New Specialty Drug Puts Spotlight on Costs, Impact on U.S. Health-Care System

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By Bronwyn Mixter  

July 2 --While providers, payers and consumer groups say the high cost of specialty drugs could bankrupt the health-care system, the pharmaceutical industry defends its prices saying specialty drugs can reduce overall costs by shortening the duration of treatments and curing diseases.

The cost of specialty drugs has received more attention recently due to the high price of the hepatitis C drug Sovaldi, which was approved by the Food and Drug Administration in December 2013. The drug, made by Gilead Pharmaceuticals, costs $84,000 for a 12-week treatment.

Lawmakers have expressed concern over the high price of Sovaldi. On June 19, Reps. Henry A. Waxman (D-Calif.) and Diana DeGette (D-Colo.) requested that the House Energy and Commerce Committee hold hearings to examine the impact of the high cost of Sovaldi on seniors, taxpayers and Medicare Part D drug plans . In March, Waxman, DeGette and Rep. Frank Pallone Jr. (D-N.J.) also sent a letter to Gilead Sciences requesting a briefing on Sovaldi's pricing.

John Rother, president and chief executive officer of the National Coalition on Health Care (NCHC), told Bloomberg BNA June 6 that when Sovaldi “came out alarm bells started going off and we started to look at it. It's not just a question of Sovaldi, but it's what it means really for pricing for specialty drugs coming down the pipeline.”


“There could be as many as 200 specialty drugs in the pipeline that would have high price tags like Sovaldi and specialty drugs typically have high prices anyway.”  
--John Rother, National Coalition on Health Care

NCHC is a broad-based coalition dedicated to affordability in health care, which includes about 80 provider, payer and consumer group organizations.

“There could be as many as 200 specialty drugs in the pipeline that would have high price tags like Sovaldi and specialty drugs typically have high prices anyway,” Rother said.

Gilead Defends Price

In a statement on its website, Gilead said that “Sovaldi was priced such that total regimen cost is comparable to the previous standard of care regimen for genotype 1 patients with hepatitis C.”

“However, in addition to a higher cure rate, Sovaldi provides a shorter treatment duration and improved tolerability, thereby potentially reducing total treatment costs for hepatitis C when taking into account the cost of medications (including those for side effects of less effective treatment or complications from side effects) and healthcare visits,” the Foster City, Calif.-based company said.

Gilead said that “bringing a new medicine to market is a complex, time-intensive process” and “the prices of Gilead medicines are established at levels that allow an opportunity to recoup research expenditures and support the discovery of next-generation medicines.”


Sovaldi's maker says prices for its medicines “are established at levels that allow an opportunity to recoup research expenditures and support the discovery of next-generation medicines.”  

“Once a medicine is approved by regulators and being prescribed, a considerable amount of ongoing investment is also required to maintain product availability, including pharmacovigilance activities, post-marketing studies and medical and patient education,” the company said.

NCHC's Drug Pricing Campaign

In May, the NCHC launched the “Campaign for Sustainable Rx Pricing” to spotlight what the group characterizes as “unsustainable and abusive” prices for specialty drugs. The campaign, led by Rother, aims to spark a national dialogue about the need to find market-based solutions to the problems “caused by the onslaught of new high-priced prescription drugs,” the NCHC said in a press release.

“If this is an acceptable level of pricing, then this whole thing could blow up the system of health finance,” Rother told Bloomberg BNA. “This isn't a sustainable model.”

Rother said NCHC isn't just focused on Sovaldi but is using Sovaldi “as a case study, trying to raise this larger issue of drug pricing.”

“And we do want to have rewards for innovation because we need the new drugs,” Rother said. “We're just going to have to find some other way of encouraging that.”

Rother said his group is looking to hold discussions with the drug industry and other stakeholders in the next month or two.

“Let's all sit down at the table and figure out some way to sustain our current system and still have the patients who need it, get access to this drug,” Rother said.

Rother said he has talked to Gilead executives and they seem open to the idea of talks although they have not indicated flexibility at all on the pricing of Sovaldi.

Many people have joined the campaign, Rother said. “It has really hit a nerve,” he said.

PBMs Weigh In

Mark Merritt, president and CEO of the Pharmaceutical Care Management Association (PCMA), told Bloomberg BNA June 11 that there's not much anyone can do about the unit price that a drug company gives a medication.

“What's really needed to generate savings is more competition of other similar products in the marketplace because what we typically do to reduce cost is to get similar brand drugs to compete against one another or compete against a generic,” Merritt said. “Whoever offers the best discount usually gets the best place on the formulary and so you'll have a $10 copay instead of a $40 or $50 copay. Higher in the case of specialty drugs.”

Merritt said that “when there is a sole source specialty drug with no competitors in the marketplace that raises cost dramatically” and “it's really going to take more competitive products coming on the market for dramatic discounts to come about.” If the FDA approved biosimilar products, it would create more competition, he said. The agency is still implementing a 2010 law that created a pathway for approval of biosimilar versions of expensive biologic medicines.


When there is a sole source specialty drug with no competitors, that raises cost dramatically and it's really going to take more competitive products coming on the market for dramatic discounts to become available.  
--Mark Merritt, PCMA

“Over the last 10 years, drug manufacturers have moved away from mass-marketed blockbuster traditional drugs toward very expensive specialty drugs for rare diseases and disorders,” Merritt said. Sovaldi “is just the beginning of the fruition of that strategy.”

Merritt said “these are great drugs, they're really great products, it's just that the prices are out of control.”

Lower Prices in Other Countries

Merritt said prices for Sovaldi are lower in other countries because other countries have price controls but he doesn't advocate price controls.

The different price in other countries “is a concern that people have because drugs are manufactured here in the United States with all kinds of tax credits and then people in other parts of the world get it for a fraction of the price,” Merritt said. “I think there's some understanding as to why third world countries should get that benefit because they can't really afford it at all. But the same thing is happening in countries that are as wealthy as the United States.”

Insurers' View

Karen Ignagni, president and CEO of America's Health Insurance Plans (AHIP), said May 21 during the Atlantic's forum on the Future of Medicine that there needs to be more transparency in pricing because “manufacturers are charging whatever they can get away with.”


Gilead “in this case is asking for a blank check, and we can't give anyone anymore a blank check in the health care system--whether it's a pharmaceutical company, a hospital, a device manufacturer--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.”  
--Karen Ignagni, AHIP

Gilead “in this case is asking for a blank check, and we can't give anyone anymore a blank check in the health care system--whether it's a pharmaceutical company, a hospital, a device manufacturer--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,” Ignagni said.

Ignagni said stakeholders need to have conversations about this “to begin talking about how we can attack this problem together before the government has to.”

In a June 10 blogpost, AHIP criticized the pharmaceutical industry for trying to change the subject whenever high drug prices are in the news.

“Shifting blame may have been effective in the past, but when public health and access to life-saving drugs is being threatened by these increasingly outrageous prices, it just won't do the trick anymore,” AHIP said.

Factors to Consider

AHIP said the following factors should be considered in the discussion on drug prices:

• astronomical prices for specialty drugs will blow up Medicare Part D budgets and force higher premiums for seniors;

• astronomical prices for specialty drugs will devastate state Medicaid budgets and displace important priorities like education and infrastructure;

• astronomical prices for specialty drugs put upward pressure on premiums for all consumers;

• consumers have out-of-pocket limits that mean health plans and state and federal governments rather than patients are paying the vast majority of the cost of these high priced drugs; and

• drugmakers have no “straight-face” explanation to justify the increasingly astronomical prices they have been charging for their medications.

AHIP said “we cannot afford to allow pharmaceutical companies to have us simply look the other way any longer when it comes to pricing.”

“These unsustainable drug prices threaten our health care system--public and private--access for patients, as well as the very innovation that pharmaceutical companies relish,” AHIP said. “We cannot have sustainable innovation without sustainable prices to support it, and that's why health plans and a diverse set of stakeholders have called on drugmakers to come to the table to find a private sector solution to this challenge before the government feels like it needs to.”

Medicaid Directors

In a May 20 statement, Matt Salo, executive director of the National Association of Medicaid Directors (NAMD), said that “the potential for eliminating hepatitis C is an exciting one” but the high cost of Solvaldi “requires careful consideration of how to responsibly decide how to best use this new treatment option, especially in light of the three million people currently diagnosed with hepatitis C in the United States.”


Sovaldi alone doubles the pharmacy spend for Medicaid and “there is no question that you have to limit the use of Sovaldi to the sickest patients.”  
--Matt Salo, NAMD

During an April 30 policy forum sponsored by PCMA, Salo said Sovaldi alone doubles the pharmacy spend for Medicaid and “there is no question that you have to limit the use of Sovaldi to the sickest patients.”

PhRMA's Views

John Castellani, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), May 29 said in a statement on prescription drug costs that “it is penny wise and pound foolish to focus solely on the price of a new medicine while completely ignoring the value it provides to patients and the health care system broadly.”

“Curing Hepatitis C not only dramatically improves patients' lives, but has the potential to save the U.S. health care system as much as $9 billion per year by preventing expensive hospitalizations and avoiding thousands of live transplants that routinely cost over $500,000 each,” Castellani said. “The health improvements and cost-savings new medicines provide explain why, despite repeated claims to the contrary, prescription drug spending continues to be a small and declining share of overall health care cost growth--a reality that often gets ignored in the public debate about drug costs.”

According to PhRMA, between 2008 and 2012, prescription medicines accounted for just five percent of overall health-care expenditure growth.


“The health improvements and cost-savings new medicines provide explain why, despite repeated claims to the contrary, prescription drug spending continues to be a small and declining share of overall health care cost growth--a reality that often gets ignored in the public debate about drug costs.”  
--John Castellani, PhRMA

Castellani said the increased attention on the cost of new drugs “is being fueled by the fact that we have an outdated insurance model that is forcing patients to pay an ever-growing share of the prescription drug costs.”

“Insurers are increasingly imposing unprecedented cost-sharing on patients that deters them from utilizing the medicines they need to manage--or even cure-- their disease while covering the vast majority of costs of more expensive hospitalizations and services these medicines could prevent,” Castellani said. “We have a Blockbuster insurance model in a Netflix world and patients are being harmed as a result.”

Castellani said the U.S. “needs to have a much broader discussion on how to best create a more sustainable, 21st century health care system that protects patients and incentives the development of new treatments that can do for other diseases what medicines have done for HIV, Hepatitis C, and many forms of cancer.”

To contact the reporter on this story: Bronwyn Mixter in Washington at bmixter@bna.com

To contact the editor responsible for this story: Nancy Simmons at nsimmons@bna.com