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An $84,000 hepatitis drug is giving states and insurers a major headache

A Gilead Sciences researcher working on a hepatitis C treatment. (David Paul Morris)

The new hepatitis C drug Sovaldi is being hailed as a potential breakthrough treatment for a disease that affects about 3.2 million Americans. It’s also vexing insurers, who worry about the drug’s $1,000-a-day-price tag. (The full 12-week course of treatment runs about $84,000).

One set of insurers is particularly worried about the cost: Medicaid managed care plans covering patients in the low-income health-care program. Medicaid health plans figure anywhere between 20 percent and 30 percent of those infected with the liver-attacking disease are in Medicaid.

The experience of Sovaldi plays into the larger debate about the cost of health care, who ultimately pays and how to deal with available resources. The Medicaid plans aren't publicly recommending how states should approach the new drug — they say each state's Medicaid program will ultimately handle this differently. But expect this issue will continue to play out in a big way over the next few months.

Many of those infected with hepatitis C don’t even know they have the disease, according to the Centers for Disease Control and Prevention, but that could change as millions of people join expanded Medicaid programs starting this year under the Affordable Care Act. The disease, which is most commonly spread through sharing needles and other equipment to inject drugs, kills about 15,000 people every year, the CDC says. Between 75 percent and 85 percent of those infected go on to develop a chronic infection — of those, between 60 percent and 70 percent develop chronic liver disease.

Gilead Sciences’ Sovaldi has a 90 percent cure rate for newly infected patients – much better than previously available treatments – and its early sales  record has been even more impressive. The company last week said it sold $2.3 billion worth of the drug in its first full quarter since FDA approval, which was reportedly about $1 billion more than analysts had predicted.

Medicaid managed care plans, who voiced their concerns in a Monday letter to state Medicaid directors,  say they’re having a particularly tough time dealing with the drug. One reason is the FDA approved the drug in December, after 2014 rates for managed care plans had been set. The insurers say they’re now dealing with unexpected costs this year, and they don’t know who should pay for the drug and how. And they’re worried about how this affects rates for 2015.

Jeff Myers, president and chief executive of the Medicaid Health Plans of America, said the Sovaldi experience has been especially challenging because it's an expensive specialty drug that has the potential to reach a large population of beneficiaries.

"It's just a completely different kettle of fish than anything we've faced before," he said in an interview.

States are  in different stages of figuring out how to handle the drug. A recent letter from senior House Democrats questioning the cost of the drug pointed out that Medicaid programs in Colorado and Pennsylvania have limited who can receive the drug. Other states, Myers said, are looking at carving out the costs of the treatment and managing the disease, while others are looking at just covering the cost of managing the disease without paying for the drug itself. Others are looking at ways to build in the drug's cost into rates.

Myers said the Medicaid plans, which covered about 30 million beneficiaries in 2011, also worry about fronting the costs for an expensive drug for a population without later seeing the benefit of having a healthier population.

"What this drug is asking is that one plan pay the entire cost for the use, and then the benefit accrues some day, which in the future is either to another plan or a state in which the beneficiary lives," Myers said.

Correction: This post has been updated with the correct spelling for Jeff Myers.