What Price Innovation?

Jun 16, 2014

Jill Wechsler
Americans want new life-saving medicines that cure serious conditions and are affordable, as well as safe and effective. They still prefer market competition to accomplish this, recognizing that government-funded research, together with appropriate regulatory oversight, has created a public-private collaborative approach that has made the U.S. the predominant source of cutting-edge biopharmaceutical innovation in the world. Genetic discoveries and new technologies continue to spur new research, raising optimism that more new drugs will emerge, able to prevent and cure many serious health conditions afflicting millions of patients in all regions. Yet, changing markets and public funding pressures require new ways for U.S. health programs and private payers to evaluate the cost of increasingly expensive innovation.

These issues have moved to center stage due to mounting concern over the high price for Sovaldi (sofosbuvir), Gilead's new therapy for hepatitis C virus that generated a record-breaking $2.3 billion in revenues for its first quarter. Johnson & Johnson's Janssen Therapeutics' new hepatitis C treatment, Olysio, costs $66,000 for 12-week treatment, slightly less than the $88,000 for Sovaldi. But because millions of patients with hepatitis C may be candidates for treatment, total outlays will soar more. Payers fear, moreover, that coverage decisions for Solvaldi will set the stage for similar action on a wave of important new treatments for serious chronic conditions such as Alzheimer's disease and diabetes; a new class of drugs for certain high cholesterol patients may have an even bigger cost impact than the new hepatitis treatments.

Oncologists face related issues, as the cost of branded cancer therapies has increased to $10,000 a month from $5,000 a decade ago, according to a report from the IMS Institute for Healthcare Informatics. The American Society of Clinical Oncology has published targets for "meaningful" clinical trial outcomes to encourage patients and physicians to look closely at treatment value. ASCO also has proposed a bundled payment system to simplify reimbursement and equalize financial incentives for prescribing oral versus injectible cancer drugs.

Pharmacy benefit managers (PBMs) and health plans are looking to manage rising drug expenditures by discouraging inappropriate prescribing, encouraging adherence by patients likely to benefit, and promoting approval of similar, competing drugs by the FDA to generate competition able to drive down prices.

Steve Miller, chief medical officer at Express Scripts, acknowledges that Sovaldi is "a much better drug" than previous hepatitis C therapies, which had serious side effects and required months of treatment. But the potential outlay for the drug is unprecedented, he pointed out at the recent Pharmaceutical Care Management Association (PCMA) policy forum. "Innovation doesn't have to cost more," he said, citing cost-cutting discoveries in other markets and countering the usual pharma claim that costly new medicines reduce downstream provider outlays.

Miller also complained that Sovaldi costs less in other countries, putting U.S. companies at a competitive disadvantage in the global marketplace. A $900 price tag in Egypt, Miller noted, creates a strong case for widespread "medical tourism."

The situation is even more dire for state Medicaid programs, which often have open formularies that cover most approved drugs. While new, effective cures for disease are exciting, noted Matt Salo, executive director of the National Association of Medicaid Directors, states are "in a panic" about how to pay for the 4-5 million patients in the U.S. with hepatitis C, many covered by Medicaid. Colorado and Pennsylvania have said they will limit Sovaldi to patients with advanced liver disease, and delay treatment for others. The Department of Veterans Affairs and the California Technology Assessment Forum take a similar position, despite charges of "rationing" from patient advocates.

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