New Law Enables New Mexico to Leverage State Purchasing Power to Lower Rx Spending

New Mexico Gov. Lujan Grisham recently signed into law SB 131, establishing a state Interagency Pharmacy Purchasing Council to leverage public purchasing power by reviewing and coordinating cost-containment strategies through procurement of pharmaceuticals, pharmaceutical benefits, and pooling of risk among state agencies.

Cosponsored by state Sen. Jeff Steinborn* and Rep. Joanne Farrary, the law also identifies private-sector opportunities to help residents not covered by state plans, either through existing private-sector discount programs or by leveraging the government’s drug spending. Importantly, the legislature appropriated $400,000 to support the council’s work. The council will include the department heads or their designees of these state agencies and groups:

  • Departments of human services, health, children, youth, and families, and corrections;
  • The Risk Management Division of the General Services Department;
  • The New Mexico Retiree Health Care Authority;
  • Public schools and the University of New Mexico; and
  • Two members appointed by the governor who are officers or designees of organizations that represent county, municipal, and local governments.

The secretary of the state’s General Services Department will direct the council, which must hold its first meeting by Sept. 1, 2019.

The law preserves the authority of state agencies to make their own procurement decisions and lays out a list of strategies that the council can examine and possibly deploy, including:

  • Benchmarking health care costs to Medicaid, with the understanding that federal authority may be needed for changes to the Medicaid program;
  • Establishing a common drug formulary to be shared by state agencies;
  • A single-purchasing agreement;
  • Common procurement practices for expert services (e.g., a pharmacy benefit manager or actuarial services);
  • Identifying opportunities to consolidate purchasing and pool risk between two or more state agencies;
  • Negotiating advantageous pricing and incentives throughout the drug supply chain;
  • Partnering with other multi-state purchasing collaboratives; and
  • Identifying ways to leverage public purchasing to benefit residents who purchase services/drugs in the private sector.

The council will vote on which strategies to pursue and they will next be evaluated by the legislature’s Finance Committee, with the goal of incorporating agency savings into budget deliberations and measuring the council’s effectiveness and progress.

“I am thrilled that New Mexico has taken this important step to pursue greater cost containment of prescription drug costs,” said Sen. Steinborn. “We have crafted a bill intended to aggressively explore cost-containment options, while at the same allow flexibility and oversight. It has the potential to save our state a significant amount of money and I’m excited to have the council get to work.”

New Mexico is on the leading edge of a new wave of states’ efforts to more aggressively coordinate public purchasers and leverage their considerable buying power to lower pharmacy and other health care costs. By engaging key state agency leaders and requiring accountability and oversight by the legislature’s Budget Committee, New Mexico’s important initiative bears close watching by other states.

For more insights into states’ collaborative purchasing and cost control initiatives, read: Cross-Agency Strategies to Curb Health Care Costs: Leveraging State Purchasing Power.

*State Sen. Steinborn serves on the National Academy for State Health Policy’s Health System Performance and Public Health Steering Committee