BioPharm Executive: Have Drugs Finally Been Priced Too High?
One state’s effort to put more pressure on drugmakers.
July 30, 2014
By Karl Thiel for BioSpace.com
The life sciences industry has scored some amazing successes in the past few years, developing major advances and even cures for diseases that until recently were a life sentence. Many companies have gone after devastating illnesses that are suffered by just a few hundred people around the world. And in the process, they have discovered they can command huge price tags for groundbreaking treatments.
But hugely expensive therapies for rare disease have given way to hugely expensive therapies for not-so-rare illnesses, and it is causing a lot of tension between drugmakers, insurers, and government. The poster child for this is undoubtedly Gilead Sciences’ hepatitis C drug Sovaldi, with its $84,000 price tag for a 12-week course of treatment. It’s hardly the most expensive treatment out there, and it has the added benefit of being a bona fide cure for most patients. But the huge number of infected patients poses an unprecedented challenge for payers.
Pharmacy Benefit Manager Express Scripts, which has been hostile to Gilead since Sovaldi was first priced, has led a charge to get insurers and large employers to refuse to pay for the treatment. Earlier this month, they released an analysis suggesting that over $55 billion in spending to provide hepatitis C treatment will fall on already-stretched state budgets. On a per capita basis, spending ranges from under $100 per person in North Dakota to as high as $294 per person in Louisiana. A spokesperson for Express Scripts called the “unsustainable pricing” of Sovaldi a “tax on all Americans”—which is true enough, although the analysis didn’t factor in avoided liver transplants and other expenses that would also amount to a tax on citizens if Sovaldi didn’t exist.
But this is as much a matter of cash flow as it is overall spending. A recent analysis by PricewaterhouseCoopers suggested that while Sovaldi will cause a huge spike in spending over the next few years, that will come down rapidly as many patients are cured, making the background treatment rate much more sustainable.
Still, politicians tend to focus on the near term, and Senators Ron Wyden (D-Or.) and Chuck Grassley (R-Iowa) recently wrote to Gilead CEO John Martin that Sovaldi could increase government spending by $6.5 billion in 2015, causing a 8 percent jump in Medicare Part D premiums—the largest increase since 2006 and a disappointing reversal to a recent trend of slowing budget growth. Gilead may be emboldened by the fact that the Republican-controlled House is unlikely to take up the issue of drug pricing in any serious way, but in any case neither they nor Wall Street seem too concerned that anything will come of this.
Oregon’s idea
That may be why the state of Oregon, which actually falls at the low end of per capita expenditure according to Express Scripts’ analysis, has come up with a creative approach.
It’s no secret that Gilead isn’t expected to have the hepatitis C market all to itself for long. Excellent drugs from AbbVie, Merck, and others should be coming soon. But will this make for a price war that benefits consumers or taxpayers? Companies aren’t talking much about it, but as long as there are only two or three similarly effective drugs on the market, manufacturers are unlikely to want to compete on price. Hoping to force their hands, Oregon is asking companies to offer discounts now for drugs not yet approved. It will take in the bids, and the winner will become the drug of choice for Oregon’s Medicaid beneficiaries. By making it a winner-takes-all market, Oregon ups the incentive to negotiate on price.
This isn’t a model other states can readily adopt, however. Most states are mandated by law to reimburse FDA-approved drugs; Oregon happens to operate under a waiver that allows it to limit certain coverage while making care available to a wider swath of the population. It may, however, be an approach that more European governments can try. (It’s also worth noting that some other states are fighting against expensive new drugs despite federal rules—Arkansas is being sued for denying coverage for Vertex Pharmaceuticals’ cystic fibrosis drug Kalydeco to patients.)
So far, 14 European countries have banded together to pressure Gilead for lower prices. They are still negotiating separately, but sharing information. So far, they haven’t shown signs of playing Oregon’s waiting game—simply refusing to use Sovaldi until there are alternatives available—but that may change soon. In the U.S., Express Scripts is urging payers to refuse to pay for the drug as soon as alternatives are available. If the alternatives are similarly priced, that may not mean much stateside. But European countries, in which the government is responsible for the vast majority of drug spending, are going to have a lot more leverage, perhaps as early as October. It’s going to get a lot more interesting.
-Karl Thiel
