bills rolled up with pills spilt over around it

This morning on ABC news, famed former Baywatch star Pamela Anderson was beaming as she announced she had been cured of Hepatitis C, relieving her fears that she could die from the disease in 10 years. The savior in this case was Sovaldi, an oral drug that cures virtually everyone who takes it.

But instead of embracing and championing the wonder drug—and its ability to reduce the incidence of liver cancer and liver transplants—many public policy officials have zoned in on the $84,000 price tag for a 12-week course of treatment—or $1,000 per pill. The latest is Massachusetts Attorney General Maura Healey, who has threatened to sue Sovaldi marketer Gilead Sciences to force a price reduction.

Healey’s action heaps attention on the growing cost conundrum facing the United States—how to ensure access to life-saving treatments and allow a reasonable return on investment for drug companies while also keeping drugs affordable and not breaking the bank of healthcare payers. Will the historic reliance on U.S. free-market forces give way to a European-style system where the government sets the pharmaceutical prices it will pay based on cost-effectiveness? (The United Kingdom’s model puts a monetary target on what one life year added is worth, deciding it will pay up to £30,000 in additional cost for each quality-adjusted life year added by a therapy.) The rising chorus of political calls for price controls in the U.S. certainly suggests we are heading for a showdown.

Public and private healthcare payers have longed worried how to pay for the onslaught of high-cost specialty drugs, but Sovaldi ignited the flames like no other drug because of the sheer volume of patients who can benefit from a cure that works more than 90 percent of the time. Gilead, which claims to serve 90 percent of the Hep C-infected market, said this month that about 300,000 of the estimated 4 million people infected with Hep C in the U.S. have been treated with its two pills—Sovaldi and Harvoni—since it launched the drugs in late 2013; its third-quarter 2015 revenue from its U.S. Hep C product portfolio reached $3.2 billion. (Although Harvoni has a higher price tag at around $94,500, many people can benefit from an 8-week course of treatment, at $63,000).

Since many Hep C sufferers are baby boomers, incarcerated or homeless populations, drug therapies have put a particular strain on public healthcare budgets. A 2015 Decision Resources Group Physician & Payer Forum Report revealed that about one-fourth of surveyed Medicaid managed care organizations had lost money in the Medicaid business in the last half of 2014 because of Hep C drug spending, and half were concerned about being able to continue in the Medicaid program. Likewise, Medicare Advantage plans were also concerned about solvency.

What goes unsaid during many of the public debates is that, as with hospital charges, sticker prices on drugs do not always represent what is actually paid as a result of market competition. After the market entry of a competing drug, Viekira Pak from AbbVie, private insurers and large pharmacy benefit managers with market clout were able to secure deep discounts (reportedly more than 45 percent) on Hep C drugs, sometimes in exchange for excluding the competitor’s drug from coverage. Dozens of Medicaid managed care plans also banded together to negotiate discounts. But the price tag remains high enough that these drugs are often reserved for those with advanced liver disease. In addition, many patients obviously do not have access to a good insurance plan, like Pamela Anderson.

We are now in an era when much of drug development is focusing on specialty drugs, particularly those that will cure rare diseases. The prospect of more pharmaceutical budget-busters has accelerated a political push for price control. Some high-profile public officials from New York and California are seeking to force manufacturers to justify their prices by disclosing their research and development and advertising expenses. Even Republican presidential candidate Donald Trump has fanned the flames for the federal government to begin negotiating drug prices for the Medicare program, instead of letting private insurers handle it.

Drug companies and the pharmaceutical industry have been struggling to get across the message that the initial prices are more than offset down the road by avoiding more expensive liver cancer treatments and liver cancer, as well as other expenses. The hope is that once the backlog of Hep C cases is cleared through cures, the expense will die down—sooner rather than later, if we heed a recent study published in JAMA Internal Medicine in November 2015. It found that the Gilead’s Harvoni at its listed price was cost-effective even at early stages – meaning long before liver damage makes transplant a reality – because of its acceptable incremental cost effectiveness ratio.

It’s a safe bet most healthcare payers recognize the value of these lifesaving drugs, but understandably wonder how they can sustain the initial costs without begin crushed financially. The nation cannot afford to put off the discussion of balancing therapies’ cost effectiveness of therapies against the need for rational pricing. Fortunately, Congress has convened sessions to examine pharmaceutical pricing in depth. It’s a good start.

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