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Reality Check for AHIP: Competition Driving Down Costs for Hepatitis C Meds

September 11, 2015
Yesterday at a House Judiciary Committee hearing on competition in the healthcare marketplace, AHIP Executive Vice President Daniel Durham took the occasion to bemoan what he termed “monopoly pricing” in the pharmaceutical industry. He proceeded to cite the cost of two new specialty medicines for Hepatitis C, Gilead Sciences’ Sovaldi and Harvoni, as a “case study” of that problematic monopoly pricing. Durham’s analysis suffers from a particularly egregious flaw: Gilead and its products do not enjoy a monopoly among the new Hepatitis C drugs, and competition among manufacturers has led to steep discounts as companies vie for market share.

Indeed, even the New York Times Editorial Board has conceded that “competitive market forces and hard-nosed bargaining” make these “tremendously effective” new hepatitis C medicines not just more accessible to patients in need – but also offer tremendous value to the U.S. health care system. In fact, private payers frequently receive negotiated discounts of 40 percent or more off the widely-cited “list price” for new hepatitis C drugs. That’s the marketplace at work.

While Durham acknowledged that “innovations and breakthroughs in the pharmaceutical field are leading to promising new treatments for serious and life-threatening diseases,” he fails to appreciate just how revolutionary today’s next-generation Hepatitis C drugs are and the difference they are making in patients’ lives, with cure rates of over 90 percent.

In his testimony, Durham also discussed the growth in spending on specialty medicines and the impact that will have on future costs in government programs and the private marketplace. What he didn’t mention is that prescription medicines account for only about 10 percent of overall healthcare expenditures – the same percentage as in 1960. What’s more, that figure is projected by government actuaries to remain stable for at least the next decade. As a point of comparison, private insurers spent about as much in 2013 on administrative costs as on drugs. Over the next decade, the US will spend more than three times the amount on hospital care as on drugs.

It’s also important to note the savings which the use of innovative medicines can bring to other areas of the healthcare system, reducing the need for expensive hospital, emergency room, and long-term care. This link is so strong that in 2012 the Congressional Budget Office revised its methodology for estimating the financial impact of legislation affecting the utilization of prescription drugs. The CBO concluded that a 1 percent increase in the number of prescriptions filled will result in a .20 percent decrease in medical spending for the Medicare population as a whole, and they noted that studies of specific populations often find even larger savings.

Another witness at today’s hearing, Dr. Scott Gottlieb of the American Enterprise Institute, spoke in his opening statement about the savings which oncology drugs are providing to other areas of the healthcare system. In a related article, Dr. Gottlieb wrote, “Cancer treatments that used to make patients very sick and require costly hospitalizations have been replaced with targeted drugs that can allow patients to be more easily treated at home.” These drugs, while costly, have resulted in a shift from more-expensive inpatient care to outpatient care for many oncology patients, “leaving the proportion of overall spending on cancer care largely flat.”

That can pose a problem for patients, as “most insurance plans cover hospital admissions far better than they cover care delivered in the community, especially specialty drugs. To realize the savings that come with shifting care out of acute facilities and into homes, this incongruity in how insurance schemes are structured must be fixed.”

We share Dr. Gottlieb’s concerns with the cost sharing requirements for specialty drugs that insurers have been imposing on patients. The insurance industry’s recent expansion of the use of specialty tier cost-sharing, in which patients must pay a relatively high percentage of their drug costs rather than a flat co-payment, can cost patients thousands of dollars out of pocket and in effect limit their access to essential medicines.

The biotechnology industry is doing its job by continuing to bring innovative life-saving and life-enhancing treatments to patients each year. It’s time for the insurance industry to own up to their job and ensure that patients may continue to use these medicines at an out-of-pocket cost that makes them truly accessible.