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28Jul/140

A Free-Market Intrusion into Health Care

» Washington Post: The drug that’s forcing America’s most important – and uncomfortable – health-care debate

Months before Gilead Sciences’ breakthrough hepatitis C treatment hit the market, Oregon Medicaid official Tom Burns started worrying about how the state could afford to cover every enrollee infected with the disease. He figured the cost might even reach $36,000 per patient.

Then the price for the drug was released last December: $84,000 for a 12-week treatment course.

At that price, the state would have to spend $360 million to provide its Medicaid beneficiaries with the drug called Sovaldi, just slightly less than the $377 million the Oregon Medicaid program spent on all prescription drugs for about 600,000 members in 2013. It potentially would be a backbreaker.

It's not just Oregon. Having watched many of the interim hearings going on with the Texas Lege, we're seeing references to the drug's impact on costs all over the place. The Employee Retirement System highlighted the impact on their health care coverage costs by noting that their costs for all "compound drugs" rose from $660k in 2009 to $31.3 million in 2014. UTMB-Galveston, in pointing out how their pharmacy costs were similarly impacted, noted that while Hepatitis C prevalence is somewhere around 1-1.5% in the free world, it turns up in about 30% of the prison inmates that it sees.

The response by the Health and Human Services Commission was to ask Medicaid to cover the costs (alas - EXPANSION!). That was without luck, as it was suggested by the Medicaid board that Texas do what "other reputable groups were recommending." Which is what agencies like ERS have chosen to do: limit drugs like Sovaldi by requiring approval on a patient-by-patient basis.

I think its safe to say we'll be hearing more about the drug and others like it during the next legislative session. But the cost factors that are pushing state-level health care costs into the red are greater than just one drug. Still, it's always good sporting fun to see states that deny Medicaid expansion under 'evil Obamacare' turn to Medicaid to cover costs associated with drugs like Sovaldi. But it's also an interesting case study anytime you have a hyper-expensive drug that's incredibly effective in a field full of low- and reasonably-priced drugs that haven't proven effective. The current bet to resolve this seems to be over whether newer drugs will enter the market and drive costs down, or whether they'll engage in "shadow pricing" - setting their price point at a premium on a similar basis to Sovaldi. I don't think those two options are exclusive of one another (say, if a new entrant sets their cost at $40-50,000). But even more worth watching is to see the so-called conservative reaction to a drug being priced at something that at least mimics free-market pricing practices.

Related:
» Wonkblog: Why Sovaldi took off: Previous treatments were terrible
» NY Times: Gilead’s Hepatitis C Drug, Sovaldi, Is on Pace to Become a Blockbuster
» Forbes: Politicizing Gilead's Research And Development Costs For Sovaldi Is A Reckless And Dangerous Misadventure

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