Cost of Specialty Drugs Keeps Rising, but Only in America

A drug research outfit has mapped the economic terrain of prescription medicine and concluded that although drug costs for many Americans are falling, the opposite is happening for one segment of the drug-taking population. Patients who require expensive treatments for diseases including cancer and hepatitis C are getting slammed. And it turns out a lot of the extra money goes to subsidize drug companies’ profits that they don’t make on the same drugs sold in other countries.

The report, as analyzed in a New York Times story, confirms the conclusions of two other reports issued earlier this month by major pharmacy benefit managers, which predicted that specialty drug costs would continue to rise.

In addition to the specialty drug information, the IMS Institute for Healthcare Informatics report found that doctor visits, hospital admissions and prescription drug use increased last year among the general U.S. population for the first time in three years. It attributed the increased consumption of health-care services to the improving economy.

But what’s troubling is the deepening chasm between patients with medical conditions that can be treated with inexpensive generic drugs and those with rare or more serious diseases whose treatments are, in many cases, prohibitively expensive. A case in point is Sovaldi, a drug recently proved to treat the hepatitis C virus, which affects more than 3 million Americans.

Sovaldi is a heralded scientific breakthrough, but it costs $1,000 for a daily pill, and $84,000 for the 12 weeks of treatment required to address this serious virus, which can cause life-threatening liver disease and cancer.

Although more than half of all prescriptions cost patients less than $5 last year, nearly 9 in 10 were generic and nearly 1 in 4 carried no out-of-pocket expense at all, the IMS report concluded that people who need expensive drugs paid disproportionately more – fewer than 3 in 100 prescriptions accounted for nearly one-third of all out-of-pocket costs.

Contributing to the sad plight of these often-desperate patients is the profit motive: Drug companies, as The Times notes, increasingly invest in R&D for smaller and more complex diseases as sales of their formerly blockbuster drugs diminish when generic versions become available.

Last year, according to the story, drug companies introduced 36 new drugs, including 10 notable cancer treatments. That’s the most in more than a decade. Pharmaceutical companies started selling 17 drugs that treat so-called “orphan” diseases, or those that affect fewer than 200,000 people nationwide and that, as a result of their small market, are hugely expensive.

Health plans don’t want to shoulder this increase alone, so they’re shifting costs to patients. Last year, nearly 1 in 4 employer-sponsored health plans included specialty drugs in a payment tier for which consumers paid a percentage of the drug cost instead of a set co-payment. In 2006, only 5 in 100 employer plans had such a specialty tier. The trend, say benefit managers, will continue.

No case illustrates the specialty drug problem better than Sovaldi. As reported last week on, lawmakers, insurers, pharmacy benefit managers and patient advocates have expressed outrage at its cost. Even Congress asked Gilead, the drug’s manufacturer, to justify its cost.

As reported by last week, UnitedHealth Group spent $100 million on hepatitis C drugs in only the first three months of the year, underscoring the challenge for all health-care payers in covering Sovaldi.

Gilead says the cost of Sovaldi is justified because it works better and faster than any other treatment. It also says that because Sovaldi is a one-time cure, it’s more cost-effective in the long run because fewer people will need expensive liver transplants or suffer liver cancer.

Whatever excuses it makes, Gilead charges what it wants because it pretty much has a monopoly. Although other hep C drugs are in the works, there won’t be any serious competition for a while. According to, Sovaldi is expected to make $4.2 billion in the U.S. this year, $6.7 billion the next and $7.7 billion in 2016.

And it’s not even the most expensive drug on the market. Some cost as much as $400,000 a year, but they usually treat orphan diseases; hepatitis C affects as many as 150 million worldwide.

Traditional treatments work about half the time, but many patients are still infected even after a year of therapy with interferon injections and ribavirin pills. And they cause serious side effects such as depression, anemia, nausea and fatigue.

Sovaldi can cure as many as 9 in 10 patients in 12 to 24 weeks, and the side effects are relatively mild.

One reason the drug is so expensive, observers suggest, is because Gilead wants to recoup the $11 billion it spent to acquire Pharmasset in 2011, whose assets contributed to the development of Sovaldi. “You have to price one drug for another nine failures,” one analyst said.

Health officials aren’t really interested in that business model, claiming that 25 people can get Medicaid coverage for a whole year for what it costs to treat one patient with Sovaldi.

Private insurers are no less thrilled with the cost. Kaiser Permanente, California’s largest nonprofit health plan, accused Gilead of exploiting vulnerable patients.

Although the 12-week regimen of Sovaldi cost $84,000 in the U.S., it costs $57,000 in the United Kingdom and $66,000 in Germany. In Egypt and other developing countries, the cost is $900.

Why are U.S. residents subsidizing everybody else’s cost?

Because, as explains, unlike most other countries, the U.S. doesn’t regulate drug prices. Politicians, probably swayed by the pharmaceutical industry’s huge donations, buy its argument that regulation would stifle innovation and competition.

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