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The Impact of Solvadi

By August 11, 2014Commentary

Hepatitis C is a disease which can lie relatively dormant for years, but when it is active, it often leads to death and causes great misery for years.  There have not been significantly effective therapies and those that were used often had extensive side effects.  As the genetic revolution proceeded, a new generation of designer drugs is being developed and the first of those to come to market was Solvadi, produced by Gilead.  The drug is a dramatic improvement in the treatment of Hepatitis C, often completely clearing the virus from the body and in essence curing the patients.  But the price is equally dramatic, about $84,000 for a 12 week course of treatment.  You might not think of the Medicare population as being particularly afflicted with the disease, but about 270,000 of the 3.2 million Americans with Hepatitis C are covered by Part D of Medicare.  A Milliman report estimates the impact on Part D plans of covering Solvadi, which gives you a sense of why the commercial and Medicaid payers are so distressed over the cost effects of covering the drug.   (Milliman Report)    Milliman concludes that Solvadi will cause a $100 to $200 increase in Part D spending per beneficiary per year, for a total of $2.9 to $5.8 billion or 6% to 11%.  Beneficiaries will also see cost increases, about $17 to $33 per beneficiary in annual premiums, or 4.3% to 8.6%.  The range is high because of uncertainty about how many patients will be treated.  This is from one drug or class of drugs.  This example helps explain why there is so much concern about the impact of specialty drugs, which make up the bulk of the new drug pipeline.  The prices are breathtaking.  Now Solvadi is a great product, with overwhelmingly better outcomes.  And its curative effect almost certainly saves substantial health spending that otherwise would have occurred.  It is hard not to wonder, however, if Gilead could not have gotten by with a lower price.  The company is public and reviewing its financial reports demonstrates that it likely has already reaped profits several times the cost of developing the product.  Competing therapies, potentially as efficacious, are coming to market, but the history of multiple branded drug products for the same therapy is that there is little competition on price.  The drug companies are very good at, apparently implicitly, understanding that their mutual welfare depends on not using price as a weapon.  As Medicare, Medicaid and other payers feel the pain, it is hard not to imagine that there will be legislative or regulatory action.

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