Of Gilead and the Insurers

Gilead Sciences is in a dispute with insurers about reimbursement for its hepatitis C drugs, solvaldi and harvoni. Complex issue, but fundamentally it is a dispute bewteen some large corporations about very large sums of money, and it is playing out using the lives of individual patients as pawns. That is upsetting.

How did we get here? Health insurance is required to cover medical procedures that are “standard of care”, and the Affordable Care Act requires health insurance policies to provide prescription drug coverage. When people shop for insurance, the prescription co-pay is often an important consideration. But too may insurance policies have started defining different tiers of drugs and playing games with the fine print. Tier 1 may be standard low cost generics. When the insurance company advertises “$5 co-pay on prescriptions” these are the prescriptions that they are talking about. But recently introduced “exotic” drugs are put in Tier 4, “specialty drugs” and for these the co-pay may be 50%. This creates a conflict. The insurance is supposed to cover standard of care, but if standard of care involves a very expensive drug the insurance is suddenly sticking the patient with half the cost, a cost that may be unaffordable for many patients.

Drug companies have responded to this situation by creating drug assistance programs. These are foundations that will help patients for whom co-payments would create a real financial hardship by covering the cost of these co-payments so that the patient can get the medication. Some insurance companies have cut back coverage forcing more patients to apply to these assistance programs. The current dispute is a result of Gilead scaling back its drug assistance program because Gilead feels that the insurance companies have been abusing the program.

Is not the real problem that Gilead is just charging way too much for the drug? Value based pricing says no. Sovaldi and havorni are remarkable drugs. They are very effective, they cure an illness affecting 3% of the world’s population, and they do so quickly and with few side effects. Untreated, 75 to 85% of HCV patients progress to chronic HCV infection, and about 10% of these patients develop advanced cirrhosis. Prior to sovaldi and harvoni, care for hepatitis C infections was costing $7B per year and roughly 15,000 people a year were dying from the disease. Economists estimate that the value of a qality adjusted life year (QALY) is $50,000. If a cancer drug extends overall survival from an average of 12 months to an average of 13 months, it is adding an average of 0.083 QALY and value based pricing would set the fair price at $4,167. Sovaldi and havorni give HCV patients on average several years of good quality additional life. Value based pricing says that $84k for a course of treatment is a real bargain. The fact that these drugs will save the healthcare system an additonal $7B a year that would otherwise have been spent caring for HCV patients is just dressing on the cake.

Good products create demand. Before the iPhone, no one spent much money on smartphones. The iPhone is a good product, and when it hit the market, people started spending a lot of money on smartphones. Sovaldi and harvoni are safe and effective treatments for a bad disease. They are very good products. It is not surprising that there is a great deal of demand for these treatments. 140,000 people were treated with sovaldi in 2014 producing about $11B in revenue for Gilead. 

Is it a bad thing that Gilead is making so much money? Let’s put this into perspective. 15,000 Americans die as a result of HCV infection every year. That is about 1 death every 35 minutes. In the time it took me to write this post, several people died of HCV. It costs a lot of money to bring a drug to market. Maybe not the $1B estimated by the Tufts group, but still, a lot of money. Patents and intellectual property laws reward investors in a successful drug handsomely, and there is no question that this makes it easier to raise funds for future drug development. If it had taken Gilead 6 more months to raise the money needed to bring these drugs to market, that would have cost 7,500 lives.

What do I think should be done? Insurance companies need to stop playing games with drug tiers. If an insurer advertises that the co-pay for a prescription drug is $5 and the drug is standard of care, the patient should only have to make a co-payment of $5. Sovaldi and havorni are standard of care for HCV, they are fairly priced based on the value that they provide and patients should not have to pay exorbitant co-pays to get them. Frankly, the insurers should be grateful to Gilead because the company has developed drugs that improve the lives of their patients enhancing the value of the health insurance that they sell, and these drugs will save the insurers billions of dollars in future expenses.

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