs and Management of Medications for Adult Inmates Continue to Require Significant Improvements

February 2002

RESULTS IN BRIEF

The Department of General Services (General Services) and state agencies such as the Department of Corrections (Corrections) could do more to control the States drug expenditures, which exceeded $135 million in fiscal year 200001. From fiscal year 199697 to fiscal year 200001, annual expenditures for the five state agencies most frequently purchasing drugs increased by more than 200 percent. The average annual increase in purchases during this period was 34.3 percent, a rate that is almost three times higher than the national average annual rate of increase for drug purchases, 12.7 percent. Given these significant numbers, the State should be concerned about controlling additional increases.

General Services, the primary purchaser for the State, negotiates agreements with drug manufacturers and a wholesaler (prime vendor) who distributes the drugs to state agencies. Because of several reasons, such as the States purchase volume being too low to generate enough interest and its belief that some bidders are unwilling to do business with the State, General Services has obtained contracts with only 45 manufacturers for 850 of the 1,838 items it requested. To increase the number of drugs available to state agencies at lower prices, General Services recently contracted with another state to gain access to a group-purchasing organization; however, this contract may not offer the best deal to the State. To improve its procurement process further, General Services has led efforts to develop a statewide drug formulary, a listing of drugs that is to promote appropriate and cost-effective use of medications, but has not ensured that state agencies will be able to enforce it. Currently, Corrections, which was responsible for roughly 68 percent of the States drug purchases in fiscal year 200001, has an outdated formulary and lacks sufficient data to perform drug-utilization reviews that can identify questionable prescribing practices. The State also needs a statewide process for contracting for medical supplies. State agencies inability to identify specific details on the types and amounts of medical supplies they purchase in fiscal year 200001 this amount was roughly $14 million hinders General Services plan to contract with a vendor that already has a medical supply catalog in order to reduce these costs by soliciting bids for better prices.