Rising specialty drug costs pose a substantial problem for the California state budget and the problem will continue to grow. While these trends are of concern to all payers, this brief focuses on the implications for California’s Medicaid program, Medi-Cal, using the example of Sovaldi, a treatment for hepatitis C. A recent report by the U.S. Senate Finance Committee revealed that Gilead priced Sovaldi at the point at which it would maximize revenue. As described in the brief, the $84,000 price per course of treatment for genotype 1 hepatitis C, has led to rationing of the drug in Medicaid programs. With many more specialty drugs in the pipeline, Sovaldi is the canary in the coalmine. Other specialty drug vendors may use the revenue-maximizing pricing method Gilead used to price Sovaldi, creating the potential for rapidly increasing drug cost inflation in future years and posing a challenge for Medicaid programs’ budgets. This brief recommends that California could begin to spend taxpayer money on specialty drugs more wisely by having Medi-Cal negotiate supplemental rebates for its managed care organizations on the hepatitis C drugs they buy, using the state’s existing authority under Senate Bill 870 (2014). Reducing prices would support improving access to these drugs for Medi-Cal patients, thereby curtailing the spread of hepatitis C and saving the lives of more Californians.