Insurers scrutinize drug costs after $84,000 Sovaldi surprise
Insurers scrutinize drug costs after $84,000 Sovaldi surprise
By Caroline Humer and Deena Beasley
NEW YORK/LOS ANGELES (Reuters) - Shocked by the rapid
adoption of a new $84,000 hepatitis C treatment, U.S. health
insurers are trying to make sure they aren't blindsided by other
drugs being developed and are looking for ways to limit their
use from the day they are launched.
Manufacturer Gilead Sciences Inc says 30,000 people have
received hepatitis drug Sovaldi so far, and that sales hit a
record-breaking $2.3 billion within a few months. The treatment,
typically 84 pills taken over 12 weeks, completely cures the
disease in more than 90% of patients.
As many as 3.2 million Americans are infected by hepatitis
C, and the cost of giving most of them Sovaldi would surpass
$200 billion. Some insurers have already put conditions on who
can get the drug, and states including California and Texas have
slowed or put treatment on hold while they study what to do.
Insurers warned that these unforeseen costs will cut 2014
earnings and require rate hikes. Now, at industry conferences,
in conversations with investors, and in private, they are
pushing Gilead's rivals, a group that includes AbbVie Inc, Merck
& Co and Bristol-Myers Squibb Co, to discount their own new
hepatitis C treatments when they come to market starting this
fall. Such a high-profile campaign by insurers before drugs are
even approved is new.
They are also signaling they will restrict who can get
coverage for new cholesterol drugs being developed by Amgen Inc,
Pfizer Inc and a partnership of Regeneron Pharmaceuticals Inc
and Sanofi SA.
By law, insurers cannot deny access to new drugs if they
represent a real improvement for patients, leaving drug
companies with the upper hand in most price discussions. When
comparable competitors, or a generic version is on the market
about a decade later, insurers have room to steer patients away
from the new drugs, and pharmaceutical companies cut prices
steeply and give big discounts.
But insurers have not faced such a highly effective drug
aimed at a widespread disease that is so expensive and so
quickly adopted. The previous record for a drug reaching
blockbuster status was set in 2011, when hepatitis C therapy
Incivek from Vertex Pharmaceuticals raked in $1.56 billion for
the entire year. Sovaldi has sold more in a quarter of the time.
As a result, insurers are taking a harder line on which
patients should get Sovaldi, based on the drug's clinical data.
Sovaldi is "game-changing" for insurers thinking said John
Whang, president of Intelligence Reimbursement, a consulting
firm that helps pharmaceutical companies set prices. The only
way for them to respond is to control the volume of treatment
used, he said.
In a sign of how serious the industry has become, the
largest insurer lobby group last week took Gilead to task at a
"The company in this case is asking for a blank check and
you can't give anyone anymore a blank check because it will blow
up family budgets, state Medicaid budgets, employer costs and
wreak havoc on the federal debt," said Karen Ignagni, president
of America's Health Insurance Plans.
Gilead argues that Sovaldi's price is worth it, since it
will replace even costlier spending on hospital visits and
treatments for cirrhosis or liver failure. It has not budged on
price for the hepatitis C drug, although Gregg Alton, Gilead's
executive vice president for corporate and medical affairs,
acknowledged that insurers are going to start negotiating.
U.S. drug spending reached a record $329 billion in 2013,
driven by a double-digit increase in prices for new cancer, HIV
and hepatitis C therapies. Express Scripts, the nation's largest
pharmacy benefit manager, expects spending on such specialty
drugs to rise an additional 63% from 2014 to 2016, driven by an
1,800% increase in hepatitis C drug costs.
Successful drugs can cost $1 billion to bring to market,
including spending on research, development and marketing.
Supporters of drug companies say big advances necessitate high
"We are the only country in the world that pays exorbitant
prices to provide innovation first here, but that's what we need
and that's what the American people have come to expect," said
Richard Burr, a Republican Senator from North Carolina who has
spent decades working on bipartisan health bills.
Hepatitis C complications can take years to develop, which
gives insurers and government health agencies leeway to
determine when treatment should start.
Many insurers, which manage most of the 150 million people
covered by employer-based plans as well as some government
Medicare and Medicaid plans, require patients to get
authorization before using Sovaldi. Some limit the drug to
patients with a certain genetic type of the disease.
Express Scripts has been pushing for all but the sickest
patients to wait for new therapies that are expected to compete
head-to-head with Sovaldi late this year. It is also pressing
rival manufacturers for low prices, hoping to avoid the shock of
Sovaldi, which sped through trials and regulatory approval and
caught insurers by surprise.
"In this particular case there was very little discussion
pre-launch. But other companies are now already discussing
potential future price points in response," said Steve Miller,
Express Scripts Chief Medical Officer.
AbbVie and Merck both declined to comment on whether
discussions with insurers about their new drugs were underway.
Gilead, which says it discussed the Sovaldi launch with
insurers, is in talks over which patients should be treated with
its next hepatitis C pill. That will be a two-drug combination
that will eliminate the need for a companion drug that nearly
doubles Sovaldi's current total cost.
Industry analysts expect the company will price it closer to
Sovaldi's $84,000 than to the $150,000 cost of a combination of
Sovaldi and a Johnson & Johnson drug that some doctors
Mick Kolassa, chairman of pricing consultancy Medical
Marketing Economics, in Oxford, Mississippi, who advises pharma
companies, says insurers are being aggressive. "We are seeing
some of them step up and flex their muscles," he said.
CHOLESTEROL DRUGS IN SIGHT
More scrutiny of new pricing is likely ahead as the country
comes to terms with how it should pay for expensive drugs,
according to John Castellani, Chief Executive Officer of leading
drug industry lobby group Pharmaceutical Research and
Manufacturers of America or PhRMA.
Sovaldi has shown that patients are bearing too much of the
drug's costs because of rising co-payments, co-insurance and
deductibles, he told Reuters, laying the blame on factors
controlled by insurance companies.
But patient advocates are not choosing sides yet, which may
have the effect of giving insurers room for action.
"I think the fault lies with both the for-profit insurers
and the drug companies," said Anne Donnelly, director of
healthcare policy at the San Francisco-based Project Inform,
which advocates for hepatitis C patients. The system has not
changed to reflect the impact of new effective, expensive drugs,
The next big price battle centers on a new class of
cholesterol drugs known as PCSK9 inhibitors, which help the
liver to clear LDL cholesterol from the blood.
Large-scale studies show the new drugs can help patients who
cannot tolerate, or get enough benefit from, the most
widely-used cholesterol drugs, statins. The PCSK9 therapies are
expected to cost thousands of dollars a year, far above the
price of statins sold as generics.
Drugmakers are expected to push for the new medicines to be
used by 7 million to 20 million people, or up to 30% of the 71
million Americans with high cholesterol. Insurers already are
questioning whether the estimates of use are legitimate.
"There is really no need to take these new medications and
spread them out across a larger community of people who will
respond to existing treatments, many of which are generic,"
Aetna Inc's National Medical Director for Pharmacy Policy Ed
Pezalla said in an interview.