High drug costs prompt calls for government price controls

Washington Watch

Sovaldi, a new drug, which has been hailed as a breakthrough treatment for the 3.2 million Americans infected with hepatitis C, costs $1,000 a pill. While it is highly effective and has fewer side effects and takes less time than older therapies, it costs $84,000 for a typical patient.

But lawmakers want to know why the U.S. price is much higher than in other countries, as well as previously estimated in the U.S. In a letter sent recently, two U.S. senators, Finance Chairman Ron Wyden, D-Ore., and Sen. Charles Grassley, R-Ia., asked Gilead Sciences, the drug’s maker, to provide detailed pricing information on the new drug. Their request coincided with Gilead’s reported record sales of $5.7 billion in the first six months of the year.

Pharmasset, the drug’s original developer, said the price of treatment would be $36,000, the senators wrote, citing documents filed with the Securities and Exchange Commission. Gilead Sciences acquired Pharmasset in 2012 for $11 billion. Sovaldi sales could hit around $8 billion this year, analysts estimated, which would make it one of the top-selling pharmaceutical drugs worldwide.

“Given the impact Sovaldi’s cost will have on Medicare, Medicaid and other federal spending, we need a better understanding of how your company arrived at the price for this drug,” the lawmakers wrote.

The letter noted that Sovaldi is offered at steep discounts in some other countries. For example, it can be up to 99 percent cheaper in Egypt than in the United States, the Wall Street Journal reported, and in Europe the cost is about two-thirds the price that it is in the United States.

While the lawmakers are awaiting answers, two advocacy groups, Medicare Rights Center and Social Security Watch, released a report highlighting the high cost of Sovaldi to push for legislation to impose drug price controls.

They want Congress to allow Medicare to use its size and clout to negotiate drug prices, the way the Veterans Administration and Medicaid does. Medicare is currently prohibited by law from negotiating bulk discounts.

“We could save money, lower the deficit and not ask seniors to pay more,” argues retiring Rep. Henry Waxman, D-Calif., a long-standing drug industry critic. “The only opposition is from drug companies because they will make a little less money if they have someone negotiating prices with them,” he told Kaiser Health News recently.

The fight over Sovaldi’s cost is already causing consternation for health insurers and state Medicaid directors, among others, who have many patients needing the drug, but limited dollars to pay for it. The biggest problem is in the prison system because it has a disproportionate share of hepatitis C patients. The blood-borne disease is most frequently transmitted through needles shared by intravenous drug users. The infection can cause liver damage, cirrhosis and cancer.

In 2009, in order to get the Affordable Care bill through Congress, lawmakers dropped a key provision that would have allowed Medicare to negotiate drug prices. The provision, included in the president’s original plan, could have saved Medicare billions of dollars. But it was dropped as a way of getting the powerful pharmaceutical industry aboard in support of the health care reform legislation.

The president’s initial plan would have instituted a public health insurance program, which would have allowed the federal government, because of its size, to have considerable negotiating power to draw down drug prices. But that never became part of the final legislation. Ignoring the more than 50 times the Republican-controlled House of Representatives has voted to roll back or kill Obamacare altogether, the two advocacy groups are trying to get Medicare the ability to negotiate discounted drug prices.

The pharmaceutical industry has long opposed price controls or allowing the government to negotiate for Medicare drug prices. Imposing price controls on Medicare could hurt seniors by altering “the competitive nature of the program,” and “could increase beneficiary premiums, cause job loss and reduce incentives for innovation,” argues Robert Zirkelbach of the drug lobby, Pharmaceutical Research and Manufacturers of America.

Nonetheless, the Medicare Rights Center and Social Security Works, in their new report, suggest four ways Medicare could save on drug costs – all of which are controversial and come with strong adversaries.

The advocates are pushing for legislation introduced last year by Waxman in the House of Representatives and by Sen. Jay Rockefeller, D-W.V., that would require drug makers to offer discounts similar to those they make in the Medicaid program, for people who are enrolled in that program as well as in Medicare, often called the “dual eligibles.”

Before Medicare prescription drug benefits existed, the federal government benefited from discounts on prescription meds for those covered by both Medicare and Medicaid. Bringing back this “dual eligibles” discount could lead to $141.2 billion in total Medicare savings over 10 years, according to the report.

Another recommendation the advocates are pushing is to allow Medicare to create its own “public” drug insurance plan that could directly negotiate drug prices – the very provision that was dropped from the original Obamacare proposal sent out by the White House. Allowing the Medicare program to negotiate drug prices could significantly cut costs over time – $20 billion over 10 years, according to the report.

The two groups also are pushing to get bigger discounts from manufacturers to eliminate the Medicare Part D “doughnut hole” – the period in which enrollees pay the full cost of their drugs – in 2016 instead of 2020, as the Affordable Care Act mandates.

The Medicare Rights Center and the Social Security Works groups also recommend reducing the reimbursement to doctors, hospitals and others who administer some Medicare drugs from 6 percent over the sales price to 3 percent. Doctors and oncology centers oppose cutting reimbursements, arguing that the additional money helps them pay for office overhead, staff and patient services.

For more details on the report: http://www.medicarerights.org/pdf/drug-savings-brief-july-2014.pdf.

Contributing to this report were Kaiser Health News, the Wall Street Journal, the New York Times and the Los Angeles Times.