November 6, 2014 at 5:00 am ET
The health insurance industry continues to warn of financial ruin unless America institutes pharmaceutical price controls of the sort mainly found in Europe and Canada. Or, in the absence of regulatory action, insurers are simply sticking their customers with the tab through increased cost-sharing.
It would be highly unfortunate if the insurance industry campaign sparked bad policy decisions that hinder pharmaceutical innovators’ ability to respond to the next epidemic, such as Ebola. Or to illnesses such as hepatitis C that afflict some three million individuals and can lead to cirrhosis or liver cancer – and costs that can reach nearly $600,000 for a liver transplant.
Yet here we are debating miracle drugs that cost one-sixth of such pricey surgical procedures. Take Sovaldi, Gilead Sciences’ breakthrough hepatitis C drug, typically administered with ribavirin plus an interferon injection for a total cost of $94,726 for a full course of treatment (or around $150,000 if taken off-label with Johnson & Johnson’s Olysio, which eliminates the need for injections).
Gilead last week secured regulatory approval for an updated regimen, Harvoni, that combines the active ingredient in Sovaldi with protein inhibitor ledipasvir into a single pill with fewer side effects and a higher estimated cure rate. At $94,500, the price is slightly lower for a more effective, all-in-one oral treatment. Moreover, as many as 40 percent of hepatitis C patients can be cured with eight weeks of Harvoni treatment versus the typical 12-week course, at a significantly reduced $63,000 cost.
Insurers claim such prices will bust budgets and hurt patients (never mind that insurers are making patients pay more out of pocket), despite the fact that pre-Sovaldi hepatitis C treatments typically cost $65,000 to over $100,000. But these prior treatments were less effective and had greater side effects, so either had fewer takers or more patients prematurely ending their treatment. As the IMS Institute for Health Informatics noted in a recent report, “a key issue around the launch of [Sovaldi] is that payers did not accurately predict the demand from patients for the treatment or the price at which it would launch.”
The evidence suggests the industry had at least an inkling, however. Consider that pharmacy benefits manager Express Scripts’s 2012 Drug Trend Report discussed the “increasing challenge of specialty prescription drug spending” and the fact that 22 new specialty drugs were approved in 2012, “many of which will cost more than $10,000 per month of treatment.” In August 2013, UnitedHealth Group’s pharmacy benefits management (PBM) unit published an article citing projected costs of as much as $100,000 for a full course of Sovaldi treatment.
What’s really happening is insurers want someone else to pay for their failure to adequately price demand for highly effective, potentially lifesaving drugs. If the critics had their way and new regulations required price slashing, inevitably patients would lose access to lifesaving therapies, both directly and as a result of reduced research and development expenditures on what could be the next Sovaldi, or Ebola-fighting ZMapp.
Insurers also are hardly powerless, which is evident in their ability to shift drug costs to patients. While critics lambaste the American health system as free enterprise run amok, in reality the U.S. health insurance sector is more like a regulated monopoly – with a mandated customer base that will keep growing as Obamacare expands its reach and as America continues to age. This gives insurers enormous power to bargain with providers and pharmaceutical manufacturers.
Express Scripts, a vocal critic of specialty drug pricing, is a good example. As the largest PBM in the U.S. – with nearly $105 billion in 2013 revenue – Express Scripts enjoys enormous leverage in the marketplace. The company recently told its customers it planned to save $1 billion in 2015 by excluding 66 medicines from its list of covered drugs.
However, noticeably absent from the list was Sovaldi, for two reasons: one, they can’t afford not to cover a miracle drug with a 90 percent cure rate for a deadly disease that claims the lives of 15,000 Americans each year. And two, there is an explicit promise to drop Sovaldi once lower-priced competitors come online that demonstrate comparable effectiveness.
Meanwhile, insurers to date are hardly seeing major dents in their bottom lines. UnitedHealth, the first of the commercial payers to report earnings and an industry bellwether, released Q3 earnings that beat the Street’s expectations. At five percent, United’s overall medical cost increases were far below what they were a year ago at this time when they hit 13 percent, well before Sovaldi came to market. We’ll see what the other major commercial payers have to say, but thus far the concerns raised by the insurers’ Washington, D.C., lobbyists sounds like a case of tail-wags-dog.
Prescription drugs currently make up just over 11 percent of the nation’s nearly $3 trillion health care tab; simple math indicates pharmaceuticals are not the major driver of runaway U.S. health expenditures. America needs a national conversation on healthcare costs, not European-style price controls that will do nothing but deprive patients of potentially life-saving medicines. Insurers suffering through temporary blips in their stock prices should remember what’s really at stake, rather than waging expensive lobbying campaigns and engaging in scare tactics.
Peter J. Pitts, a former FDA Associate Commissioner, is President of the Center for Medicine in the Public Interest.