How do you pay for a drug that costs $84,000?


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There's a new $84,000 treatment for hepatitis C that's giving new hope to patients. But it's also giving a health-care system strained by limited resources a strong reality check.

Since Gilead Sciences unveiled Sovaldi more than six months ago, its $84,000 price tag has ignited a conversation in the health policy world about how to make life-saving medicines more affordable without hurting drugmakers' incentives to develop the treatments in the first place.

The drug's 90 percent cure rate is by far better than any treatment previously available for hepatitis C patients. However, with more than 3 million people infected with the disease, the potentially huge population of patients who'd benefit from Sovaldi has raised fears about whether the health-care system could bear the cost of treating it.

As longtime health-care advocate John Rother sees it, the Sovaldi issue is a turning point for the health-care system, making it confront the biggest questions: how we pay for drugs, how public health prioritizes treatments, how insurance is designed to make these drugs affordable for patients, and, ultimately, our societal obligation to ensure access to life-saving treatments.

"This is a necessary drug for people who are sick, yet we're allowing the price to impose an incredible barrier to access," said Rother on Tuesday during a panel discussion on specialty drugs hosted by Morning Consult.

What's spooking patient advocates and insurers alike is that Gilead, which racked up an amazing first quarter of Sovaldi sales, has resisted calls to explain why the normal 12-week course of treatment runs $84,000. Those calls grew a little louder on Friday, when the Democratic chairman and a senior Senate Republican on the Finance Committee wrote to the drugmaker asking for a justification of Sovaldi's price.

An executive for PhRMA, the main Washington lobby representing drugmakers, defended the pricing strategy at the Tuesday panel discussion. PhRMA vice president Lori Reilly essentially argued that drug manufacturers have to make money while they can — to recoup research and development costs, to pay for the price of failed efforts to bring other drugs to market, and to guard against eventual competition from other brand-name drugs and generics.

"If you're successful, we're essentially saying we're going to cap your price or create disincentives," Reilly said. "I worry we're sending a message when everyone says they want innovation, but in doing so, we're saying if you do that and you're successful, we're going to create a disincentive."

Still, it seems reasonable to ask how Gilead arrived at its price for Sovaldi, especially when so much of the hepatitis C population is on the government insurance rolls — a large population of those infected with the disease are  enrolled in Medicaid, in prison or increasingly in Medicare. States are already starting to make hard choices about how their Medicaid programs will try to contain costs associated with Sovaldi. On Monday, Oregon advanced consideration of guidelines that would make the drug available only to the absolute sickest Medicaid patients.

By all accounts, Sovaldi is nothing short of revolutionary. But at a time when the health-care system is eying a growing pipeline of specialty drugs that could bring new cures, advocates are worried about the choice drugmakers are presenting — either pay for new cures, or don't expect the manufacturers to take on risky investments.

"We're going to have to figure out some kind of compromise to that," said Matt Salo, executive director of the National Association of Medicaid Directors. "Or what we have is a total blowing up of Medicaid budgets, of state budgets and of basically everything that we do."

Jason Millman covers all things health policy, with a focus on Obamacare implementation. He previously covered health policy for Politico.
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