A few weeks ago, Gilead Pharmaceuticals announced that they were creating an authorized generic version of Harvoni with a list price of $24,000.
In the case of Harvoni and Epclusa, which carry list prices of $94,500 and $75,000, respectively, the $24,000 price tag for a course of treatment with the generics is roughly equal to the net price paid by many insurers…
There are a lot of interesting nuggets to pull out of this. The most obvious is that list price and actual price are at best tenuously connected. The second point is that the average cost of treatment for a Hep-C cure is someplace under $30,000 once all of the behind the scene deal making is accounted for. Thirdly, this is a case where me-too/look-alike drugs actually have created a very viable, competitive market.
What I am most interested in is the risk adjustment games that can be played with a new, much lower list price (even if the effective net price is close to the same as before).
Risk adjustment for the ACA, Medicare and Medicaid use claims from the past to predict incremental cost increments for different disease and therapeutic drug classes. Pharmacy claims are based on the list price and not the net price. Risk adjustment co-efficiencts lag reality. This works well when the treatment modality is reasonably constant and pricing does not have a huge shock.
Oops… that is precisely what will happen with Hep-C. Right now, Hep-C antivirals risk adjust on the ACA individual markets at about a co-efficient of 39. Someone picking up a Sovaldi, Harvoni or any other Hep-C antiviral cure gets a risk score that predicts their annual costs will be about 39 times average statewide premium.
That co-efficienct is based on the last three years of available data and it is a blend of commercial and Exchange information. The list price of the Hep-C drugs for this period was over $80,000 per dose.
Insurers have been fairly aggressive in shifting their formularies to lower net cost to them Hep-C anti-virals. I would expect that insurers will aggressively push for the authorized generics for a risk adjustment edge. If the list price collapses to $24,000 there is a huge arbitrage wedge that insurers can exploit for at least 2019 if not also in 2020. They can get credit for $84,000 or $95,000 treatments while only paying out $24,000.
This advantages insurers that can both aggressively identify and treat folks with Hep-C. It also advantages insurers that have very good pharmacy benefit management that can get a really good net price on Hep-C anti-virals as it creates a bigger wedge to exploit.
On net, this type of wedge will incrementally encourage more Hep-C treatments to be approved and taken for folks who are in the ACA individual market for 2019 and perhaps in 2020 until the risk adjustment co-efficiencts catch up to the pricing/technology/legal shock of low list price authorized generics.