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At this point, it’s a refrain we know all too well: Drug prices are skyrocketing in America to the point of unaffordability. Individuals are skipping doses, rationing their medications, traveling outside the United States to buy them, or importing the same but cheaper drugs.
The president and current Congress both feel the pressure and highlight lowering health care costs as a top priority. Drug prices may be their easiest, most visible target.
Federal officials are not alone. Strained by the cost of drugs on their budgets yet pressed to meet demands for treatments, state Medicaid officials are looking “outside the box” to find solutions.
A new, emerging state model is part of a larger move away from unit pricing.
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In Louisiana, the “Netflix Model” is a subscription payment model that utilizes a Centers for Medicare and Medicaid Services-approved supplemental rebate. Under this model, Louisiana pays a drug manufacturer a fixed annual fee to access its drugs for use across the state’s covered population, which includes both Medicaid recipients and prisoners in state facilities.
This payment structure will be piloted with a hepatitis C medication, which is both earth-shattering and life-saving, but costs between $84,000 and $94,500 for a three-month course of treatment.
Hepatitis C is a liver infection, and unlike hepatitis A or B, hepatitis C does not have a vaccine. Hepatitis C can cause serious health problems including liver damage, cirrhosis, liver cancer or death if untreated. It kills more Americans than any other infectious disease. The Centers for Disease Control and Prevention reports that there are 2.4 million people in the United States living with chronic hepatitis C, and of those affected, most are low-income, communities of color.
In an effort to control costs, many state payers have restricted patient eligibility to hepatitis C medication based on the severity of their illness. The subscription model would open opportunities for this inaccessible drug to finally treat those who need it.
Since the incremental cost of production is negligible, the manufacturer may actually win because there could be improved sales predictability and overall revenue without reducing the unit price of the drug.
Implementation in Louisiana has not yet started. The Louisiana Department of Health chose Gilead to be its pilot manufacturer in March (AbbVie and Merck also applied). The five-year contract is expected to be signed in June and could be up and running by July. The goal is to treat approximately 10,000 people by 2020, out of 39,000 infected people across the state’s Medicaid and prison systems.
And like a game of follow the leader, more states are considering the Netflix model. The state of Washington released a request for proposal in January, which would be worth up to $600 million.
On April 26, the Washington State Health Care Authority announced it awarded AbbVie a contract for Mavyret, under which the state will buy hepatitis C medicines through a similar, subscription fee model.
The final details are being worked out, but Washington state will pay AbbVie a fee up to a cap. If the cap is exceeded, the state will pay per prescription but at a lower price. An estimated 65,000 live in the state with hepatitis C, and up to half may be covered with government insurance.
Hepatitis C is a big deal to Washingtonians: The governor announced a plan to eradicate the virus in the state by 2030.
Indications are that New York may be interested. According to Louisiana officials, other states have inquired about their model.
The industry is paying attention: There’s too much revenue at stake not to be.
And the outlook is hopeful. Australia has found enormous success with the Netflix approach. Its deal was signed in 2015 at $766 million over five years for an unlimited volume of hepatitis C drugs. Due to the pent-up demand, the projected number of treated people increased to 104,223 from 61,500, and the estimated cost per person decreased to $7,352 from $12,460. These costs are 85 percent of what they would be at $55,000 under traditional pricing.
So, in terms of cost effectiveness, the states are most likely receiving the better end of the deal financially. But pharmaceutical companies also benefit from the volume gains and sales predictability.
As a result, there may also be talk of expanding the model to other drug therapeutics. Naloxone/Narcan, an opioid antagonist used to treat opioid overdoses, and pre-exposure prophylaxis for HIV are likely candidates. Both are similarly too expensive at market value but highly critical in public health crises.
Ideally, the bottom line should be the benefit to a population’s health should be the driver of decisions and if the states with high hepatitis C prevalence — California, Texas, Florida, New York, Pennsylvania and Ohio — may sign on to address their citizens’ health needs.
In this case, if the Netflix model is left running long enough and a prompt pops up asking, “Are you still watching?” then what will our answer be?
Ipsita Smolinski is managing director of Capitol Street, where she advises clients on national health care policy and emerging trends.
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