Is an $84,000 Hepatitis Drug Too Expensive?

The debate over drug prices is heating up as insurers clash with pharmaceutical companies over a wave of expensive new products.

A pharmacist pours Truvada pills back into the bottle at Jack's Pharmacy on November 23, 2010 in San Anselmo, California.
National Journal
Sam Baker
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Sam Baker
May 29, 2014, 1 a.m.

An $84,000 hep­at­it­is drug called Sovaldi is at the cen­ter of a new battle between phar­ma­ceut­ic­al com­pan­ies and in­surers — but the fight is about much more than one drug.

Sovaldi costs $1,000 per day, or $84,000 for a full treat­ment, and cures 90 per­cent of hep­at­it­is C pa­tients who take it. In­surers say the drug is ri­dicu­lously over­priced; the phar­ma­ceut­ic­al in­dustry says it’s a steal.

But the de­bate here isn’t simply about one hep­at­it­is drug. Sovaldi is more like a single skir­mish that has reawakened a broad­er, deep­er, and high­er-stakes cold war over the cost of pre­scrip­tion drugs. Of­fi­cials in both in­dus­tries say that even if Sovaldi’s man­u­fac­turer, Gilead, slashed its prices, the newly in­tens­i­fied battle between in­surers and pharma com­pan­ies wouldn’t re­cede: Sovaldi is just the be­gin­ning.

Sovaldi is a light­ning rod be­cause in­surers and con­sumer ad­voc­ates are afraid it’s a sign of what’s to come. The drug pipeline is full of drugs like Sovaldi, and in­surers say that flood of new, ex­pens­ive products will cause health care spend­ing to skyrock­et.

“I think that this one drug is the ca­nary in the coal mine. It’s one that is out front and one of the first ones we’re see­ing, but there are a lot more down the pipeline,” said Brendan Buck, a spokes­man for Amer­ica’s Health In­sur­ance Plans.

Un­til Sovaldi, the class of products known as “spe­cialty drugs” was mainly tailored to re­l­at­ively rare con­di­tions. The drugs are com­plex, which makes them more ex­pens­ive to pro­duce, driv­ing up the price for con­sumers. And be­cause they treat rarer con­di­tions, there were few­er po­ten­tial cus­tom­ers — an­oth­er factor driv­ing up prices.

Spe­cialty drugs have al­ways been ex­pens­ive. They ac­count for roughly 25 per­cent of U.S. spend­ing on pre­scrip­tion drugs, but just 1 per­cent of all pre­scrip­tions, ac­cord­ing to a newly formed co­ali­tion lob­by­ing for lower prices.

But Sovaldi set off a par­tic­u­lar shock wave largely be­cause it treats a more com­mon ail­ment — some 3 mil­lion people have hep­at­it­is C. They can’t all af­ford an $84,000 course of treat­ment, but still, crit­ics ar­gue, the drug’s large po­ten­tial cus­tom­er base means that a once-nar­row slice of drug spend­ing could ex­plode.

“If this sets a pat­tern for oth­er drugs then we’re really in deep trouble “¦ it’s the com­bin­a­tion of the price and the volume,” said John Roth­er, who helped start the Co­ali­tion for Sus­tain­able Rx Pri­cing. The new or­gan­iz­a­tion, which also in­cludes AARP and oth­er health care ad­voc­ates, launched Wed­nes­day.

The phar­ma­ceut­ic­al in­dustry says crit­ics are miss­ing the point. Yes, Sovaldi is ex­pens­ive, it ar­gues, but that’s be­cause it works. Sovaldi cures about 90 per­cent of pa­tients with a com­mon form of hep­at­it­is C with­in its 12-week course.

Spend­ing $84,000 on a cure might seem ex­pens­ive up front, but it’s a lot more ef­fi­cient in the long run than pay­ing for a string of less ef­fect­ive treat­ments, in­clud­ing hos­pit­al­iz­a­tions that run the risk of com­plic­a­tions, the drug in­dustry says.

A re­port from Optum, a con­sult­ing sub­si­di­ary of United Health­care, agrees. Even very ex­pens­ive drugs can be cost-ef­fect­ive if they work well enough, Optum said in a re­port is­sued be­fore Sovaldi’s price was re­leased.

“It is cer­tainly pos­sible that the com­bin­a­tion of high­er cure rates and re­duced side ef­fects, com­bined with re­duced treat­ment times, may mean even great­er cost-ef­fect­ive­ness in the fu­ture,” Optum’s ana­lysts wrote.

A phar­ma­ceut­ic­al in­dustry of­fi­cial said in­surers’ ef­fort to crack down on Sovaldi and oth­er spe­cialty drugs is short-sighted. The in­sur­ance in­dustry is un­der tre­mend­ous pres­sure to keep premi­ums low, es­pe­cially in the first few years of Obama­care en­roll­ment, and it’s re­act­ing to that pres­sure by steer­ing health pro­viders and con­sumers away from products that are more ex­pens­ive in the short term, the of­fi­cial said — but is run­ning the risk of fore­go­ing longer-term sav­ings.

The ba­sic dy­nam­ics un­der­neath this ten­sion are noth­ing new: Phar­ma­ceut­ic­al com­pan­ies want in­surers to cov­er their drugs, which helps them make money; in­surers want to avoid shelling out tens of thou­sands of dol­lars for ex­pens­ive treat­ments, which helps them make money.

But the Sovaldi dust-up has turned up the in­tens­ity, as in­surers make an ag­gress­ive case that they’re not the ones to blame if rising health care costs drive up premi­ums.

“The real­ity is that the com­pany in this case is ask­ing for a blank check, and we can’t give any­one a blank check in the health care sys­tem “¦ be­cause it will blow up fam­ily budgets, it will blow up state Medi­caid budgets, it will blow up em­ploy­er be­ne­fit costs, and it will wreak hav­oc on the fed­er­al debt,” AHIP Pres­id­ent and CEO Kar­en Ig­nagni said at a re­cent event sponsored by The At­lantic.

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