Drug pric­ing sys­tem is bro­ken

Los Angeles Times - - BUSINESS - MICHAEL HILTZIK

Jane Blu­men­feld isn’t sure when or how­she con­tracted hep­ati­tis C. All she knows is that back in 2000, when she tried to do­nate blood, the lab told her she had it.

Af­ter that she shared the night­mare of mil­lions of hep­ati­tis C vic­tims.

Hop­ing to stave off the dis­ease’s most dire out­comes— pro­gres­sive liver dam­age, liver can­cer or a liver trans­plant— she un­der­went what un­til re­cently was the pre­ferred ther­apy. That in­volved in­ter­feron treat­ment, which had se­vere side ef­fects and didn’t work in as­man­yas one-third of all cases. “Those were the most de­bil­i­tat­ing eightweeks ofmy life,” she told me.

It didn’t work. Af­ter the treat­ment, her vi­ral load was higher than be­fore.

So Blu­men­feld, 64, a re­tired aide to state and Los An­ge­les city of­fi­cials, was re­lieved when a new­drug, Har­voni, ap­peared on the scene last year. Its side ef­fects are min­i­mal, and its cure rate has been mea­sured as high as 99%.

Here’s the prob­lem: The list price of the one-pill-aday, 12-week treat­ment is nearly $100,000 and Blu­men­feld’s health in­surer, An­them Blue Cross, re­fuses to pay it.

Although the med­i­cal com­mu­nity re­gards the drug as the stan­dard of care for al­most all hep­ati­tis C suf­fer­ers and itwas pre­scribed by her liver spe­cial­ist, An­them des­ig­nates the drug as “med­i­cally nec­es­sary” only for those with ad­vanced liver dis­ease. In a law­suit filed against An­them last month in Los An­ge­les state court, Blu­men­feld con­tends that An­themis interfering with her doc­tor’s judg­ment just to save money.

“I have a chance ill­ness for which there’s a100% cure,” she says. “How An­them can de­ter­mine that it’s not med­i­cally nec­es­sary for meis mind-bog­gling.”

Dur­ing months of cor­re­spon­dence, An­them has not ex­plained its clin­i­cal rea­son­ing for deny­ing Har­voni for all but those with the most se­vere liver dam­age, ac­cord­ing to her law­suit. In a state­ment pro­vided to The Times, the in­surer says that in gen­eral, based on “the con­cerns and rel­a­tive ben­e­fits and harms, our ben­e­fits sup­port cov­er­age for mem­bers with­more ad­vanced stages of liver dis­ease and those at high­est risk for liver com­pli­ca­tions.”

But it’s re­ally no mys­tery. An­themis re­spond­ing to the strato­spheric price set for the drug by its man­u­fac­turer, the Bay Area firm Gilead Sciences. Gilead’s pric­ing

has forced pri­vate and public healthcare providers to en­gage in out­right ra­tioning, re­serv­ing cov­er­age of the drug only for pa­tients with the most ad­vanced dis­ease.

“The goal-line-stand ap­proach of parcel­ing out this treat­ment is not op­ti­mal froma public health per­spec­tive,” says Peter Bach, di­rec­tor of the Cen­ter for Health Pol­icy and Out­comes at New York’s Me­mo­rial Sloan Ket­ter­ing Can­cer Cen­ter, a lead­ing critic of the pric­ing of can­cer and other spe­cialty drugs. But Bach and other ex­perts ob­serve that in­sur­ers and public healthcare agen­cies con­sider the high pric­ing nec­es­sary for bud­getary rea­sons. With­out re­stric­tions, the cost of hep­ati­tis C drugs alone could lead to in­sur­ance price in­creases and un­der­mine the abil­ity of public healthcare agen­cies to pro­vide ser­vices to mil­lions of clients.

The prices re­flect po­ten­tial de­mand and what Gilead says is the value of re­duc­ing the cost of liver dis­ease in un­treated pa­tients. The lat­ter pro­duces “sig­nif­i­cant sav­ings to the healthcare sys­tem over the long term,” ac­cord­ing to a state­ment pro­vided by Gilead.

But crit­ics say that’s a self-serv­ing ra­tio­nal­iza­tion. “These prices are de­ter­mined through a profit max­i­miz­ing al­go­rithm, and what­ever ra­tio­nale there is for them is fit to the price,” Bach ob­serves. Anes­ti­mated 3 mil­lion Amer­i­cans carry hep­ati­tis C, which can be spread through un­ster­ile nee­dles or trans­fu­sions of con­tam­i­nated blood, aswas com­mon be­fore screen­ing was in­tro­duced in1992.

Gilead ini­tially priced the hep­ati­tis C drug So­valdi at about $84,000 for a12-week treat­ment, or about $1,000 per daily pill. That was more than twice the $36,000 the drug’s devel­oper, Phar­mas­set, had planned to charge be­fore that com­pa­ny­was ac­quired by Gilead in 2011. It was also vastly out of line with Phar­mas­set’s re­search and de­vel­op­ment costs, which the Se­nate Fi­nance Com­mit­tee es­ti­mated at less than $63 mil­lion in 2009-2011.

Har­voni, a com­bi­na­tion of So­valdi and another drug, ap­pears to be­more ef­fec­tive than So­valdi alone. But it’s also more ex­pen­sive.

So­valdi brought Gilead a re­mark­able $10.3 bil­lion in 2014 sales. Har­voni, which was in­tro­duced late in the year, added $2.1bil­lion. Sales of the two prod­ucts in the first quar­ter of 2015 cameto $4.6 bil­lion. Gilead’s gross prof­it­mar­gin in 2014, mostly fromthe two drugs, was 85%.

But the push­back quickly sur­faced. Steve Miller, chief med­i­cal of­fi­cer of phar­macy man­age­ment firm Ex­press Scripts, called Gilead’s pric­ing of So­valdi an act of “un­mit­i­gated gall.” Other coun­tries are less in­dul­gent about phar­ma­ceu­ti­cal prices than the U.S., he ob­served— in Canada and Bri­tain, the price of a full So­valdi treat­ment is $55,000, and in Egypt only $900.

That’s be­cause U.S. reg­u­la­tions pro­tect drug­mak­ers from com­pe­ti­tion for years and ham­per the quest for dis­counts. Medi­care, the na­tion’s largest sin­gle phar­ma­ceu­ti­cal buyer, is for­bid­den by lawto ne­go­ti­ate prices. Fed­eral law, more­over, grants state Med­i­caid pro­grams the right to the low­est drug prices ne­go­ti­ated by pri­vate buy­ers, which gives drug com­pa­nies an in­cen­tive to re­sist grant­ing big dis­counts to pri­vate in­sur­ers. Mean­while, drug­mak­ers ad­ver­tise their prod­ucts di­rectly to con­sumers, driv­ing up de­mand— as Gilead has done for Har­voni.

“We like to think we have a freemar­ket sys­tem [in drug pric­ing], but it re­ally isn’t,” says Mur­ray Ross, di­rec­tor of the Kaiser Per­ma­nente In­sti­tute for Health Pol­icy in Oak­land. “Man­u­fac­tur­ers have sub­stan­tial pric­ing power, and buy­ers have very lit­tle abil­ity to avoid that. You can ne­go­ti­ate down fromthe man­u­fac­turer’s sug­gested re­tail price, but you’re still left with a large num­ber.”

As­tudy for Cal­i­for­nia of­fi­cials by the non­profit In­sti­tute for Clin­i­cal and Eco­nomic Re­view, which ad­vises public agen­cies about healthcare tech­nolo­gies, found that treat­ments such as Har­voni would yield real health and eco­nomic ben­e­fits in the state over 20 years— re­duc­ing cir­rho­sis six-fold and liver can­cer by more than half, and cut­ting the need for liver trans­plants. But it still found that the sav­ings over time didn’t com­pen­sate for the cost at the quoted prices.

In a 2014 study, the in­sti­tute found that if only half of the es­ti­mated hep­ati­tis C suf­fer­ers in Cal­i­for­nia sought treat­ment with So­valdi, that­would raise drug ex­pen­di­tures in the state by $22 bil­lion in a sin­gle year. Even af­ter 20 years, the gains from bet­ter health would off­set only about three-quar­ters of the ini­tial out­lay. To be truly cost­ef­fec­tive, ICERs ays, the price would have be cut by half to two-thirds.

Late last year— re­spond­ing to the public out­cry over its prices and the in­tro­duc­tion of a com­pet­ing drug, Gilead be­gan ne­go­ti­at­ing dis­counts for public agen­cies and pri­vate in­sur­ers of up to nearly 50% to “en­cour­age wider ac­cess,” a Gilead ex­ec­u­tive told in­vestors in Fe­bru­ary.

An­them an­nounced in Jan­uary that it had reached an agree­ment with Gilead “ef­fec­tively low­er­ing” its treat­ment costs for hep­ati­tis C. But there have been no signs yet that it is re­lax­ing its stan­dards for ap­prov­ing Har­voni. Blu­men­feld’s most re­cent de­nial let­ter from An­them was dated April15.

If there’s an up­side to the pric­ing of hep­ati­tis Cd rugs, it’s that it has launched a na­tional dis­cus­sion about ex­tra­or­di­nary drug prices. “There’s been a long tra­di­tion of the med­i­cal pro­fes­sion try­ing to step out of the cost and pric­ing dis­cus­sion,” Ross says. “This drug has forced the hand be­cause of where the prices are.”

There’s more to come, with high-priced drugs for can­cer, rheuma­toid arthri­tis, and other con­di­tions fill­ing the phar­ma­ceu­ti­cal pipeline. Amer­ica’s bro­ken sys­te­mof drug pric­ing is go­ing to have to be fixed, or it will bank­rupt us all.

Noah Berger As­so­ci­ated Press

PROTESTERS con­verge on Gilead Sciences’ head­quar­ters in Foster City, Calif., in 2012, call­ing on the drug­maker to lower prices for its Stri­bild AIDS med­i­ca­tion.

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