High cost of hepatitis drug reflects a broken pricing system

Jane Blumenfeld isn’t sure when or how she contracted hepatitis C. All she knows is that back in 2000, when she tried to donate blood, the lab told her she had it.

After that she shared the nightmare of millions of hepatitis C victims.

Hoping to stave off the disease’s most dire outcomes — progressive liver damage, liver cancer or a liver transplant — she underwent what until recently was the preferred therapy. That involved interferon treatment, which had severe side effects and didn’t work in as many as one-third of all cases. “Those were the most debilitating eight weeks of my life,” she told me.

It didn’t work. After the treatment, her viral load was higher than before.

So Blumenfeld, 64, a retired aide to state and Los Angeles city officials, was relieved when a new drug, Harvoni, appeared on the scene last year. Its side effects are minimal, and its cure rate has been measured as high as 99%.

Here’s the problem: The list price of the one-pill-a-day, 12-week treatment is nearly $100,000 and Blumenfeld’s health insurer, Anthem Blue Cross, refuses to pay it.

Although the medical community regards the drug as the standard of care for almost all hepatitis C sufferers and it was prescribed by her liver specialist, Anthem designates the drug as “medically necessary” only for those with advanced liver disease. In a lawsuit filed against Anthem last month in Los Angeles state court, Blumenfeld contends that Anthem is interfering with her doctor’s judgment just to save money and “increase (its) profits.”

“I have a chance illness for which there’s a 100% cure,” she says. “How Anthem can determine that it’s not medically necessary for me is mind-boggling.”

During months of correspondence, Anthem has not explained its clinical reasoning for denying Harvoni for all but those with the most severe liver damage, according to her lawsuit. In a statement provided to The Times, the insurer says that in general, based on “the concerns and relative benefits and harms, our benefits support coverage for members with more advanced stages of liver disease and those at highest risk for liver complications.”

But it’s really no mystery. Anthem is responding to the stratospheric price set for the drug by its manufacturer, the Bay Area firm Gilead Sciences. Gilead’s pricing has forced private and public healthcare providers to engage in outright rationing, reserving coverage of the drug only for patients with the most advanced disease.

“The goal-line-stand approach of parceling out this treatment is not optimal from a public health perspective,” says Peter Bach, director of the Center for Health Policy and Outcomes at New York’s Memorial Sloan Kettering Cancer Center, a leading critic of the pricing of cancer and other specialty drugs. But Bach and other experts observe that insurers and public healthcare agencies consider the high pricing necessary for budgetary reasons. Without restrictions, the cost of hepatitis C drugs alone could lead to insurance price increases and undermine the ability of public healthcare agencies to provide services to millions of clients.

The prices reflect potential demand and what Gilead says is the value of reducing the cost of liver disease in untreated patients. The latter produces “significant savings to the healthcare system over the long term,” according to a statement provided by Gilead.

But critics say that’s a self-serving rationalization. “These prices are determined through a profit-maximizing algorithm, and whatever rationale there is for them is fit to the price,” Bach observes. An estimated 3 million Americans carry hepatitis C, which can be spread through unsterile needles or transfusions of contaminated blood, as was common before screening was introduced in 1992.

Gilead initially priced the hepatitis C drug Sovaldi at about $84,000 for a 12-week treatment, or about $1,000 per daily pill. That was more than twice the $36,000 the drug’s developer, Pharmasset, had planned to charge before that company was acquired by Gilead in 2011 for $11 billion. It was also vastly out of line with Pharmasset’s research and development costs, which the Senate Finance Committee estimated at less than $63 million in 2009-2011.

Harvoni, a combination of Sovaldi and another drug, appears to be more effective than Sovaldi alone. But it’s also more expensive.

The drugs’ immediate success appeared to justify Gilead’s purchase price for Pharmasset. Sovaldi brought Gilead a remarkable $10.3 billion in 2014 sales. Harvoni, which was introduced late in the year, added $2.1 billion. Sales of the two products in the first quarter of 2015 came to $4.6 billion. Gilead’s gross profit margin in 2014, mostly from the two drugs, was 85%.

But the pushback quickly surfaced. Steve Miller, chief medical officer of pharmacy management firm Express Scripts, called Gilead’s pricing of Sovaldi an act of “unmitigated gall.” Other countries are less indulgent about pharmaceutical prices than the U.S., he observed — in Canada and Britain, the price of a full Sovaldi treatment is $55,000, and in Egypt only $900.

That’s because U.S. regulations protect drugmakers from competition for years and hamper the quest for discounts. Medicare, the nation’s largest single pharmaceutical buyer, is forbidden by law to negotiate prices. Federal law, moreover, grants state Medicaid programs the right to the lowest drug prices negotiated by private buyers, which gives drug companies an incentive to resist granting big discounts to private insurers. Meanwhile, drugmakers advertise their products directly to consumers, driving up demand — as Gilead has done for Harvoni.

“We like to think we have a free market system [in drug pricing], but it really isn’t,” says Murray Ross, director of the Kaiser Permanente Institute for Health Policy in Oakland. “Manufacturers have substantial pricing power, and buyers have very little ability to avoid that. You can negotiate down from the manufacturer’s suggested retail price, but you’re still left with a large number.”

A study for California officials by the nonprofit Institute for Clinical and Economic Review, which advises public agencies about healthcare technologies, found that treatments such as Harvoni would yield real health and economic benefits in the state over 20 years — reducing cirrhosis six-fold and liver cancer by more than half, and cutting the need for liver transplants. But it still found that the savings over time didn’t compensate for the cost at the quoted prices.

In a 2014 study, the institute found that if only half of the estimated hepatitis C sufferers in California sought treatment with Sovaldi, that would raise drug expenditures in the state by $22 billion in a single year. Even after 20 years, the gains from better health would offset only about three-quarters of the initial outlay. To be truly cost-effective, ICER says, the price would have be cut by half to two-thirds.

Late last year — responding to the public outcry over its prices and the introduction of a competing drug, Gilead began negotiating discounts for public agencies and private insurers of up to nearly 50% to “encourage wider access,” a Gilead executive told investors in February.

Anthem announced in January that it had reached an agreement with Gilead “effectively lowering” its treatment costs for hepatitis C. But there have been no signs yet that it is relaxing its standards for approving Harvoni. Blumenfeld’s most recent denial letter from Anthem was dated April 15.

If there’s an upside to the pricing of hepatitis C drugs, it’s that it has launched a national discussion about extraordinary drug prices. “There’s been a long tradition of the medical profession trying to step out of the cost and pricing discussion,” Ross says. “This drug has forced the hand because of where the prices are.”

There’s more to come, with high-priced drugs for cancer, rheumatoid arthritis, and other conditions filling the pharmaceutical pipeline. America’s broken system of drug pricing is going to have to be fixed, or it will bankrupt us all.

Michael Hiltzik’s column appears every Sunday. Read his blog, the Economy Hub, every day at latimes.com/business/hiltzik, reach him at mhiltzik@latimes.com, check out facebook.com/hiltzik and follow @hiltzikm on Twitter.