Posted On: August 10, 2014 by Patrick A. Malone

Sovaldi — Pay Now or Later

The $84,000 cost of Sovaldi, a drug recently developed to treat hepatitis C, has horrified patients and insurers and again invited people to see Big Pharma as an industry that gouges helpless people with life-threatening illness. But a recent analysis sheds new light on the issue.

Writing in the New York Times, Margot Sanger-Katz acknowledges that although the drug is a legitimate breakthrough in the treatment for the liver disease caused by hep C, many people accuse its manufacturer, Gilead Sciences, of setting an unreasonable and unsustainable price for it, at $1,000 per pill.

“But maybe we are looking at the costs of Sovaldi in the wrong way,” suggests Sanger-Katz. “One reason it is causing such angst among insurers and state Medicaid officials is that treatment costs are coming all at once.”

The average course of treatment is one pill per day for nearly three months. The problem is that so many people have been infected with the hep C virus that the pent-up demand results in a huge total cost.

As Sanger-Katz notes, about 3.2 million people in the U.S. are infected. Many have no symptoms for years, and remain undiagnosed, but those who have been diagnosed, have been waiting for a good treatment. Unlike drugs for other chronic diseases, including diabetes or AIDS, that require years-long treatment, Sovaldi can cure most patients’ hepatitis in weeks.

The bill comes due, and with it, sticker shock. But as Sanger-Katz points out, it’s a matter of pay now, or pay forever. “The lifetime cost of treating someone with an HIV infection,” she writes, “is around $380,000, according to estimates from the federal Centers for Disease Control and Prevention, but the annual bill is much smaller.

“Think about AIDS treatment as paying a mortgage. Sovaldi is like buying a house with cash.”

In this country, we’re used to health-care costs that are spread out and predictable because that’s how the insurance system works. An insurer doesn’t want a huge initial outlay for someone who might change plans later — it has paid to deliver a healthier person to a competitor.

Before its advent, treatment for hepatitis C was mostly about addressing symptoms — there was no “cure.” Some drugs attacked the virus itself, but they weren’t very good at it, and they came with significant side effects (fever, depression, anemia), so about half its patients weren’t healthy enough to tolerate them.

Those drugs weren’t really affordable, either — about $70,000. But few patients took them, so the cost didn’t generate the attention or reaction that Sovaldi has. Because it works fast and with fewer side effects, patients want it now, and, as Sanger-Katz says, “That means a big financial shock to the health care system all at once.”

Hep C is expensive because infected people can end up with liver damage and its complications, including joint pain, kidney disease, cirrhosis and even cancer. You can catch the virus from blood transfusions (rarely), but the people most at risk are intravenous drug users who share needles. In terms of demographics, it’s most common among the baby-boomer generation, whose members, as we’ve blogged, are all recommended to be tested.

Because so many people might be candidates for Sovaldi, some estimates say the cost could raise employer insurance premiums by half a percentage point next year, and that it could increase premiums for Medicare’s drug benefit program as much as 8% next year. One drug benefit manager for major insurance companies said that states alone could shell out $55 billion if every Medicaid patient or state prisoner with the disease was treated.

The law requires state Medicaid programs, which insure poor and disabled residents, to cover any drugs that are approved by the FDA. But even with a significant Medicaid discount, many states are concerned about the budgetary impact of Sovaldi.

So no wonder that so many interests, from the health insurance industry to patient advocates to members of Congress, are scrutinizing Gilead’s pricing strategy. The drug reached $3.48 billion in sales in the last quarter alone. The challenge gained steam when a Congressional investigation, according to Sanger-Katz, found documents showing that the pharmaceutical company Pharmasset, which developed the drug and was acquired by Gilead in 2011, had planned to sell it for $36,000 per course of treatment.

But what we should be focusing on, suggests Sanger-Katz, is the fact that Sovaldi appears to have the potential to save money over the long run. CDC data show that more than 6 in 10 people with hepatitis C will contract chronic liver disease, and as many as 2 in 10 will get cirrhosis. Both can result in the need for a liver transplant, the cost for which can approach $600,000.

Sovaldi cures about 9 in 10 patients, and researchers believe it has the potential to limit the spread of disease and, obviously, the costs of treating it.

In this light, the penny-wise, pound-foolish approach seems especially misguided, but logic is a weak opponent to industrial momentum. Under U.S. health-care financing, people change insurance coverage when they change jobs, lose Medicaid coverage when financial circumstances change and become eligible for Medicare at age 65. So one company pays the big Sovaldi bill, leaving another to enjoy covering a person with a healthy liver 20 years later.

“If it is cost-effective from a societal standpoint, it is not necessarily going to be cost-effective from a health plan standpoint,” Dan Mendelson, chief executive of a health-care consulting company, told Sanger-Katz. “I think some of the friction here results because the societal value is not reflected in the health plan operations.”

As we’ve seen over the tumultuous years of Obamacare, the way we subsidize health care is not likely to change any time soon. But as Sanger-Katz notes, the hep C crisis may soon wane. New, effective drugs are being developed to compete with Sovaldi, and competition generally drives down a drug’s price.

And demand for Sovaldi and its competitors also should diminish as the untreated population dwindles.

For this issue, it seems, time might be one of the best healers. If only people could afford the luxury of time.

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