The Wall Street Journal has an interesting blog post on the pricing strategy for the next round of Hep-C drugs:
Sanford Bernstein analyst Geoff Porges wrote that Gilead left AbbVie “less room to start a price war” than some may have expected. How so? Gilead priced the eight-week regimen at $63,000, which means average pricing for Harvoni would be about $80,000, assuming that as many as 45% of the patients with most common form of the virus use the drug for eight weeks.
This is actually less than what most insurers are now paying for Sovaldi, which costs $84,000 for a 12-week regimen, but must be taken with another drug. This pushes the cost to somewhere between $95,000 or so and $160,000…
As Longman sees it, AbbVie should contemplate a $76,000 price tag – or a 20% discount – for the simple reason that its own hepatitis C treatment, which is expected to win FDA approval shortly, is not as convenient….
Theoretically, the plan may not merely decide they prefer the AbbVie drug, but they mandate it, unless there’s some significant reason a patient can’t take it. If plans are willing to do this, the average cost [for hepatitis C treatment] may fall pretty significantly.” As a result, the cost per patient could fall to below $70,000, on average, …
The price per cure just fell again from $150,000 to $80,000, on average, with significantly less side effects.
Insurers and doctors have been “warehousing” non-critical Hep-C patients for the past couple of months as they knew another round of new drugs would soon be approved. The FDA has approved a Gilead Solvaldi cocktail, and now it looks like another drug from AbbVie is getting ready to be approved. There is an interesting discussion about the difference between cost per treatment which is still remarkably high and cost per cured patient which is falling dramatically. We, as a society should be willing to pay a high cost of treatment if that treatment is very effective. The new Hep-C drugs fall into that category while the older Hep-c regimes were much less expensive per patient but far less effective.
The number needed to treat for good outcomes have declined dramatically. So from a social perspective, we’re probably better off at high cost per treatment than lower cost per far less effective treatment.
Now the interesting thing from the insurance company paper-pusher point of view is the formulary changes that a competitive drug to Sovaldi at a lower price point brings about. We know that the marginal cost of production for a new Hep-C full treatment regime is in the low four digits. Sovaldi had a limited monopoly with no near substitutes so they had free reign rein to name a price and get it. Insurers countered by limiting payments by clinical indicators (severely compromised Hep-C patients without success on other treatments, abstaining from alcohol etc). The existance of a near substitute means insurers can go a preferred pricing route where Drug 1 can have a better cost-share structure from the member point of view compared to Drug 2. That would drive most providers to prescribe mostly Drug 1. It is this ability to somewhat say no that will force pricing down.
The problems are two fold. First, it is not accomodating to individuals whose clinical indicators suggest that Drug 2 is the better choice over the cheaper Drug 1. Secondly, it will remove only a portion of the property rents currently being captured by Gilead, so it is an incomplete answer. As more drugs of the same or better effectiveness and efficiency get approved, and the pool of near subsitutes increases, pricing will decrease a bit more.
currants
Richard, just wanted to say thank you for all these posts. I am vastly better informed now than I was before, even though I haven’t been able to read them all. (And thanks to a 1 yr project on the ACA in 2010-2011, I was already better informed than average.)
Are they all collectable under a single tag? (or maybe under your username–haven’t looked for that.)
Thank you, again.
Richard Mayhew
@currants: Click on the user name Richard Mayhew in the post header, and that will pull up everything that I’ve written (93% healthcare, 4%Kids/Soccer/Open Thread, 3% general political commentary) OR look for tag “Wonkery” as that covers almost everything I’ve written as well.
Joseph Nobles
OT: HBO is going to offer a standalone service over the web in 2015.
http://variety.com/2014/tv/news/hbo-to-launch-over-the-top-service-in-u-s-next-year-1201330592/
Sorry to interrupt.
Roger Moore
High five/low six figures for a single course of treatment still sounds a lot like old fashioned gouging to me.
Villago Delenda Est
I’d like to know how these prices for drug treatments are determined. I’m wondering if the actual “cost” of developing and producing the drug is the motivator, or just plain old fashioned defrauding the public is taking place.
jl
@Roger Moore:
Supposedly, under an optimal patent IP policy, there is no price gouging. The monopoly rents that accrue to the inventor are optimal return for R&D costs that need to be recovered for dynamically efficient investment. The static inefficiency from reduced production is an optimal tradeoff. That is the theory.
Two big ‘buts’ to this. An extreme patents only IP system probably works best when there is highly uncertain demand for the new products to be invented, So patents work OK for things like new electronic consumer gizmos, etc. In that case, just looking at the monopoly rents from a successful product ignores the risk to inventors: for every successful product there are many products that fail, and lose the inventor money AFTER that patent is granted due to uncertain demand for a specific new
But as RM suggests, there is probably much better knowledge of demand for curative infectious disease drugs. Clinicians know who will benefit from treatment, and the system-wide population level infectious disease dynamics, which are roughly know, provide information about what is optimal level of treatment in population that cannot be implemented by decentralized iindividual decision making.
Also:
“As more drugs of the same or better effectiveness and efficiency get approved, and the pool of near subsitutes increases, pricing will decrease a bit more.”
This is a good observation, but it involves another aspect of the US’s current historically extreme patent and IP policy. Many of these follow-on drugs, which have a much lower risk in terms of successful development, can be patented now. Patent protection as a mechanism for dynamic efficiency is less efficient as the probability of a successful R&D effort for product approaches one. In the past, like for example, way back in the dark period of communism in the US, say late 19th century, it was harder to patent follow-up products.
So, many of the follow-on drugs will themselves be patented, so the price drops are smaller than they could be, and may result more in shuffling rents around and reducing social costs of treatment, both now and in the future. Often dozens of follow-on patents are granted after the first drug patent, and how much effective competition results depends on the concentration of this patent thicket among the firms producing the brand name drugs.
Steeplejack (tablet)
@Richard Mayhew:
Sovaldi has “free rein,” not “free reign.”
FlipYrWhig
@Steeplejack (tablet): Yup. The “rein” metaphor is “little restraint,” i.e., you let the horse run. Not “reign” as in “overwhelming power,” i.e., the king does what he wants. Easy to confuse and a similar idea in spirit, but not the idiom, and there’s the reason why.
Gin & Tonic
@Steeplejack (tablet): For you.
Villago Delenda Est
@Steeplejack (tablet): The reign in Spain falls mainly on the pleign.
jl
@jl:
Near end of my comment, I meant to type:
” and may result more in shuffling rents around THAN IN reducing social costs of treatment, both now and in the future. “
Villago Delenda Est
@jl: “Social costs” are not the problems of rentiers. “Social costs” are for the little people to deal with.
? Martin
Just a quick note that the US Budget Deficit is now officially $483.4B, lower than Bush’s last two budget years. Lowering unemployment is increasing tax receipts.
You’d think Democrats running for office would note this, but no.
Roger Moore
@Gin & Tonic:
I’m inclined to agree with the commenters who think the bumper sticker is meant to read “[the] horn broke” rather than “horn [is] broke[n]” and thus is grammatically reasonable except for the elided article. Of course one can still charge them with using a comma as a conjunction rather than a semicolon…
Richard Mayhew
@Steeplejack (tablet): @FlipYrWhig:
Thanks, this is the thing that I learned today.
skerry
From his European vacation, Rick Perry issued the following statement:
Roger Moore
@skerry:
He appears to have a good press secretary, at least.
currants
@Richard Mayhew: Thanks!
StringOnAStick
@Roger Moore: Yeah, you know that isn’t his own prose…
I have a wingnut friend who’s wife has hep C; they are both insured through her job with the state (he’s self-employed). Hates the gubmit, thinks it all sucks, but has no problem getting his heath insurance through her job or the fact that when it comes time to treat her hep C, it is going to cost a fortune.
catclub
@StringOnAStick: I wonder what the cost of those drugs will be in civilized countries with better but less expensive healthcare? Would it be cheaper to fly patients there and treat them there for two months?
scav
Yellow Fever rounds a couple, Smallpox, Cholera (former President Polk would like a word), Spanish Flu (“In just one year the average life expectancy in America dropped by 12 years, according to the US National Archives”) . . . . ahh, the education state chimes in.
Richard Mayhew
@scav: you do know that facts have a liberal bias
scav
@Richard Mayhew: Yes, but it’s often so very pleasant to grab a cup of coffee, doughnut and comfy slippers to watch the simple beauty of yet another sunrise or sunset.
zoot
not for nothing, but I know someone who has known about having Hep-C – the worst type for 8 years and has managed it by eating healthy food, regular exercise, and sufficient rest. This treatment has incurred ZERO payouts to the medical industry complex except for a yearly blood test to check viral numbers, which have been in-range and steady for the past 3 years. This course was taken contrary to Doctors’ advice and urgings to go with an “aggressive (a.k.a. expensive) treatment” of biopsies and drug therapy.
The side affects of the chosen (as opposed to the recommended) course have been few illnesses with nothing more severe than a short bout of the common cold, general good feeling, energy, and a healthy look.
New Doctors’ now have a different tune: ‘keep on doing what you’re doing’
MikeB
@zoot: Your friend is smart to adopt a healthy lifestyle and put off treatment (especially with interferon, a terrible drug) but the HepC
virus takes a long time, 10-20 years to start seriously damaging the liver, and will have to be dealt with eventually. Fortunately, the new drugs will be available at a much lower price before he/she suffers from cirrhosis.
My wife, on the other hand, had to have a liver transplant in 2006, and has suffered liver damage on the new liver from the virus. She just completed a course of Sovaldi/Olysio and we are hoping for a cure. All for the bargain price of $149,307.48.
I guess the insurance company would rather pay top dollar for the pills than
half a million for another transplant.