The date was March 4, 2024. The Biden administration had set up a roundtable discussion on pharmacy benefit managers, the middlemen that control the pharmaceutical transaction chain, skim money out of the system, and inflate drug prices. They are a main reason why America pays more for drugs than any country in the world. An all-star panel had been assembled to talk about it: Federal Trade Commission chair Lina Khan (whose agency would sue PBMs for deliberately driving up the price of insulin), Kentucky Gov. Andy Beshear (who signed a law driving PBMs out of the state Medicaid program and replacing them with a public option, saving $300 million and improving reimbursements for independent pharmacists in the process), and Mark Cuban (who owns the Cost Plus Drugs company that is trying to disrupt the PBM model), along with community pharmacists and other experts.
Xavier Becerra, then the secretary of health and human services (HHS), was also there. Given that HHS oversees the entire medical sector and directly administers Medicaid and Medicare, the largest and second-largest insurer in the country, respectively, one would have thought he’d have a lot to contribute. But when it was his turn to speak, he spent almost all of his five-minute speech talking about increased health insurance coverage under the Affordable Care Act, reduced out-of-pocket costs under Medicare for insulin and vaccines, and the Medicare prescription drug price negotiation program that was just commencing.
All of these were laudable gains, but they had nothing to do with PBMs. He awkwardly pivoted to citing Beshear for “taking real control of some of this on his own” and Cuban’s “proposal which really takes out some of those middlemen,” without saying how HHS is working with them, or what his agency was doing on PBMs.
“We’re in, we want in, and we will do everything we can to make sure that we can move forward for the American people,” Becerra concluded. He only mentioned PBMs once, stating that it was “great to see this momentum” to tackle them as an issue.
The comments during the roundtable have been lost to history, but I distinctly remember chatter at the time and afterward, some of which is still available on Twitter, wondering whether Becerra actually knew what a PBM was.
In 2023, when asked directly in a Senate hearing about the dynamic whereby PBMs seek higher list prices on drugs because they get to skim higher rebates from them, Becerra responded that “there are some folks who are very clever and creative in how they do this work” and that “middlemen have always skimmed money off the top,” which is true but doesn’t really describe the peculiar specifics of PBMs. When asked in Columbus, Ohio, in February 2024 whether the PBM exemption from the anti-kickback statute, which allows them to be paid through rebates from health plans (including public health plans), should be modified to prevent the dynamics of seeking higher prices for higher rebates, he “would not commit to action.”
In April 2024, Becerra faced Rep. Buddy Carter (R-GA), formerly a pharmacist, in a House hearing, who challenged him about PBMs effectively pocketing co-pay assistance money intended for patients. The issue, which was the subject of a successful lawsuit against HHS, concerned a rule allowing PBMs and insurers to not count co-pay assistance as part of a patient’s out-of-pocket expenses, meaning that patient would have to pay more to reach annual limits. Carter was saying that Becerra’s HHS wasn’t complying with the court ruling. Becerra said that HHS would follow the law several times, but didn’t appear to understand the issue, talking in generalities about Medicare beneficiaries needing to pay affordable prices.
HHS is a complex and difficult job. But as a regulatory matter, it oversees the pharmaceutical transaction chain and has the authority to structure that market to prevent hundreds of millions of beneficiaries from continual rip-offs. And beyond just not taking the steps to do so, Becerra in multiple public settings appeared to be unaware that the rip-offs are even happening.
REHASHING ON-THE-RECORD STATEMENTS from a former cabinet secretary may seem irrelevant. But public polling indicates that Becerra is the leading Democrat to become the next governor of California, one of the most powerful positions in government and the most powerful to likely be held by a Democrat in 2027. He has run on his experience in government and particularly his experience with health care: on the health subcommittee of the House Ways and Means Committee for many years, as state attorney general cracking down on hospital monopolies like Sutter Health, and as the nation’s top health policy official.
Therefore, whether Xavier Becerra can articulate one of the major reasons why drug prices are so high is a data point to assess whether he can successfully govern.
His record in those positions matters as much as his experience in them. For example, as California attorney general, Becerra wrote a letter to HHS urging them to use march-in rights to seize the patents of prescription drugs developed through public research whose companies were not providing them at affordable prices. He then became HHS secretary in a position to use march-in rights. Despite being asked multiple times to do so, he declined.
The concern here is not theoretical; PBMs are a live issue, particularly at the state level. Last year, California passed a sweeping PBM reform after two previous attempts met a veto from Gov. Gavin Newsom. The law, SB 41, will force PBMs to license with the Department of Managed Health Care and imposes a fiduciary duty on PBMs to act in the best interest of health plans (something PBM lobbyists have sued over). It also bans “spread pricing,” where PBMs charge Medicaid and other health plans more for a drug than they paid for it while pocketing the difference. Finally, it prohibits PBMs from steering prescriptions to their own pharmacies and requires pass-through of all rebates to health plans. PBM revenue could therefore only come from flat administrative fees. Implementation of this law begins in 2027, right when Becerra or some other candidate enters the governor’s mansion.
Other states are going beyond a regulatory framework. Several states, including Ohio and Kentucky, have created a public-run “single PBM” for their Medicaid programs, kicking out the private companies. This public option has led to large savings for the states, better reimbursement for pharmacists, and improved access and lower prices for consumers. Arkansas and Tennessee both recently passed laws banning PBMs from owning brick-and-mortar pharmacies; this is a backdoor way to break up CVS, which owns one of the Big Three PBMs. (CVS has sued to block these laws and succeeded in blocking the Arkansas law for now.)
Becerra’s issues page for health care, the first on his list of priorities, doesn’t mention PBMs, despite alluding to using California’s “purchasing power” to negotiate discounts and encourage use of lower-cost alternatives. (This is what PBMs say they do.) The Prospect asked the Becerra campaign about its PBM policy for both regulatory oversight and additional legislative tools. The campaign has yet to respond.
I’VE SELDOM READ MORE CUTTING REMARKS from former executive branch officials talking about one of their own colleagues than those former Biden administration officials have been making about Becerra since he surged to the top of the leaderboard in next Tuesday’s gubernatorial primary, mostly off the record. “Him? Really?” was one official’s comment to Politico. “It gets the biggest laugh every time we send around a poll,” said another. A third described him as unprepared to answer basic questions. Susan Rice privately called him an “idiot.” Xochitl Hinojosa publicly called him “not effective in government.” An unnamed official called him “a modern-day Chauncey Gardiner,” referring to Peter Sellers’s simple-minded character in Being There who spouts nothing but platitudes, inspires the country, and accidentally becomes president. (These kinds of whispers were prevalent while Becerra was HHS secretary, incidentally.)
That’s insanely harsh and not a little bit cowardly when done off the record. But it raises a larger question: If Becerra was in over his head in Washington, why didn’t Joe Biden find someone else for the job? Unfortunately, that question answers itself. The mechanisms for accountability in government, in California and across the Democratic Party, are completely broken. Governing matters less than internal power positioning.
To briefly recap this governor’s race: It was entirely frozen while Kamala Harris decided whether to run. She passed, and so did the lieutenant governor, Eleni Kounalakis, leaving nobody for the consultant establishment that has controlled state politics for two decades to rally behind. They tried to push Sen. Alex Padilla into the race and failed. They briefly found someone they could work with in Eric Swalwell, until much-rumored evidence of sexual misconduct got leaked. As soon as Swalwell imploded, they all shifted to Becerra as the last option. He’s been rising ever since.
Corporate interests like Chevron, PG&E, the California Association of Realtors, McDonald’s, DaVita, Uber, oil drilling company California Resources Corporation, and the California Chamber of Commerce have followed the bouncing ball of the establishment, with many of them setting up independent expenditures for Swalwell and then separate ones for Becerra afterward. Meta was among the Silicon Valley interests who threw in to prop up wooden, little-known San Jose Mayor Matt Mahan, but seeing the futility of that enterprise, Meta switched to Becerra too, a cruel blow given that Mahan went to Harvard with Mark Zuckerberg.
PG&E alone has spent $13.5 million to stop Tom Steyer, the billionaire would-be traitor to his class who is running the most expensive gubernatorial campaign in state history, with over $212 million spent to date. Steyer wants to break up utility monopolies and is the only other Democrat with a shot to make the runoff. (Republican Steve Hilton is a strong runoff possibility as well; it is likely that two of Steyer, Hilton, and Becerra will advance.)
So anointed candidates gain money, attention, and support from a network of kingmakers and the capital that follows them, without anyone asking core questions about candidate quality or their record. Swalwell appeared to know nothing about how California government worked. Fellow candidates have criticized Becerra for displaying the same vagueness in years of comments about PBMs when talking about his plans for the key challenges facing California: housing, health care, artificial intelligence, and more. To the kingmaker-industrial complex, this is a selling point. It means special interests have a chance to protect their own profits and maintain a weak status quo. If the governor doesn’t understand what you are doing, there’s a good chance he won’t stop you.
In other words, you don’t get penalized in the Democratic Party for not doing a good job. You are rewarded for it. And critics of this practice won’t even put their name to condemning it.
CALIFORNIA DEMOCRATS HAVE BEEN UNUSUALLY RETICENT to vote in this election. Everyone gets a ballot sent to their home by mail, but only 10 percent of the electorate has returned them, with a much higher percentage of Republicans voting than the registration statistics. There has been a concern all year that with two prominent Republicans and many prominent Democrats, the Republicans could advance to the final two in California’s unusual primary system, leaving this blue state with no other choice. That dissipated after Donald Trump endorsed Hilton, leading to Oath Keeper Chad Bianco falling off in support, but Democrats are biding their time to make sure their vote counts.
But the information Democrats are trying to gather to make the decision is distorted by potentially inaccurate polling given high undecideds, and a barrage of one-sided television ads. California, with its giant and politically disengaged population and meager media coverage of state politics, has been called ungovernable. It may be uncampaignable too, if you don’t have the establishment/corporate head start.
That also serves the interests of an establishment that knows how to push their favored candidates to the top, as long as they receive assurances that nothing will fundamentally change. California has a lot of hardworking and dedicated representatives in government, but they all know about a line that cannot be crossed. Every year for two decades, the Chamber of Commerce releases a list of “job killer” bills that they subjectively claim will destroy the business climate. Nearly all of these bills die in the legislature, simply by getting put on the list.
This is the real system of governance in California, and one-party control of government hasn’t changed it. The electorate barely even hears about it. They are just fed a steady diet of Democrats with vague promises, and the state limps along.
Xavier Becerra is less the problem than the manifestation of a machine that demands only a caretaker as they continue to dominate the people’s business. Maintaining power internally too often takes precedence over the kind of governing needed to deliver results. There’s a connection between this dynamic and the Democrats’ gradual loss of support from the very people who need government to act in their best interests. There’s only so many times you can promise the moon to workers, minorities, and the poor before they stop believing you.
