John LaMattina has a good post about Gilead, their HCV drug Sovaldi, and the price that the company is charging. Most readers here will be familiar with the situation: Sovaldi has a very high cure rate for hepatitis C, but in the US it costs $84,000 per patient. Insurance companies, in some cases, are pushing back at that price, but LaMattina says to run the numbers, in a question to the head of the insurance trade association:
Sovaldi is a drug that cures hepatitis C. It actually SAVES the healthcare system money in that it will prevent patients from dying from liver cancer, cirrhosis and liver failure. Liver transplants alone can cost $300,000 and then patients must take anti-rejection drugs that cost $40,000 per year for the rest of their lives. The price of Sovaldi, while high now, will drop, first when competitive drugs in late stage development reach the market and then when the drug is generic. Given all of this, what price for Sovaldi would have been acceptable to you – $60,000, $40,000, $10,000? What price are you willing to pay for innovation?
He didn’t get an answer to that one, as you can well imagine. But it’s a worthwhile question. There are, I’m sure, hepatitis C patients who die of other things before they ever start costing the kinds of money that LaMattina correctly cites for liver transplants. I don’t have those figures, but if anyone does, it’s the insurance companies, and they may believe that Sovaldi is still not cost-effective. Or (and these are not mutually exclusive explanations) they may be pushing back because that’s what they feel they have to do – that otherwise all sorts of companies will push up prices ever more than they do already.
This is just another illustration of the walls that are closing in on the whole drug-discovery business – fewer drugs, higher costs to develop them, higher drug prices, more pushback from the payers. It’s been clear for a long time that this can’t go on forever, but what might replace it isn’t clear (and probably won’t be until the situation gets much tighter). I say that because although drug prices are surely going up, the insurance companies are still paying out. They complain, but they pay. We’ll know that the real crisis is at hand when a new drug gets flatly rejected for reimbursement by everyone involved. But will that ever happen in quite that way? Keep in mind that drug companies carefully set their own prices according to what they think the market will bear. Gilead surely knew that their price for Sovaldi would be unpopular. But they probably also figured that it would hold.
Pretty much every other industry does this sort of thing, but Health Care Is Different, as always. I had a crack at explaining why I think that is here: in short, we think about health expenses differently than we think about almost any other expense, and I don’t think that’s ever going to change. But drug prices will continue to test the limits of the insurance companies to write the checks, as long as those checks keep getting written.