Pharma and Profits. John L. LaMattina
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of the new high‐cost treatments therapies in the VA system in January 2014, treatments for hepatitis C were often ineffective and presented considerable side‐effects. By contrast, the new treatment options are considerably more effective than earlier options and are much easier to administer. Cure of HCV significantly decreases the risk of progression of the disease to cirrhosis, liver failure, liver cancer, and death. VA wants to ensure that all Veterans eligible for these new drugs, based on their clinician’s recommendation, receive the medication”
Source: [5] John LaMattina/Forbes Media LLC.
But what about the high cost of these drugs? While the retail price of SovaldiTM was $84 000 at launch, the VA is allowed by law to negotiate drug prices. In addition, as has been mentioned, other hepatitis C cures have been brought to market over the intervening years such as AbbVie’s Viekira PakTM and Merck’s ZepatierTM, thus putting purchasers in a good negotiating position. Here is how the VA described drug costs in their 2018 Budget in Brief:
“VA successfully worked with the manufacturers of these drugs to receive a reduced price for their use to treat Veterans. VA estimates the drugs will cost $748.8 million and provide 31,200 treatments in 2017 and costs increasing to $751.2 million for 28,000 treatments in 2018”
Source: John LaMattina [5].
If you quickly do the math, 59 200 US veterans will be cured of hepatitis C for roughly $25 300 for each soldier treated.
This is a great story. Thanks to the VA’s commitment as well as the innovation on the part of the manufacturers, a major health issue for our veterans is being eliminated.
While the drop in the cost of hepatitis C drugs has benefited the VA in getting veterans these life‐saving medications, not all government agencies can take advantage of this situation. A case in point is the prison system. Kaiser Health News [6] reported that 144 000 inmates across 49 states had not been treated with any of the hepatitis C drugs. The reason is cost. Even at $25 000, the price is prohibitive for state prison budgets. The situation in Minnesota is pretty typical. Dr. David Paulson, medical director, was quoted saying: “If we treat everybody with hepatitis C, it would exceed the entire total pharmaceutical budget for everything else and there would not be enough budget left to treat patients with other diseases. We need to do what brings the greatest benefit for the greatest number of people.” It is estimated that in Minnesota alone there are 1500 inmates with hepatitis C.
Kaiser estimates that 75 000 hepatitis C patients are released back into the general population annually. As stated before, if not treated, many will progress to cirrhosis, liver cancer, or may even require a liver transplant, all of which would be far more expensive than curing the infection. Furthermore, they could be a source of infection in the community.
Interestingly, two professors, Dr. Anne Spaulding (Emory University) and Dr. Jagpreet Chhatwal (Harvard Medical School), have proposed a solution to this problem – “Nominal Pricing [7].”
“This pricing mechanism provides deep discounts of at least 90 percent on drugs to so‐called safety‐net facilities. (By law, the nominal price of a drug must be less than 10 percent of its average market price.) These include hospitals and clinics that treat many patients without insurance or who are homeless. Because of the high markup on hepatitis C drugs, a nominal price is still well above the cost to manufacture the pills.
Nominal pricing permits manufacturers to sell drugs to safety‐net facilities at a low price without disrupting the Medicaid market. Offering a discount to one customer usually triggers a similar discount on any drugs sold in the Medicaid program. Nominal pricing provides a way to prevent this from happening, and so can entice drug manufacturers into offering substantially lower prices to safety‐net facilities that otherwise may not be able to afford certain drugs”
Source: [7]/STAT.
Adoption of such a proposal has obvious benefits. Nominal pricing would bring the cost of treating hepatitis C in prisons to $2500 a patient – much cheaper than treating them after they are released, thus saving the healthcare system a significant sum by avoiding downstream costs. However, putting downstream costs aside, an inmate has a right to medical care. This is the right thing to do.
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There was a time when curing a disease like hepatitis C would have generated tremendous praise for the pharmaceutical industry. The innovator company would have been lauded for its creativity, insights, and diligence. Interviews would have been conducted with patients who were relieved and grateful that they would not have to endure the consequences of hepatitis C, quite possibly even death. But, the approval of Gilead’s SovaldiTM saw little of that. Instead, everyone focused on “The $1000 Pill.”
To a certain extent, that was not a surprise. The industry was getting battered on multiple fronts and this was another opportunity for critics, politicians, and insurance companies to weigh in and focus not on the benefits of the drug, not on the ultimate savings – even at the $84 000 price – that the healthcare system would gain. Rather, the focus was on the drug’s list price.
Yet, the cost of SovaldiTM ended up dropping dramatically. Competition with new hepatitis C drugs enabled payers to negotiate much lower prices, such that the United States was paying less than other nations for these drugs. This is amazing given that countries like the United Kingdom and Germany as single payer nations have remarkable bargaining power since they are buying for their entire populations. Furthermore, at some point, these prices will drop even more dramatically as the patents that currently protect these drugs will expire. Once generic manufacturers enter the picture, curing hepatitis C will likely cost a few thousand dollars a patient.
There are those who will say that, even at a cost of $25 000 per treatment, these drugs are overpriced and that pharmaceutical companies are gouging the public. Yet, there is no evidence of that. If you look at the industry’s return on investment or return on capital, this industry’s performance is about average across similar sectors. But there is nothing average about the benefits biopharma delivers. As will be seen in subsequent chapters, this is an industry capable of saving the lives of millions of people.
REFERENCES
1 1. Smith, Michael (2014). AHIP Blasts “Unsustainable” Drug Costs. Med Page Today, 21 May.
2 2. Forbes Healthcare Summit (2015). Better, Cheaper, Safer: Creating the Care We Deserve, 2 December.
3 3. Forbes Healthcare Summit (2016). Solving Healthcare’s Biggest Challenges, 30 November.
4 4. 24th Annual Wharton Health Care Conference (2018). Adapting to Consumer‐Driven Care, 23 February.
5 5 LaMattina, J. (2018). The VA Will eliminate hepatitis C in veterans by year‐end. Forbes Media LLC. (1 March 2018).
6 6. Thanthong‐Knight, Siraphob (2018). State Prisons Fail To Offer Cure To 144,000 Inmates With Deadly Hepatitis C. Kaiser Health News. 9 July.
7 7. Spaulding, A.C., Chhatwal, J. (2019). “Nominal Pricing” can help prisons and jails treat hepatitis C without breaking the bank. STAT. 9 January.
CHAPTER 2 ENTER THE PAYERS: FDA APPROVAL DOES NOT GUARANTEE COMMERCIAL SUCCESS
The introduction of the statin class of drugs revolutionized the treatment of heart disease. These drugs, notably LipitorTM and CrestorTM, lower the levels of low‐density lipoprotein cholesterol (LDL‐c), the “bad cholesterol.” Numerous studies over the years have shown that these pills reduce heart attacks and strokes in vulnerable populations, that is, those with significant risk factors like atherosclerosis, diabetes, smoking, and a family history of heart disease. In fact, the availability of statins changed medical practice so that physicians now recommend LDL‐c levels less than 100 mg/dl [1].
While statins are impressive drugs, a new class of drugs known as PCSK9 inhibitors