[Senate Hearing 113-746]
[From the U.S. Government Publishing Office]
S. Hrg. 113-746
HEPATITIS C AND VETERANS
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HEARING
BEFORE THE
COMMITTEE ON VETERANS' AFFAIRS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
DECEMBER 3, 2014
__________
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COMMITTEE ON VETERANS' AFFAIRS
Bernard Sanders, (I) Vermont, Chairman
John D. Rockefeller IV, West Richard Burr, North Carolina,
Virginia Ranking Member
Patty Murray, Washington Johnny Isakson, Georgia
Sherrod Brown, Ohio Mike Johanns, Nebraska
Jon Tester, Montana Jerry Moran, Kansas
Mark Begich, Alaska John Boozman, Arkansas
Richard Blumenthal, Connecticut Dean Heller, Nevada
Mazie K. Hirono, Hawaii
Steve Robertson, Staff Director
Lupe Wissel, Republican Staff Director
C O N T E N T S
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December 3, 2014
SENATORS
Page
Sanders, Hon. Bernard, Chairman, U.S. Senator from Vermont....... 1
Burr, Hon. Richard, Ranking Member, U.S. Senator from North
Carolina....................................................... 3
Hirono, Hon. Mazie K., U.S. Senator from Hawaii.................. 5
Moran, Hon. Jerry, U.S. Senator from Kansas...................... 16
WITNESSES
Valentino, Michael, R.Ph., MHSA, Chief Consultant, Pharmacy
Benefits Management Services, U.S. Department of Veterans
Affairs; accompanied by David Ross, M.D., Ph.D., MBI, Director,
HIV, Hepatitis C, and Public Health Pathogens Program, Office
of Public Health/Clinical Public Health, Veterans Health
Administration................................................. 6
Prepared statement........................................... 8
Response to posthearing questions submitted by Hon. Mazie K.
Hirono..................................................... 17
Rother, John, President and Chief Executive Officer, National
Coalition on Health Care, on behalf of the Campaign for
Sustainable Prescription Drug Pricing.......................... 23
Prepared statement........................................... 25
Weissman, Robert, President, Public Citizen...................... 29
Prepared statement........................................... 31
HEPATITIS C AND VETERANS
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WEDNESDAY, DECEMBER 3, 2014
U.S. Senate,
Committee on Veterans' Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 11:34 a.m., in
room SR-418, Russell Senate Office Building, Hon. Bernard
Sanders, Chairman of the Committee, presiding.
Present: Senators Sanders, Hirono, Burr, and Moran.
OPENING STATEMENT OF HON. BERNARD SANDERS,
CHAIRMAN, U.S. SENATOR FROM VERMONT
Chairman Sanders. My apologies to everybody. There were
some votes that were announced yesterday that Senators had to
be at, so we pushed back the hearing, so we appreciate
everybody being here.
Today's hearing is dealing with a very, very important
subject. It contains, I think, some very good news and some
news which is not so good, and that is what we are going to
discuss.
The good news is that for the very first time, there is now
available on the market an effective, fast working, and life-
saving drug to treat a very, very serious illness in this
country, which is Hepatitis C. Hepatitis C impacts some three-
to-five million Americans, and disproportionately affects
veterans. So, the good news is that we have a drug now which
replaces other less effective treatment, which can have
terrible side effects, with a much, much better drug, and that
is very welcome news.
The bad news is that this particular drug, called Sovaldi,
manufactured by a company called Gilead, is so expensive--it is
on the market for about $1,000 a pill with a course of
treatment at about $84,000--that while this drug is terribly
valuable, the reality is that many people cannot afford it.
I became aware of this issue when, as Senator Burr will
remember, a number of months ago, VA came to us with a request
for the funds they needed to deal with the problems in the VA,
and there was a line item for $1.3 billion just for Hepatitis C
treatment, which made me aware of the problem.
So, the question that we are going to be exploring today is
the impact of a drug to treat Hepatitis C. Because VA
negotiates drug prices with the pharmaceutical industry, it was
able to get a substantial discount for the drug, yet, it is
still very, very expensive. And if the VA is going to spend
billions of dollars for one drug to treat one illness, the
reality is that there is less money available to deal with the
many other problems facing the VA.
One of the issues that Senator Burr and I are working on,
which is a very terrible issue, is suicide rates and mental
health issues among veterans, and I want to see VA do a better
job and provide treatment for more people. It is an expensive
proposition to treat mental illness. But, because VA may have
to spend outrageous sums of money for one drug, there is less
money available to deal with other issues, like treating mental
illness.
Prior to the manufacturing of these new drugs from Gilead,
the primary method for treating Hepatitis C was Interferon, an
injectable medication that has many side effects that are
emotionally and physically painful for most patients.
Additionally, many patients require additional medical
intervention, including liver transplants. These treatments are
expensive. According to research by Dr. John Gaetano of the
University of Chicago, who has special expertise in hepatitis,
it is estimated that costs for a person with liver damage over
a 10-year period can exceed $270,000, and the average liver
transplant in 2011 cost $577,000. Therefore, if we can get
cost-effective treatment to people with Hepatitis C and prevent
these very, very costly procedures, in the end VA, Medicare,
Medicaid, and the American people save substantial sums of
money. So, we have to figure out how we get treatment to these
people in the most cost-effective way.
Gilead, the manufacturer of Sovaldi, is, as I indicated,
providing this drug at a treatment cost of $84,000. We invited
Gilead to be with us today to answer the questions as to why
their product is so very, very expensive and I am upset that
they have chosen not to be here. Apparently, as they told us,
all of their executives seem to be traveling all over the world
and were unable to be here today to answer our questions.
No one denies the appropriateness of companies that do
research and development to make a decent profit on their
product. That is the way the system works. But, what we are
looking at here with Gilead is not a decent profit. What we are
looking at is very clearly a very, very excessive profit and a
lot of that profit is going to be paid for by the taxpayers of
this country.
Gilead purchased Pharmasset, the company that developed the
drug now known as Sovaldi, for $11 billion. According to some
estimates, Gilead is expected to make more than $200 billion on
the sale of Sovaldi. Let me repeat that. They purchased the
company that developed the product for $11 billion. It is
estimated that they will make $200 billion on that one product.
So, the issue that we are really dealing with today is not
only the impact of the cost of this drug on VA, Medicaid, and
Medicare, it is a moral issue--how many people in this country
will suffer, and how many will die very painful deaths because
they can not access the drugs they need because of the
excessive costs. I am pleased we have some great witnesses here
today who are going to help us explore this issue.
While this is a national issue--I mentioned a moment ago
that some four million people in this country are suffering
with Hepatitis C--VA currently has 174,000 veterans receiving
care for Hepatitis C, and the estimate is that an additional
42,000 veteran patients have not yet been tested to see if
they, too, have the disease.
A full 25 percent of VA patients with Hepatitis C have
advanced liver disease, which is also called cirrhosis of the
liver, and in the last 10 years, the number of veterans with
liver cancer, a common side effect of Hepatitis C among the
veteran population, has increased ten-fold. This is especially
true of Vietnam-era veterans.
And, the one point that I also want to make is a lot of
people in this country, including veterans, inadvertently got
this virus by walking into a hospital and getting treatment
before we knew how Hepatitis C was spread. Maybe they got a
blood transfusion from a needle that was previously used and
they ended up with Hepatitis C through no fault of their own.
Another point I want to make is that, according to
Bloomberg News, Gilead is working on deals with generic drug
makers to sell Sovaldi to about 80 developing countries for a
tiny, tiny fraction of the cost for which they are selling that
product to Americans. Now, I happen to think it is a good thing
that people in Egypt, where Hepatitis C is very prevalent, and
in other developing countries around the world, that people get
this drug at an affordable price, but it should not be the case
that the taxpayers, consumers, or patients in this country have
to subsidize that affordability. So, I think it is important
that people get it at a price they can afford it, but Americans
should get it at a price they can afford as well.
So, let me conclude by saying that I appreciate the work VA
has done to move rapidly to provide the most up-to-date
treatment for veterans with Hepatitis C, but it is deplorable
that due to the high price tag, VA might not be able to offer
this treatment to all who qualify. I fear we are going to see
significant rationing among the VA population. In fact, we are
already seeing rationing in the Medicaid population all over
this country, because States do not have the money to provide
this new treatment. And we must address the moral issue were.
Are we comfortable with a situation in which a company is
making extraordinary profits while people suffering with
Hepatitis C cannot access the treatment that they need?
So, that is the framework of today's discussion. We have
some great panelists to help us explore that issue, and with
that, let me give the microphone over to Senator Burr.
STATEMENT OF HON. RICHARD BURR, RANKING MEMBER,
U.S. SENATOR FROM NORTH CAROLINA
Senator Burr. I thank the Chairman. I will try to be brief,
Mr. Chairman, and I would encourage our colleagues, to put
their opening statements in the record, perhaps rather than
give them, so we can get right to the witnesses.
The one take-away that I have so far is that innovation is
expensive. We have known that. Every time we innovate a new
therapy, a new drug, a new device, there is a recovery cost,
and many times it is government that drives the cost up because
we lengthen the approval time; therefore, we shorten the patent
lifetime, or individuals question exactly what the recovery
period is going to be like and the cost of the capital they
need to make it through the ``valley of death.'' Research and
advanced development and slow trials cost much more than what
the innovator thought to begin with. So, if you are going to
hold companies responsible, then you have got to hold venture
capitalists responsible and everybody in the chain of financing
innovation.
Yet, I think one thing that we agree on is that we do not
want to give up innovation. While much of the discussion is
focused on the cost of these new therapies, particularly
Sovaldi, I think it is important that we not lose sight of the
promise that breakthroughs hold for Hepatitis C patients. While
I am concerned that veterans may not have access to the
particular drugs they need and about the increases in general
spending governmentwide, in this case, I believe the attention
has been misplaced.
I believe the price of this specific drug is to be looked
at on a macro level. We should examine the long-term benefits
groundbreaking therapies bring to our veterans as well as the
long-term savings it could bring to the VA and to taxpayers by
replacing the need for more risky and costly treatments, such
as liver transplants.
The benefit to the veterans is obvious, however. Since FDA
approved Sovaldi only a year ago, it may be too early to truly
understand the benefits to VA. This drug is a game changer in
treating veterans with Hepatitis C and all Americans. For the
first time, there is a drug on the market with a proven record
of curing Hepatitis C in only 12 weeks, without the
debilitating side effects of previous treatments. This drug
will put veterans on a sounder long-term path and vastly change
their quality of life.
Prior to this drug, Hepatitis C patients faced up to 48
weeks of daily pills and weekly injections. The treatment came
with severe flu-like side effects and a very limited cure rate.
When we look at the cost of the drug, we need to take into
consideration the role the drug plays in meeting the needs of
the patient and the role they have on improving patients'
quality of life.
On one level, I understand why the Chairman chose this
Committee to hold a hearing on the cost of Hepatitis C
treatments. Because of the battlefield blood transfusions that
took place in Vietnam, Hepatitis C is more prevalent in VA's
population than in the general population. In fact, in 2013,
174,000 veterans were estimated with Hepatitis C, or about 3
percent of the VA's unique patient population, compared to less
than 1 percent of the general population diagnosed with
Hepatitis C.
But, you cannot make a comparison between what the VA pays
and what others pay for a prescription drug. Under current law
VA is mandated a discount on the prescription drug price. The
law directs the manufacturers of certain drugs to enter into an
agreement with VA under which the price paid by VA for those
drugs is no more than 76 percent of the average non-Federal
manufacturer's price.
Now, let me just stop there and say the general population
is subsidizing everything that we put into the VA population.
The general population is subsidizing what we take into the VA
population. Maybe that is the right thing to do. It is what we
have adopted. But, it does make it more expensive for the
general population.
Because VA is mandated to pay a certain price, it cannot be
assumed that government controls on drug prices will yield the
best medicines in the future. Mandating drug prices would
reduce the amount of money drug manufacturers invest in
research and development and ultimately adversely impact
innovation.
Today's hearing marks the second hearing in the past month
the Chairman has convened to look at various drug pricing
issues. As I have said before, we are not going to do right by
the American people if all we look at is drug pricing in a
vacuum and then proceed to ignore how greater government
involvement by this Congress and the Federal Government more
broadly adversely impacts the very innovation patients waiting
for a cure depend on. It is my hope that we will look at this
in the context of how innovation actually saves the taxpayers
long-term money over the long term, but most importantly,
increases the quality-of-life of our Nation's veterans
immediately.
I thank the Chair.
Chairman Sanders. Thank you, Senator Burr.
Senator Hirono.
STATEMENT OF HON. MAZIE K. HIRONO,
U.S. SENATOR FROM HAWAII
Senator Hirono. Thank you, Mr. Chairman, and thank you to
our witnesses for being here today.
Earlier this year, Senator Kirk and I introduced the Viral
Hepatitis Testing Act of 2014. Our bill would increase
surveillance, education, and testing programs for viral
hepatitis. Our bill also directs HHS to identify populations
considered high risk. I believe that our veterans' population,
given the rate of infections at three times higher than the
general population, is one such population. Thirty percent of
all VA veterans suffering from hepatitis-related liver disease
reside in rural areas, so that presents its own set of concerns
and challenges.
It is important to increase surveillance within the VA
population to help prevent the spread of Hepatitis C as well as
ensure that veterans are getting treatment in a timely manner.
Given the impact it has on veterans and the issues surrounding
the cost of treatment options, this hearing is, of course,
timely.
Many individuals infected with Hepatitis C are unaware that
they have it, and this is a highly contagious infectious
disease. So, individuals can live for many years without
symptoms and during this time may unknowingly transmit the
virus to others.
Previous treatments for Hepatitis C were debilitating for
many patients, with lots of bad side effects. Fortunately,
recent medical advances have provided easier treatment options
for those infected with Hepatitis C. Unfortunately, as has
already been stated, the treatment options are very expensive--
estimates range from around $80,000 to $100,000 for a course of
treatment--and there is still no way to prevent new cases of
Hepatitis C.
These new treatments claim to cure hepatitis in over 90
percent of all cases, and to-date for Hawaii, 35 patients at
Hawaii VA have benefited from this new treatment. The high cure
rate combined with the ability of patients to tolerate the new
treatment make these new drugs highly desirable for those with
Hepatitis C. So, the VA has prioritized those with advanced
liver disease for the treatment in an effort to control costs.
Despite the drug discount and the prioritization of
patients, it is estimated that the VA will spend $1.3 billion
over the next 2 years just on this Hepatitis C treatment. It is
not sustainable. It will strain VA resources at a time when
veterans are increasing in number and complexity of conditions.
I look forward to hearing from the panel about the cost of
Hepatitis C treatment and how the VA is managing the veterans'
treatment. I am also interested in hearing how the VA proposes
to continue providing the treatment while ensuring no loss of
service for other health care concerns. Thank you.
Chairman Sanders. Thank you very much, Senator Hirono.
OK. Now, let us bring up our first panel, if Mr. Valentino
and Dr. Ross can join us. We are pleased to have these very
knowledgeable folks to discuss this issue with us.
Michael Valentino is Chief Consultant of VA's Pharmacy
Benefits Management Services, and he is accompanied by Dr.
David Ross, Director of the HIV, Hepatitis C, and Public Health
Pathogens Program at the Department of Veterans Affairs. We
thank both of you very much for joining us for this important
discussion.
Mr. Valentino, please begin.
STATEMENT OF MICHAEL VALENTINO, R.Ph., MHSA, CHIEF CONSULTANT,
PHARMACY BENEFITS MANAGEMENT SERVICES, U.S. DEPARTMENT OF
VETERANS AFFAIRS; ACCOMPANIED BY DAVID ROSS, M.D., Ph.D., MBI,
DIRECTOR, HIV, HEPATITIS C, AND PUBLIC HEALTH PATHOGENS
PROGRAM, OFFICE OF PUBLIC HEALTH/CLINICAL PUBLIC HEALTH,
VETERANS HEALTH ADMINISTRATION
Mr. Valentino. Thank you very much. Good morning, Chairman
Sanders and Ranking Member Burr. Thank you for the opportunity
to discuss VA's commitment and actions to provide Hepatitis C
virus care for veterans. I am accompanied today by Dr. David
Ross, Director of VA's HIV, Hepatitis, and Public Health
Pathogens Program.
All veterans, including those with Hepatitis C, have earned
and deserve health care that is sensitive to their unique
service exposures and health risks. Acknowledging this fact, VA
added Hepatitis C drugs to its drug formulary and also
developed prescribing guidance to assist providers to care for
the 174,000 veteran patients who are known to have been
infected with the Hepatitis C virus, also known as HCV. VA is
the largest single HCV provider in the United States and has
had a comprehensive national HCV program in place since 2001.
Historically, like other health care providers, VA has only
been able to treat a portion of veterans for HCV due to the low
efficacy and high toxicity of older drug therapies.
Fortunately, the recent approval of newer drugs is making HCV
treatment and cures easier to achieve.
VA's primary goal for formulary management has been and
remains the provision of safe, high quality drug therapy by a
reliance on robust evidence to guide medication use. Drug
formularies are not new components of the health care delivery
systems in either the public or private sectors. VA was a
pioneer in this area, employing drug formularies as early as
1955.
In VA, the simple drug lists of earlier times have been
augmented with clinical protocols designed to assist clinicians
in using drugs safely, effectively, and efficiently. This is
accomplished using evidence-based drug reviews, actively
managing drug utilization, leveraging VA's purchasing power,
streamlining supply chain distribution, and, importantly, by
integrating clinical pharmacists into the medication-use
process.
In the past 3 years, significant gains have been made in
the options available to cure HCV infection, with additional
options expected to be approved in the very near future. In
late 2003 [sic], the U.S. Food and Drug Administration approved
two antiviral medications for use as part of combination
regimens. These drugs offer shorter treatment durations,
decreased side effects, and increased cure rates over older
treatments. Other new agents and combinations of agents are
expected to receive FDA approval in 2014 and 2015, making
additional treatment regimens available to veterans.
As part of its comprehensive HCV treatment program, when
better HCV treatments become available, VA will continue to
move aggressively to treat patients, making it possible to cure
an ever-increasing number of HCV-infected veterans. VA moved
rapidly to deploy the new, more effective, less toxic HCV
treatments, and consistent with its goal as a steward of
taxpayer dollars, negotiated significant discounts for these
therapies. For example, VA negotiated the $1,000 per dose
commercial price of Sofosbuvir down to $594 per dose.
Similarly, the commercial price of $790 per dose for Simeprevir
was negotiated down to $413.
In fiscal year 2014, VA treated over 5,400 veterans with
these new treatments and spent approximately $275 million in
drug costs alone on these treatments. Despite the significant
discounts VA negotiated, it will still be a challenge to ensure
adequate funding is in place to provide these medications in
the future. This is the reason then-Acting Secretary Gibson
requested an additional $1.3 billion to fund these treatments
in fiscal years 2015 and 2016.
As the largest single provider of care for HCV infection in
the United States, VA is charged with addressing an epidemic of
life-threatening complications among veterans with HCV
infection. This challenge is increased by the likelihood that
some veterans with HCV infection remain undiagnosed while
others will not accept treatment or may not be able to undergo
treatment because of coexisting medical conditions.
Introduction of very costly, highly effective, less toxic, and
easier to administer antiviral therapies holds the promise of
eradicating this disease in HCV-infected veterans.
Mr. Chairman, VA is committed to helping veterans by
providing the highest quality of care, including medication
therapy. We are dedicated to providing evidence-based care to
ensure the continual improvement of care for veterans with HCV
infection. We recognize our future work to improve the quality
of HCV care will be based in large part on understanding and
addressing variation in HCV care structures, processes, and
outcomes, and by doing all we can to reduce the cost of these
therapies.
My colleague, Dr. Ross, and I are happy to respond to any
questions you and the Committee Members might have.
[The prepared statement of Mr. Valentino follows:]
Prepared Statement of Michael Valentino, VHA Chief Consultant For
Pharmacy Benefits Management, U.S. Department of Veterans Affairs (VA)
Thank you for the opportunity to discuss VA's commitment and
efforts in providing timely access to high-quality Hepatitis C Virus
(HCV) care for Veterans, including their pharmaceutical treatment. I am
accompanied today by David Ross, M.D., Ph.D. Director of VA's HIV,
Hepatitis, and Public Health Pathogens Program.
VA has approximately 174,000 Veterans in care with HCV, making it
the largest single HCV provider in the U.S. VA has had a comprehensive
national HCV program since 2001. Like the rest of the country, VA has
treated only a portion of Veterans for HCV because treatment and cures
have been difficult to achieve due to low efficacy and high toxicity of
standard drug therapies.
overview
Chronic infection with hepatitis C virus (HCV) is the most common
blood-borne infection in the world and is a major public health problem
facing not only the Veterans Health Administration (VHA) but the United
States in general. Complications that may result from untreated HCV
infection include progressive liver damage leading to cirrhosis (also
known as Advanced Liver Disease, ALD), hepatocellular carcinoma (HCC),
and other life-threatening conditions. Although many of these
complications are treatable or even preventable, they may occur because
only half of the individuals with HCV infection in the U.S. are aware
they are infected. The epidemic of HCV in the U.S. has also affected
VA, and we are capitalizing on the availability of new therapies to
improve access to and quality of HCV care.
VHA is a leader in the U.S. in HCV infection care, including
screening, treatment, and prevention. Between 2002 and 2013, the
percentage of Veterans in VHA care with at least one outpatient visit
who had ever received screening for HCV infection more than doubled
from 26.9 percent to 56.0 percent. Individuals born between 1945 and
1965 are at higher risk for HCV infection due to exposure to the virus;
as of 2013, almost two-thirds of Veterans in VHA care born between
these years have been screened for HCV infection. VHA is also
developing an electronic clinical reminder to improve screening rates
among Veterans in the 1945-1965 birth cohort and others with risk
factors. Similar improvements were seen in confirmatory testing after
an initial positive screening result, which increased to 96 percent
across the system by 2013. VHA's HCV care is implemented at VA medical
facilities across the country and uses a comprehensive approach that
includes:
Universal assessment for risk of hepatitis C infection
Testing and counseling for those at risk, particularly
those in the 1945-1965 birth cohort
Education for patients and their families
Giving providers access to the best available information
about hepatitis C
Excellence in clinical care
Support for research to improve clinical care
Ongoing quality improvement
screening for hcv
Increased screening for HCV is a critical component of early
identification and linkage to care. Under VHA Handbook 1120.05,
Coordination and Development of Clinical Preventive Services, screening
is defined as an examination or testing of a person with no symptoms of
the target condition to detect disease at an early stage when treatment
may be more effective, or to detect risk factors for disease or injury.
The current VA HCV screening policy recommends offering HCV testing to
any Veteran born between 1945-1965, to any Veteran who has a risk
factor for HCV infection such as Vietnam-era service (defined by dates
of service in 1964-1975,) or a blood transfusion or organ
transplantation prior to 1992, or to any Veteran wishing to be tested.
This policy closely follows the 2013 US Preventive Services Task Force
recommendation for screening for HCV in persons at high risk for
infection and also offering one-time screening for HCV infection to
adults born between 1945 and 1965 (B recommendation).
As most Veterans with HCV infection were infected decades ago and
fewer than 22,000 new HCV infections in the U.S. occur annually, the
increase in the number of HCV-infected Veterans in VHA care largely
represents expanded screening and identification of individuals with
pre-existing HCV infection rather than new infections. Entry of
previously diagnosed patients into VHA care may also have contributed
to this increase. It is important to remember that the cohort of HCV-
infected Veterans in VHA care changes from year to year due to new
diagnoses, deaths, and Veterans with HCV infection moving into or out
of VHA care.
treatment for hcv
In the past three years, significant gains have been made in the
therapeutic options available to cure HCV infection, with further gains
expected in the very near future. In 2013, the U.S. Food and Drug
Administration (FDA) approved two antiviral medications for use as part
of combination regimens which offer shorter treatment durations and
decreased side effects in addition to increased cure rates. Several
other new agents and combinations of agents are expected to receive FDA
approval in 2014-15, making additional treatment regimens available for
patients. The evolution of management and treatment of HCV infection
will make it possible to cure an increasing proportion of HCV-infected
Veterans with fewer side effects.
VHA has moved rapidly to deploy new, more effective, less toxic HCV
treatments and has been able to negotiate significant discounts for
these newer therapies. For example, VA has negotiated a price of $594
per dose for Sofosbuvir (the commercial price is $1000 per dose) and
$413 per dose for Simeprevir (the commercial price is $790 per dose).
When the VA Pharmaceutical Prime Vendor negative distribution fee of
9.15% is factored in, VA's net price for Sofosbuvir is $539 per dose
and is $375 per dose for Simeprevir. In FY 2014, VHA treated over 5,400
Veterans with HCV with these new treatments. VA spent over $370 million
in drug costs alone on these new treatments in FY 2014. VA is actively
planning for the deployment of more effective HCV treatments becoming
available in later this year and we plan to move aggressively to treat
patients with these drugs, based on clinical need.
Veterans infected with HCV in VHA care receive primary care through
their local VHA medical center or VHA community-based outpatient
clinic. However, some Veterans may need to travel to another VHA
facility to receive the full spectrum of specialized HCV care.
Increasingly, telemedicine platforms, such as telehealth and Specialty
Care Access Network-Extension for Community Outcomes (SCAN-ECHO), are
being used to deliver care to Veterans in remote areas or to Veterans
with conditions that limit mobility.
current challenges and future directions
As the largest single provider of care for HCV infection in the
U.S., VHA is charged with addressing an epidemic of life-threatening
complications among Veterans with HCV infection. The challenge is
increased by the likelihood that some Veterans with HCV infection
remain undiagnosed, while others do not accept treatment or may not be
treatment candidates because of co-existing medical conditions. The
introduction of very costly, highly effective and less toxic anti-viral
therapies, which are easier to administer than older treatments, holds
the promise of eradicating this disease in infected Veterans. VA
redirected funding for the increased cost of the newer medications for
Fiscal Year 2014 and is doing so in 2015. For future budget
submissions, VA will incorporate the cost of these new therapies into
the Enrollee Health Care Projection Model (EHCPM) estimates. However,
addressing the cost of these agents remains a major challenge. In
addition, the synthesis of a population health approach to HCV
infection with system redesign will improve access to high-quality HCV
care for Veterans. System redesign refers to analysis of barriers that
may affect patients' access to care, followed by design and execution
of changes to overcome such barriers. VHA is currently developing a
VISN-centered system redesign approach that will coordinate care of HCV
and its complications across a wide area. The application of system
redesign principles to HCV diagnoses, treatment, and care promises to
substantially improve access to, quality of, and efficiency of care.
Finally, the experience, expertise, and dedication of VHA providers and
pharmacists will allow VA to deliver the excellent care that Veterans
with HCV deserve.
conclusion
VHA is committed to providing evidence-based care to ensure the
continual improvement of VHA care for Veterans with HCV infection. We
recognize that our future work to improve the quality of HCV care will
be based in large part on understanding and addressing variation in HCV
care structures, processes, and outcomes. We are happy to respond to
any questions you may have.
Chairman Sanders. Thank you very much.
So, how many veterans do you estimate are suffering with
Hepatitis C?
Mr. Valentino. Right now, it is 174,000, approximately, who
are known to have been infected.
Chairman Sanders. And, of that 174,000, I know that not
every one of them can necessarily be treated by this drug, but
what is your guess, if we could snap our finger and have that
drug and treatment available, how many of those veterans could
be helped by this drug?
Mr. Valentino. Well, let me first say to any veterans or
loved ones who are listening who are affected by this, it is
our goal that you come into VA, talk with your provider, and
together decide when the time is right to be treated.
Chairman Sanders. I am just trying to get an overview here.
How many----
Mr. Valentino. Right.
Chairman Sanders. If we did all--and I know you guys do a
pretty good job, probably better than anyone else in
screening----
Mr. Valentino. Yes, sir.
Chairman Sanders [continuing]. And that is a very positive
thing, but if we could snap our fingers today, how many folks
are out there who could be treated with this new drug, if you
would guess?
Mr. Valentino. I would defer to Dr. Ross to answer that
question.
Chairman Sanders. Dr. Ross, what is the answer?
Dr. Ross. Sure. Thank you for that question, Mr. Chairman.
Although we are talking about large numbers, I am going to give
you a specific answer. I think it is important to remember, it
ultimately comes down to a discussion between patient and
physician.
Chairman Sanders. Right.
Dr. Ross. Certainly, that was true with the older, more
toxic----
Chairman Sanders. All I am asking for is your guess.
Dr. Ross. OK. I would say there are patients who have
simultaneous medical conditions that need to be dealt with
first, and that could be anywhere from one-half to two-thirds
of patients where we need to work on those first, either for a
short period of time or a longer period of time.
Chairman Sanders. One-half or two-thirds of the 174,000?
Dr. Ross. Yes, and that is an off-the-top-of-my-head
number.
Chairman Sanders. Yes, I understand. So, that is about
75,000 or 100,000 people. How many people right now--when the
Secretary asked for $1.3 billion, how many--if he had that
check in his hand right now, how many patients would he be
treating?
Mr. Valentino. It is a very dynamic process with the
pricing, but I can give you an answer based on what we know
now.
Chairman Sanders. OK.
Mr. Valentino. I would estimate that to be somewhere in the
neighborhood of 25,000 to 30,000 patients.
Chairman Sanders. So, Dr. Ross is suggesting--and, I
understand, these are rough estimates--that maybe we need to be
treating 100,000, and this $1.3 billion would treat 25,000?
Mr. Valentino. Twenty-five to 30,000.
Chairman Sanders. OK. So, these numbers suggest to me that
if we continue the current pricing, and if you guys do a good
job in outreach, that $1.3 billion may go up by two to three
times. Is that a fair piece of arithmetic, or----
Mr. Valentino. As I--yes, although there are some changes
in the marketplace that could impact----
Chairman Sanders. All right. I want to get to that----
Mr. Valentino. OK.
Chairman Sanders [continuing]. In a second.
Mr. Valentino. Yes, sir.
Chairman Sanders. Explain to us, because I have known about
VA negotiating prices. You do this with all drugs.
Mr. Valentino. Yes, sir.
Chairman Sanders. And, you are one of the few government
entities who can do this. Medicare, for example, does not
negotiate prices by law, but you do, and you have got lower
prices because of those negotiations. Am I correct that you are
paying $540 a pill for Sovaldi?
Mr. Valentino. After all discounts, yes.
Chairman Sanders. OK, $540. How come it is not $386 or
$240? How did you come up to $540?
Mr. Valentino. Well, as was mentioned earlier, there is a
statutory discount, and that is really where we start. It was
just the result of intensive negotiations with the
manufacturer.
Chairman Sanders. All right. Let me ask you this. Very
interestingly, and maybe we can explore that more in the second
panel, Gilead is making this drug available to countries like
Egypt, which have very, very serious problems with Hepatitis C.
My understanding is that they are selling the product in Egypt
for just a few dollars a pill. Is that correct? Do you know
anything about that?
Mr. Valentino. I personally do not. Dr. Ross----
Chairman Sanders. Dr. Ross, are you aware what they are?
Dr. Ross. I am aware that----
Chairman Sanders. My understanding is it is $10 a pill.
Dr. Ross. I could not speak to the specifics of----
Chairman Sanders. OK. We will get more into that in the
second panel, perhaps. Why do you think it is the case that
they are selling it to a general American consumer who walks in
with Hepatitis C for $1,000, they are selling it to a huge
Federal agency, the VA, which treats more Hepatitis C patients
than anybody else in the country at $540, but they are selling
it in Egypt for $10? How does that happen? How come they
negotiated a better price than you did?
Mr. Valentino. I cannot answer that question. I do not know
what Gilead's business model is. I do not know how that was
able to be achieved. You know, those--a lot of other countries
have different regulatory processes----
Chairman Sanders. They sure do, which results in the United
States paying, by far, the highest prices in the world for
prescription drugs.
And, this may be outside of your portfolio in a sense, but
if the VA is going to spend billions of dollars--$1.3 billion
now and maybe more later--to treat one illness, is it fair to
suggest that will mean we have less money available to take
care of veterans' needs in other areas? Is that a fair
supposition?
Mr. Valentino. Well, we did ask for more money----
Chairman Sanders. Right----
Mr. Valentino [continuing]. And, so, you know, VA is
undergoing a lot of changes now with----
Chairman Sanders. I am a strong supporter of VA and would
like to put more money into the system, but there is a limit to
what can be done. All that I am saying, if you are spending
billions of dollars in one area, common sense suggests that you
may not be able to spend in other areas. Is that maybe a fair
supposition?
Mr. Valentino. I would not disagree with that.
Chairman Sanders. OK.
Senator Burr.
Senator Burr. Mr. Valentino, I am going to direct my
questions to Dr. Ross----
Mr. Valentino. Yes, sir.
Senator Burr. If, for some reason, you want to chime in,
feel free. I am going to give you another chance to answer
Senator Sanders' first question, which is with an unlimited pot
of money, of 174,000 people infected with Hepatitis C, how many
would you give Sovaldi to?
Dr. Ross. Let me just ask you to clarify, and I appreciate
the chance to address this question in more detail. We are
talking about at this instance, or over----
Senator Burr. Say you have all the money that would buy all
the Sovaldi you want.
Dr. Ross. So----
Senator Burr. You have got 174,000 people who are infected
and all 174,000 people have been consulted and they would like
to take the drug.
Dr. Ross. OK.
Senator Burr. Could you give it to all of them?
Dr. Ross. At this--on this date, no, because it is not
clinically indicated for a number of patients. That but, let
me----
Senator Burr. And, the clinical indication would be the
treatment consideration report found on the Web site, which
says VA providers are directed to use the new drug therapy on
those veterans with advanced liver disease, such as cirrhosis,
liver cancer, and those waiting for a liver transplant. The
report also recommends that veterans with less serious
conditions wait to receive the treatment. Is that----
Dr. Ross. Yes, and I actually--my office authored that
report, so let me----
Senator Burr. So, what do you say to the ones that you say,
well, you have got Hepatitis C and eventually you will have
cirrhosis, eventually you could have liver cancer, but you have
to wait----
Dr. Ross. No----
Senator Burr [continuing]. Because we are not going to give
you the drug now.
Dr. Ross. No, Senator----
Senator Burr. Are they going to get cured another way?
Dr. Ross. No. If I may clarify----
Senator Burr. Sure.
Dr. Ross. The reason for that was not because we were
saying, you have to wait. If somebody said, ``I want to be
treated now,'' and I have patients in my clinic where we have
had that discussion, we would treat them now. But, these
therapies that were approved by the FDA in 2013 still required,
in many instances, the use of these toxic drugs that the
Chairman referred to. So, what we have done is we have said----
Senator Burr. Do you have a conditional approval?
Dr. Ross. I am sorry?
Senator Burr. The approval for Sovaldi was conditional upon
having gone through other therapies first?
Dr. Ross. No. No, sir, that patients getting Sovaldi--the
FDA approved it in combination with Interferon and Ribavirin or
Ribavirin by itself. Both of these are toxic drugs. So, the
choice for patients, whether they have advanced liver disease
or not, is yes, you can start now, or we feel very, very
confident that in some months, new drugs that do not require
Interferon or Ribavirin are going to be available and you may
want to wait for those less toxic and, according to clinical
trials, more effective drugs. It is not a question of you have
to wait.
Senator Burr. It is promising. Do you think any of those
drugs are going to be cheaper?
Dr. Ross. I look at are they more effective and are they
safer.
Senator Burr. OK. So, let me ask you this, and since
Sovaldi is the only product that we have got right now, what
are the long-term savings to VA in dollars for curing Hepatitis
C? Mr. Valentino, have you done that study?
Mr. Valentino. I have not done that study.
Senator Burr. I would specifically ask, on behalf of the
Committee, that the VA do that study. What is the long-term
savings if we cure Hepatitis C, and I will not limit it to
Sovaldi. I will leave it open for other therapies that are
going to come along. But, what do we save in the long-term care
of that veteran? We are shoving quality of care for the veteran
aside. We are purely looking at how much we would spend as
taxpayers to take care of that person with the toxic treatment
that is today versus a cure that happens in a matter of weeks.
Mr. Valentino. I think that is an excellent suggestion and
it is something that we would love to look into. I think the
issue is, how long would it take for us to have sufficient data
to really answer that question? Right now, it is clearly too
soon. I do not know at what point we would have sufficient
numbers, sufficient information, because, as you know, this is
a disease that progresses over decades so----
Senator Burr. Mr. Valentino----
Mr. Valentino. Yes, sir.
Senator Burr [continuing]. I would be satisfied if you
would look at it and you make your calculation based upon here
is what it costs us over the lifespan of a veteran who has
Hepatitis C to treat them under what was the conventional
treatment. Now, all of a sudden, we have got Sovaldi and it
costs us X; and if we treat it and cure, we do not have this
continued cost. What do the two look like? So, I realize there
may be something in between, but I am looking at either/or, and
I think it is important that we look at the dollars and ask
ourselves--because once we get there, then we can put a value
on what the quality-of-life is that we are providing to
veterans.
We cannot do that today. Therefore, we dumb ourselves down
to only being focused on how much Sovaldi costs, and you have
to ask yourself, if we were paying $10, would you have a staple
of new therapies that might be coming out that do not require
additional toxic products to go with? The answer is, probably,
we would not, because a market has to have the capital to do
research and development. It has to have the marketplace.
And, as you and we know, the marketplace on Hepatitis C is
rather defined. It probably would be considered an orphan
product, almost, because of the size of the population. Is that
about right, Dr. Ross? Maybe a little bit over the orphan drug
designation?
Dr. Ross. I am not familiar with the specific definition of
an orphan drug, but it is a smaller population than--it is a
large population in terms of chronic bloodborne effects. It is
the largest population with bloodborne effects in the country.
It is smaller than, obviously, other conditions, such as high
blood pressure.
Senator Burr. My time has run out. The Chairman has been
patient and I thank both of you.
Chairman Sanders. Senator Burr raised some really
interesting questions that I hope we will explore later on.
Senator Hirono.
Senator Hirono. Thank you.
I found the Chairman's information regarding the varied
costs of this particular drug to the general public, to the VA
patient, and in places such as Egypt really fascinating. I am
all for innovation and not stifling innovation, but on the
other hand, if the general non-VA Hepatitis C patient is
charged $1,000 for this pill, clearly, that person is not, I do
not think, paying for it. It is insurance, that person's
medical insurance that is paying for this drug. Is that
generally the case?
Mr. Valentino. I would think so, yes.
Senator Hirono. So, if that is the case--either one of you
can answer--what would be the incentive for the drug companies
who are getting reimbursed by insurance for these $1,000 pills
to be innovative and come up with less costly, effective drugs?
Mr. Valentino. I am not sure I totally understand the
question, but I can say this. We do our best to lower the cost
of these drugs when there is sufficient competition, when there
are clinically acceptable alternatives, and I think the
incentive for other companies to enter the market is to gain a
portion of that market share.
Senator Hirono. Well, we are probably already talking about
a relatively small market share for people with, albeit
hundreds of thousands of people, but maybe in the scheme of
things, this is a relatively small market. So, why would a
company enter a market where there is already a company there
who can charge a lot of money and get reimbursed by health
plans?
Mr. Valentino. I cannot tell you why, but I can tell you
that there are companies doing just that. We expect another
drug is going to be approved later this month and others are
going to be approved in 2015. So----
Senator Hirono. That is good to know, and these companies
that are coming up with alternative treatments, is their
testing being supported through tax credits and other
incentives?
Mr. Valentino. I cannot----
Senator Hirono. Do you know?
Mr. Valentino [continuing]. Comment on that, Senator. I do
know that a lot of the basic work that leads to some of these
discoveries is, in fact, initially funded that way, but I
certainly cannot comment on to what extent.
Dr. Ross. Senator----
Senator Hirono. Yes.
Dr. Ross. If I could just add on to Mr. Valentino's points,
I think part of it is also what proportion of patients might
switch over to a newer therapy. For example, to go back to
Senator Burr's question about the treatment considerations
document, we gave physicians and providers the choice of
deferring therapy with Sovaldi because we knew that for
genotype 1 patients, one of the major strains, the most common
strain. But, later on in that document, we said, if you have
genotype 2 or 3 infection, we know that there are not better
drugs likely to be approved soon for those particular strains
and, therefore, we said, there is no reason to wait.
So, the question is, is something better coming along, and
while I cannot speak from the pharmaceutical companies'
perspective, as a provider, I am going to say, is this drug
going to work better and be less toxic for my patient, the one
that is coming along, so I might wait. If not, then I am going
to say, well, it is more important to start treatment now.
Senator Hirono. I think my series of questions has to do
with whether the marketplace really can--is operating in a way
that there is more competition for different kinds of
treatments that are effective and much less costly. So, is
there a way to prevent Hepatitis C, because once one is
infected, there is a progression to the disease. So, what are
we doing on the prevention side?
Mr. Valentino. Do you want to address that?
Dr. Ross. OK. Briefly, there is no vaccine for Hepatitis C.
Transmission for most people occurred decades ago. There are
about 20,000 or so new infections every year. The number is
actually going up, almost entirely because of sharing of
needles among injection drug users.
So, things that we are doing within VA are focusing--and
this is done as part of Hepatitis C care--is to help treat
people with substance use disorders. We also are doing things--
and, again, this is integrated with their medical care--to try
and reduce exposures that could also damage the liver,
particularly thinking of alcohol use, and an integrated care
approach is much more effective about getting people ready for
treatment.
One brief anecdote. I have a patient who I saw yesterday
who--we started him on methadone maintenance about 6 months ago
and he is now ready for treatment. In other words, he will be
able to reliably undergo treatment.
Senator Hirono. So, do these prevention methods that you
are utilizing, do they--are they working? I realize it is not
that easy to determine whether something you are doing is
actually preventing----
Dr. Ross. It is a matter of keeping people from getting it
in the first place, but it is also a question of getting people
ready for treatment. Work done in VA has shown that if you take
people who have these barriers to treatment because of other
diseases, frequently substance abuse or alcohol use, and you
give them integrated psycho-social care in the same clinic--
this was work that was done at Minneapolis VA, and, I should
mention, this is the model that is being used at the Matsunaga
VA in Honolulu----
Senator Hirono. Oh, right.
Dr. Ross [continuing]. They are more likely to complete
therapy and be cured than people who do not have those problems
in the first place but do not get that kind of supportive care.
Senator Hirono. Thank you. Thank you, Mr. Chairman.
Chairman Sanders. Just in the nick of time. Senator Moran,
it is your turn.
STATEMENT OF HON. JERRY MORAN,
U.S. SENATOR FROM KANSAS
Senator Moran. Mr. Chairman, thank you. I am happy to be
here in the nick of time.
Let me ask a question somewhat unrelated to the topic
today, but it is my opportunity to again send a message to the
Department of Veterans Affairs. On November 13, a large group
of Senators requested information from the VA. That letter has
not been responded to. It is related to the Reform Act. It is
our continual question about implementation, particularly
related to the 40 miles for a VA facility. I have a number of
questions. We asked for the Secretary and officials from the
Department of Veterans Affairs to meet with us. And, I would
just ask if you, on your return, would raise this topic with
those who might be able to facilitate this meeting.
The topic, from my perspective, is, so, you have a facility
within 40 miles, but it does not provide the service that you,
as the veteran, need. Does that count as a facility within 40
miles? I have great interest in trying to get community mental
health centers involved in providing services and the question
of whether or not they would be able to provide services has
been unanswered. And, finally--although not finally--finally in
this list, the issue of is there going to be required advance
approval, prior approval by the VA, before you go see an
outside provider, and if that is required, is that going to be
required every time you make a visit such that we are back to
having a bureaucracy again that you have got to go through
before you get to go see the outside provider.
I apologize. I know you are here on a different topic. It
is an important topic. But, these are awfully important issues
in all aspects of veteran health care, and thank you for the
nod of your head, which suggests to me that you will--you are
going to do what I have asked.
Mr. Valentino. Yes, sir.
Senator Moran. Thank you very much.
Mr. Valentino. Absolutely.
Senator Moran. Mr. Chairman, thank you.
Chairman Sanders. Thank you very much.
Senator Burr, do you have any other questions?
Senator Burr. No.
Chairman Sanders. OK. Thank you very much.
Response to Posthearing Questions Submitted by Hon. Mazi Hirono to
Michael Valentino, VHA Chief Consultant for Pharmacy Benefits
Management, U.S. Department of Veterans Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
------
Chairman Sanders. The next panel, please. [Pause.]
It is my pleasure to introduce John Rother, who is
President and Chief Executive Officer of the National Coalition
on Health Care and the leader of the Campaign for Sustainable
Prescription Drug Pricing.
Second, we will hear from Robert Weissman, who is President
of Public Citizen.
Gilead has chosen not to be here today.
Mr. Rother.
STATEMENT OF JOHN ROTHER, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL COALITION ON HEALTH CARE AND THE LEADER OF
THE CAMPAIGN FOR SUSTAINABLE PRESCRIPTION DRUG PRICING
Mr. Rother. Mr. Chairman, Ranking Member Burr, thank you
for the opportunity to be here. I am John Rother. I am the
President and CEO of the National Coalition on Health Care, and
the Coalition is the sponsor of something called the Campaign
for Sustainable Rx Pricing, which has been active now for over
6 months, has focused particularly on the issue of Sovaldi, but
is actually concerned with a broad category of specialty drugs
and their affordability.
You have my full statement. I would ask that it be put in
the record. I would like to just make, really, three points in
the time before we get to the questions.
I do think that we have a huge fiscal challenge ahead of
us, not just in the VA, in health care generally, and it is
driven in large part by the price of new specialty drugs.
Sovaldi is really just the canary in the coal mine that
indicates the kind of challenge ahead of us. So, I do not think
we can talk just about Sovaldi without looking at what is
coming at us, which are going to be even more expensive drugs,
raising more difficult fiscal challenges in the VA, in
Medicaid, in Federal health programs in general, and in the
private sector.
Our coalition is made up of purchasers, providers, consumer
groups, uniformly deeply concerned about this, and uniformly
believe that the path we are on in terms of pricing here is
unsustainable, that we need a new approach, certainly one that
supports innovation, but not one that is going to result in
people not being able to afford the very cures that innovation
produces.
So, my first point is that this is not just a matter of
$1,000 a pill. This is a matter, primarily, of a drug that is
potentially beneficial to three to five million people. So, it
is not an orphan drug at all. It is a drug that would be
appropriate for a large number of Americans. The problem is the
total cost of treatment, not so much the individual pill price.
Inevitably, as your question earlier suggested, this kind
of cost is going to force tradeoffs with other necessary
treatment within the VA, within Medicaid, within prisons,
within private health insurance. We are seeing this every day
today and it is a deep concern, because in many cases, the
services not delivered are the very preventative type of
services that have the greatest return on investment, and if we
neglect those, then we are just making the problem more
difficult down the road.
So, the first point is, this is the canary in the coal mine
and it is a matter not only of price, but of the number of
people.
The second point is that there are many new specialty drugs
in the FDA pipeline. They could soon overwhelm our health
financing system generally. Therefore, I do think we need new
approaches to rewarding innovation, to making sure that we have
drugs that are not only effective, but also affordable. There
are several ways in which we could ensure that we continue to
have the innovation we need, but at more affordable prices, and
in my testimony, I indicate several.
My third point is that there are several first steps that I
think would be constructive that are consistent with what we
are doing in health care generally, moving toward transparency,
moving toward a value basis for reimbursement. Those same ideas
could be applied to pharmaceuticals. There are several ways in
which we could ask companies to be more transparent about how
they arrived at prices, about what their value calculation is,
and about how they believe that value could be enhanced for the
largest number of Americans, not just for the individual.
I regret that Dr. Martin is not here. I have had several
conversations with him. He has made some statements in public.
I think we have a very clear idea of how they came to the
pricing, which, frankly, had nothing to do with value. It had
everything to do with the prior cost of treatment to a much
smaller number of people. I call that escalator pricing and I
think that we need to change the escalator.
We need a better way of doing this and I applaud the
Committee for having this hearing. I think this is a very
difficult, complicated subject, and I do think it is urgent,
not, again, just because of Hepatitis C, not just because of
Sovaldi, but because of the large number of very expensive
specialty drugs that are likely to be in front of us in the
very near future.
Thank you.
[The prepared statement of Mr. Rother follows:]
Prepared Statement of John Rother, President and CEO, National
Coalition on Health Care on behalf of the Campaign for Sustainable Rx
Pricing
how veterans are affected by the high cost of specialty drugs
i. introduction
Chairman Sanders, Ranking Member Burr, and Members of the
Committee, I am John Rother, President and CEO of the National
Coalition on Health Care (NCHC). I appreciate this opportunity to
testify on behalf of the Campaign for Sustainable Rx Pricing regarding
the high cost of specialty drugs and how our Nation's veterans are
affected by this growing problem.
The NCHC launched the Campaign for Sustainable Rx Pricing in
May 2014 to call attention to high-priced prescription drugs--most
notably, specialty drugs--and the impact these prices are having on
consumers, employers, and taxpayers. The Campaign is supported by the
more than 90 stakeholder members of the NCHC. Our member organizations
include medical societies, businesses, unions, health care providers,
faith-based associations, pension and health funds, insurers, and
groups representing consumers, patients, women, minorities, and persons
with disabilities. Collectively, our organizations represent more than
100 million Americans.
The goal of the Campaign for Sustainable Rx Pricing is to foster a
national dialog on the pricing of high-cost biopharmaceutical
therapies, some of which are now priced at $1,000 or more per dose with
total treatment costs of $100,000 or more. Prices at that level
threaten access to care and result in much higher out-of-pocket costs,
higher premiums, and higher taxes. We believe there needs to be a
better approach to pricing that recognizes value and balances the
interests of innovator drug companies with the interests of society and
our health care system. We are calling on the leaders of the
biopharmaceutical industry to engage with us in a dialog about market-
based solutions for ensuring that the U.S. health care system can
sustainably pay for the innovation that is so vital to our health and
well-being.
My testimony for today's hearing focuses on three broad topics: (1)
the challenges caused by rising health care prices; (2) the role of
specialty drug prices as a major component of the health care cost
problem; and (3) market-based solutions, including a stronger
commitment to transparency, that are needed to address this growing
problem.
ii. rising health care costs are a challenge for all stakeholders
The high cost of health care is a significant and ongoing challenge
for consumers, businesses, and government programs, including the
Department of Veterans Affairs (VA) health care system.
According to the most recent data \1\ from the Centers for Medicare
& Medicaid Services (CMS), national health expenditures in 2014 are
projected to total $3.057 trillion (a 5.6 percent increase over 2013),
with $290.7 billion spent on prescription drugs (a 6.8 percent
increase). Total national health spending in 2014 accounts for 17.6
percent of the Nation's gross domestic product (GDP) and translates
into per capita spending of $9,596. CMS further projects that national
health spending will increase at an average annual rate of 5.7 percent
over the 2013-2023 time period, with per capita spending reaching a
level of $14,944 by 2023.
---------------------------------------------------------------------------
\1\ CMS National Health Expenditure Data, September 2014. http://
www.cms.gov/Research- Statistics-Data-and-Systems/Statistics-Trends-
and-Reports/NationalHealthExpendData/
NationalHealthAccountsProjected.html
---------------------------------------------------------------------------
Rising health care costs are presenting challenges on multiple
fronts. Working families and seniors face difficult choices when their
budgets are pressured by medical expenses. Many businesses, both large
and small, find that health care costs are undermining their ability to
hire new employees, expand their operations, and compete in the global
economy. Federal, state, and local governments--facing budget
constraints driven by continually increasing health care costs--are
forced to limit the resources they devote to other priorities such as
infrastructure, education, and public safety.
The VA health care system--which serves nearly 9 million enrollees,
with an annual budget approaching almost $60 billion \2\--also is
impacted by rising health care costs. Because the VA serves patients
whose medical needs tend to be greater than those of the broader U.S.
population, its budget is disproportionately impacted by high health
care costs, including new specialty drugs with extremely high price
tags.
---------------------------------------------------------------------------
\2\ U.S. Department of Veterans Affairs, President's Budget Request
for Fiscal Year 2015. http://www.va.gov/budget/products.asp
---------------------------------------------------------------------------
iii. specialty drug prices are a large component of the problem
Spending on specialty drugs represents a growing share of overall
prescription drug spending and is increasing at a rapid and
unsustainable rate. Addressing these cost trends is critically
important to ensuring a sustainable health care system and achieving
affordability for businesses and consumers.
Specialty drugs generally are defined as drugs that are
structurally complex and often require special handling or delivery
mechanisms. While these drugs have been ground-breaking in the
treatment of cancer, rheumatoid arthritis, multiple sclerosis, and
other chronic conditions, the cost of treating a patient with specialty
drugs can exceed $100,000 annually. Their high costs and extended use
are placing a significant strain on our health care system.
While only 4 percent of Americans take a specialty drug, the
spending associated with these drugs represents a quarter of all drug
spending in the United States, according to a 2013 report \3\ by CVS
Caremark. In a separate 2014 report,\4\ CVS Caremark concluded that
spending on specialty drugs increased by 15.6 percent in 2013, compared
with only a 0.8 percent increase in spending on traditional
medications. A similar trend was reported \5\ by Express Scripts, which
has projected that spending on specialty drugs will increase 63 percent
between 2014 and 2016. Additional research \6\ by the
PricewaterhouseCoopers Health Research Institute projects that
specialty drug spending will increase from $87 billion in 2012 to $402
billion in 2020--a 361 percent increase in eight years.
---------------------------------------------------------------------------
\3\ CVS Caremark, 2013 Insights, Specialty Trend Management. http:/
/www.cvshealth.com/sites/default/files/Insights%202013.pdf
\4\ CVS Caremark, 2014 Insights, 7 Sure Things. http://
investors.cvshealth.com/ /media/Files/C/CVS-IR/reports/2014-cvs-
caremark-insights-report.pdf
\5\ Express Scripts, Industry Updates, April 8, 2014. http://
lab.express-scripts.com/insights/industry-updates/report-specialty-
drug-spending-at-lowest-rate-since-2007
\6\ PwC's Health Research Institute, Medical Cost Trend: Behind the
Numbers 2015, June 2014. http://www.pwc.com/en_US/us/health-industries/
behind-the-numbers/assets/hri-behind-the- numbers-2014-chart-pack.pdf
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The role of specialty drugs as a major driver of drug spending is a
direct result of their growing presence in the pharmaceutical market.
In 2010, specialty drug approvals by the Food and Drug Administration
(FDA) exceeded traditional drug approvals for the first time, a trend
that has continued each year since. In 2013, 19 of the 28 drugs
approved by the FDA--more than two-thirds--were specialty drugs.\7\
---------------------------------------------------------------------------
\7\ ``Specialty Drug Approvals in 2013.'' Express Scripts Insights.
March 26, 2014. http://lab.express-scripts.com/insights/drug-options/
specialty-drug-approvals-in-2013
---------------------------------------------------------------------------
Examples: Sovaldi and Harvoni
Within the past year, two new specialty drugs for treating patients
with the Hepatitis C virus--Sovaldi and Harvoni--have entered the
marketplace. These drugs provide important and effective breakthrough
therapies for the treatment of Hepatitis C patients. But the
manufacturer, Gilead Sciences, is demanding unaffordable prices that
pose a serious threat to the pocketbooks of consumers, employers,
government programs (including the VA health care system), and
taxpayers.
Sovaldi, approved by the FDA in December 2013, is priced at $1,000
per pill and costs $84,000 for a 12-week course of treatment. Because
Sovaldi is often prescribed in concert with other drugs, the total
treatment cost sometimes approaches $150,000 for a single patient.
Harvoni, which received FDA approval in October 2014, is priced at
$1,125 per pill and costs $94,500 for a 12-week course of treatment.
This drug also is combined with other treatments for many patients.
Sovaldi is on pace to become the highest grossing drug in history,
having generated sales of $2.27 billion in the first quarter of 2014
and $3.48 billion \8\ in the second quarter. If this sales trend
continues, Gilead essentially will recover its total investment in
Sovaldi in the first year. Pharmasset, the company that carried out the
research and development on Sovaldi, intended to price the drug at 43
percent of what Gilead is now charging.\9\ Did Gilead purchase the
company knowing it could more than double the price and pay for its
investment in one year? Has an incentive for innovation been abused at
the expense of taxpayers and patients?
---------------------------------------------------------------------------
\8\ Wall Street Journal, Hepatitis C Pill Rockets Gilead Into Big
Leagues, July 24, 2014.
\9\ The Fiscal Times, The $1,000 Pill That Could Cripple the VA's
Budget, by Erik Pianin, October 8, 2014, http://finance.yahoo.com/news/
1-000-pill-could-cripple-104500188.html
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We are concerned that the exorbitant price tag assigned to this
drug reflects an abuse of the market power that is granted to
pharmaceutical manufacturers under Federal law. Under the Hatch-Waxman
Act,\10\ manufacturers receive the exclusive right to manufacture and
sell their products for a period of time so that they can be rewarded
for their innovation and recover the costs associated with developing
important new therapies. This system generally has worked well,
producing effective treatments for many illnesses that were once
untreatable. However, when a new medicine is considered more effective
than previous therapies, the high demand for that product, combined
with the market exclusivity, allows the manufacturer a great deal of
market power in setting the price. In the case of Sovaldi, we believe
that market power has been abused.
---------------------------------------------------------------------------
\10\ CRS Report for Congress, The ``Hatch-Waxman'' Act: Selected
Patent-Related Issues, April 1, 2002. http://congressionalresearch.com/
RL31379/document.php?study=The+Hatch-Waxman+Act+Selected+Patent-
Related+Issues
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Implications for Veterans
The Committee has indicated that the VA currently provides health
care services to more than 170,000 veterans who have the Hepatitis C
virus, and that tens of thousands of additional veterans are estimated
to have Hepatitis C but have not been tested.
Recognizing that the VA serves a large number of veterans who may
benefit from either Sovaldi or Harvoni, we are seriously concerned
about the impact the unreasonable prices for these drugs will have on
access to care for our Nation's veterans. At a time when almost all
government programs are facing tight budget constraints and operating
with limited resources, it is critically important to ensure that the
essential health care services we owe to the men and women who have
served in uniform are not underfunded because the VA is forced to pay
excessive prices for new specialty drugs.
Looking at the overall impact of the costs associated with Sovaldi
and Harvoni, we have serious concerns that new specialty drugs with
unusually high prices may place an unsustainable burden on the VA
health care system, result in many patients not receiving needed
treatments and therapies due to budget constraints, and create the
potential for even greater dysfunction down the road if they establish
a pattern for future pricing strategies.
The Sovaldi and Harvoni Price Tags Are Not Sustainable
Innovative new drugs are not sustainable if the health care system
cannot afford them.
The IMS Institute for Healthcare Informatics has estimated that the
total cost of purchasing Sovaldi for all 3.2 million Americans who are
infected with Hepatitis C would approach $300 billion. This figure is
roughly equal to the total amount spent in 2013 on all other brand name
prescription drugs combined. Kaiser Health News \11\ describes the
problem with this explanation: ``If all 3 million people estimated to
be infected with the virus in America are treated at an average cost of
$100,000 each, the amount the U.S. spends on prescription drugs would
double, from about $300 billion in one year to more than $600
billion.''
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\11\ Kaiser Health News, Who Should Get Pricey Hepatitis C Drugs,
May 5, 2014. http://kaiserhealthnews.org/news/sovaldi-who-should-get-
pricey-drug/
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The increase in the number of exceptionally high-priced drugs
threatens the sustainability of our health care system. This is
particularly true for public programs, including the VA health care
system, which serve disproportionately sicker populations who are more
likely to need these new medications and are already straining under
the cost of existing high-priced new medications currently on the
market. With additional specialty drugs prepared to come down the
pipeline, and without pressure on pharmaceutical companies to change
their behavior, the health care system will not be able to withstand
the coming onslaught of six-figure therapies.
iv. market-based solutions are needed to make specialty
drugs more affordable
The Campaign for Sustainable Rx Pricing is advocating market-based
solutions for making specialty drugs more affordable. New approaches to
rewarding innovation and pricing drugs based on their value--along with
a strong emphasis on transparency--are important first steps toward
achieving this goal.
One solution is to encourage alternative payment and incentive
structures for rewarding innovation in the development of new drugs and
technologies. These types of payment strategies can improve access to
new drugs while at the same time generating additional evidence on the
value to patients of these new medications. As part of a broader value-
based purchasing strategy, these alternative arrangements--such as
outcomes-based contracting or reimbursing providers a flat fee for
obtaining drugs, rather than a percentage of the drug's total cost--
provide enhanced financial incentives for manufacturers of new drugs
that are linked to standards for quality care, performance, and health
outcomes. Greater use and availability of comparative effectiveness
data is a key element in the future growth of these innovative payment
arrangements.
On another front, we support enhanced flexibility for the VA to
conduct pilot programs to explore new ways of assessing and pricing
drugs based on their value. For example, the VA should be authorized to
use the findings of comparative effective research to provide
information to patients and providers about which drug regimens and
treatments deliver the most value and which are less effective. Such
information is highly beneficial to both patients and providers.
Additionally, the use of value-based insurance design can help promote
better outcomes and quality of care, while discouraging low-value,
high-cost care through the use of financial incentives. By building on
best practices in the private sector, the VA can improve access to
high-quality and cost-effective treatments based on the best available
medical evidence and clinical guidelines.
Promoting greater transparency in the pharmaceutical industry is
another strategy that offers significant promise for improving the
affordability of specialty drugs. Recognizing that a competitive market
is the best place to create value and determine price, we believe that
the drug manufacturing industry should commit to the following common
sense principles for health care sustainability which would benefit
patients and the entire health care system:
1. Drug Manufacturers Claiming a Value Proposition for Their
Products Should Provide Documentation of Such Claims. Manufacturers
should provide a clear basis for claims they make that drugs reduce
costs elsewhere in the health care system. Such reporting should
include the net effect of any savings relative to the cost of the drug.
If the manufacturer is claiming system-wide savings relative to
existing alternative treatments, for example, it should clearly define
the populations and treatment alternatives for which they are claiming
savings and provide substantiating data that can be independently
validated. Studies by independent researchers also are needed to
provide a more comprehensive assessment of the value of new products.
2. Drug Manufacturers Should Make Price Increases More Predictable
to Benefit Patients and the Health System as a Whole. Price inflation
of existing drugs has become a serious problem, with manufacturers
routinely demanding double-digit price increases year after year and
throughout a plan year. A robust discussion of drug price
predictability needs to take place, with a particular focus on the
impact to consumers.
3. Drug Manufacturers Attempting to Launch New Products Should
Disclose Likely Populations Served, Launch Price, and Any Value
Proposition, in as Timely a Manner as Possible. Manufacturers currently
withhold this information until nearly the minute the drug hits the
market, which unnecessarily impedes the ability of patients and the
health care system to react to a drug's indications, value, and
pricing. Providing this information earlier will allow the market to
function more efficiently.
4. Drug Manufacturers, Working with FDA, Should Make Available All
Clinical Data to Help Third-party Researchers Examine Comparative
Effectiveness and Value. Various organizations, including the American
Medical Association, have called on drug manufacturers to work with the
FDA to make this information available. Facilitating another government
agency (such as the Patient-Centered Outcomes Research Institute), or
other responsible third party, to assess the impact a newly introduced
drug would have on public and commercial costs in relation to the
drug's ability to improve patient health would be beneficial for
patients without resorting to distortionary government intervention
into price setting. Rather, adding a non-binding ``cost effectiveness''
component to a government agency's or other organization's mission
would provide a credible assessment of a drug's overall value.
5. Drug Manufacturer Participation in Organizations that Influence
Coverage Decisions Should Be Transparent and Free from Conflict of
Interest. Many organizations play a role in influencing coverage, such
as the drug compendia entities and United States Pharmacopeia (USP). To
the extent that drug manufacturers and others influence data
availability, selection of indications, and interpretation of evidence
in drug compendia, they are also setting the standards for drug use and
coverage. Critical, independent reviews should be required of the
information submitted by drug manufacturers and any potential conflicts
of interest should be disclosed to the public and resolved in advance
of the review process.
v. conclusion
Thank you again for the opportunity to testify on this important
issue. As we continue to work with stakeholders in the private sector,
the Coalition looks forward to continuing a dialog with the Committee
about market-based strategies for ensuring that veterans--along with
the broader U.S. population--have access to affordable specialty drugs.
Chairman Sanders. Thank you, Mr. Rother.
Mr. Weissman.
STATEMENT OF ROBERT WEISSMAN, PRESIDENT,
PUBLIC CITIZEN
Mr. Weissman. Thank you very much, Mr. Chairman, Mr. Burr.
Unfortunately, $84,000 treatments are not atypical any more
in our medical system, and they are not sustainable. What is
unusual about Sovaldi is the patient population that it is
intended to treat, which is a large patient population, at
least 3.2 million people in the United States. If you combine
that level of price with that size of population, we know what
we are going to get, because we are already getting it, which
is rationing. Now, from my point of view--and I think it should
be the point of view of all Americans--that is unacceptable,
particularly in the circumstances where we are talking about a
life-saving drug and the rationing is entirely avoidable.
I want to make three points to elaborate on that general
commentary. The first point is that this level of pricing is
already, with the modest sales of Sovaldi and related products,
severely taxing private and public payers; we are, in fact,
having rationing right now. Medicaid systems across the country
right now are rationing the product. Private insurers are not
making the product available to people for whom it is
clinically indicated, and they are not going to be able to.
The math is extraordinary. Now, the pricing is going to
evolve over time, but if you just look at Sovaldi, $84,000 for
a course of treatment, 3.2 million people in America with the
disease, we are talking about $268 billion--$268 billion for
one pharmaceutical treatment.
Now, in the course of the debate over the Affordable Care
Act, there was a lot of discussion about the ethics of
rationing of care. This is a case where we are not talking
about theoretical rationing. It is happening now, and it is a
certainty that it will continue in a worse way with this level
of pricing.
Now, it is one thing to have rationing where there is an
objective basis for costs. Hospitals cost money. Doctors cost
money. Nurses cost money. Sophisticated medical technology
costs money. There is nothing about the manufacturing cost of
Sovaldi that costs anything like $84,000. So, this is a choice
we are making. It is not determined by any objective reason,
and to me, I think that is just unacceptable. Our country can
do better and it must do better.
Now, some have held out hope that new treatments will lead
to price competition, or that hard bargaining by payers, of
which the VA is the best, will be able to yield sufficient
price reductions, and I think that is misguided. Based on prior
experience, new drugs do not necessarily come in at a lower
price. In fact, they often come in at a higher price. In
general, brand name competitors try not to compete on price.
And, when you have a starting point price of $84,000, even if
we have substantial reductions in price due to negotiations, we
are still going to be stuck with a super-high price, just
because the starting point was so high.
However, we do have solutions available to us, and really
fundamental solutions. Now, we should say, I think it is
correct--I agree with many of the things you said, Senator
Burr, about both the importance of innovation and looking at
government policy. The reason for this price level, as both of
you have asked, is a single thing, which is Gilead has a
monopoly. Gilead does not have a market created monopoly, they
have got a government granted monopoly, a patent monopoly, a
monopoly that comes from their exclusivities.
If we choose to address that monopoly through government
policy, since we, the people, gave the monopoly in the first
place, we can bring the price down. We know we can bring it
down to less than 1 percent, at least at the manufacturing
level, leaving aside whatever fair compensation we need to pay
to Gilead, because of the price reductions that already exist
in developing countries, as you referenced, Senator Sanders.
Two methodologies we might pursue to reduce price. One, we
might have just government use of the product, government use
of the patent and other related technologies and know-how. In
that case, we could source the product from generic competitors
and pay Gilead a royalty. If we pay Gilead a royalty of $5,000
per patient, we would actually still have cut the price overall
by 90 percent. We have got existing statutory authority to do
that under 28 U.S.C. Section 1498.
A different approach might be to look to buy out Gilead's
patent altogether. We could do that in one way, which would be
to say, we are just going to give Gilead as much money as we
anticipate the company will make by the virtue of its patent
monopoly. Why would we do that? Well, we would do that because
we are already going to pay them that much money, but we could
then provide treatment to everyone, whereas under the current
system, we are going to pay all that money and have rationing.
I would not advocate doing that. I think we could adjust
down significantly what we pay for a patent buy-out. But, it is
another method we might consider to provide treatment for all,
which really ought to be our objective, providing treatment for
all at some reasonable price and with a reasonable compensation
for Gilead.
As a concluding note, and to agree with Mr. Rother, this is
a unique story in some cases because of the high price, the
large patient population, and the unique value of this drug,
but it is typical in terms of what we have already on the
marketplace and, really, what else is going to come. We are
going to have these kinds of high prices, and they are
unsustainable. So, we need not seek a solution just for
Sovaldi, but, really, systemic solutions. I think that involves
looking at new forms of compensation for innovation, overcoming
monopolies, and looking also at return on the government
investment and R&D. Senator Sanders, you have introduced
legislation in this regard. I think there are many other
important ideas and it is time for a debate on these new
approaches.
[The prepared statement of Mr. Weissman follows:]
Prepared Statement of Robert Weissman, President, Public Citizen
Mr. Chairman and Members of the Committee, Thank you for the
opportunity to testify today on issues related to Hepatitis C among
veterans. I am Robert Weissman, president of Public Citizen. Public
Citizen is a national consumer advocacy public interest organization
with 350,000 members and supporters. For more than 40 years, we have
advocated with some considerable success to advance public health, to
ensure access to safe and affordable medicines, and to protect
taxpayers against corporate plunder of the public treasury.
Hepatitis C is a serious liver disease that is widely prevalent,
and takes about 15,000 lives annually in the United States. Infection
rates with the Hepatitis C virus are far higher among veterans than the
general public--as much as five times higher--making Hepatitis C
treatment a priority matter for the Department of Veterans Affairs
(VA).
The good news is that new drug treatments for Hepatitis C have
become available over the past year, and more seem set to become
available in the near future. It is important to be cautious about
claims of the efficacy of these new treatments, because they have been
subjected only to minimal clinical testing and there has been only a
short period of use in the general public. But with that cautionary
note in mind, these new drugs appear to offer much higher cure rates--
up to 95 percent--than previously existing therapies, with much less
severe side effects.
But these new drugs, which include Gilead's sofosbuvir (brand name
Sovaldi), Gilead's drug combining sofosbuvir with ledipasvir (brand
name Harvoni), Johnson & Johnson's simeprevir (brand name Olysio) and
likely a new drug from Abbvie, are extraordinarily expensive. By way of
example, Gilead is charging $1,000 a pill for sofosbuvir, or $84,000
for a 12-week course of treatment.
These prices are intolerably high and imposing unsustainable costs
on consumers, insurers and taxpayers.
As a result, public and private payers are moving to rationing.
This would be unfortunate but somewhat unavoidable if the drugs
were extraordinarily expensive to manufacture, or if research-and-
development costs had been unusually high. But neither is the case. The
prices are so high because Gilead and other manufacturers have monopoly
pricing power, and are choosing to use that power to price gouge.
The government is not helpless to respond, but even price
negotiations will fail to bring prices down sufficiently. The VA
obtains Sovaldi and Harvoni for a roughly 44 percent discount, but this
still leaves treatment at sky-high rates.
A sustainable solution to the pricing of the new Hepatitis C drugs
must involve a government-mandated license or acquisition of rights to
make the drugs, so that generic suppliers can enter the market, with a
determination of what constitutes fair compensation to Gilead or other
brand-name suppliers for the mandated license. With generic production,
prices will fall by more than two orders of magnitude, so that drug
costs will be less than 1 percent of what Gilead and other
manufacturers are charging (potentially excluding royalty payments).
While ensuring fair compensation for Gilead and other brand-name
manufacturers, the priority goal of government policy in this area
should be to ensure that treatment is made available to all for whom it
is clinically indicated. This principle should be overriding: Patients
should not be subjected to avoidable rationing of a critically
important medicine.
Because of prevalence rates among veterans, it is reasonable to
analyze the Hepatitis C drug pricing problem as a VA problem. It might
reasonably be considered a particular problem of the multiple Federal
agencies that provide health insurance coverage or direct treatment of
patients. Ultimately, however, it is a societal problem, and the best
solutions will cover all Americans. In this testimony, I highlight VA-
specific issues and opportunities, but in the main I address the drug
pricing problem as a national issue.\1\
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\1\ To be sure, with more than 150 million people infected with
Hepatitis C virus globally (see HK Mohd, J Groeger, AD Flaxman, ST
Wiersma, ``Global epidemiology of hepatitis C virus infection: new
estimates of age-specific antibody to HCV seroprevalence,'' Hepatology.
2013 Apr;57(4):1333-4), the problem is worldwide. Here, too, the key to
lowering price is to enable generic competition, and Gilead has agreed
to license generic manufacturers, at least to sell in 91 countries.
(Gilead, ``Gilead Announces Generic Licensing Agreements to Increase
Access to Hepatitis C Treatments in Developing Countries,''
September 15, 2014, available at: http://www.gilead.com/news/press-
releases/2014/9/gilead-announces-generic-licensing-agreements-to-
increase-access-to-hepatitis-c-treatments-in-developing-countries.)
Establishing a fair global licensing system poses unique issues that I
do not discuss in this testimony.
---------------------------------------------------------------------------
The first section of this testimony provides a brief overview of
Hepatitis C incidence, treatment, and treatment cost. The second
section underscores that rationing at current prices is both inevitable
and already occurring. The third section notes that research and
development expenses cannot possibly justify the price for sofosbuvir.
The fourth section considers whether competition among brand-name
products may lead to sufficient price reductions for Hepatitis C
treatment, and concludes it will not. The fifth section makes the case
for non-voluntary licensing of the new Hepatitis C drugs, or for a
mandated government buyout of the key patent and related rights. The
testimony concludes by noting that the problems posed by the new
Hepatitis C drugs are endemic to the pharmaceutical sector, and urges
consideration of new approaches for paying for drugs and incentivizing
pharmaceutical research and development.
i. hepatitis c: incidence, treatment, cost
Hepatitis C is a liver disease that results from infection with the
Hepatitis C virus (HCV). Persons newly infected with HCV are usually
asymptomatic, so acute Hepatitis C is rarely identified or reported.
Approximately 75-85 percent of people infected with HCV develop
chronic Hepatitis C, according to the Centers for Disease Control and
Prevention (CDC). Sixty to 70 percent of those infected will develop
chronic liver disease; 5-20 percent will develop cirrhosis over a
period of 20-30 years. One to five percent will die from chronic
infection, due to liver cancer or cirrhosis.\2\
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\2\ Centers for Disease Control and Prevention, ``Hepatitis C FAQs
for Health Professionals,'' available at: http://www.cdc.gov/hepatitis/
HCV/HCVfaq.htm#.
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The CDC estimates that the number of HCV-infected people in the
United States is 3.2 million,\3\ though some believe the figure may be
more on the order of 5.2 million.\4\ Approximately 15,000 people die
annually in the United States from HCV-related conditions.\5\ Although
injection drug use is presently the primary means of HCV transmission,
infection rates are highest among those born between 1945 and 1965.
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\3\ Centers for Disease Control and Prevention, ``Hepatitis C FAQs
for Health Professionals,'' available at: http://www.cdc.gov/hepatitis/
HCV/HCVfaq.htm#.
\4\ E Chak, AH Talal, KE Sherman, ER Schiff, S Saab, ``Hepatitis C
virus infection in USA: an estimate of true prevalence,'' Liver Int.
2011 Sep;31(8):1090-101.
\5\ ``The increasing burden of mortality from viral hepatitis in
the United States between 1999 and 2007.'' K. Ly, et al. Annals of
Internal Medicine, 2012. 156(4): p. 271-278.
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HCV infection rates are far higher among veterans than the general
population, perhaps five times the rate among non-veterans. Researchers
have estimated infection rates among veterans in the 5.4 to 6.1 percent
range, as compared to a national estimated incidence rate of 1.2
percent.\6\ Among veterans born between 1945 and 1965, the infection
rate is on the order of 10 percent.\7\ In 2011, 5.4 million veterans
had outpatient visits. More than 2.8 million were screened for HCV
infection. More than 170,000 of those vets were found to be HCV
infected.\8\
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\6\ JA Dominitz, et. al. ``Elevated prevalence of hepatitis C
infection in users of United States veterans medical centers,''
Hepatology. 2005 Jan;41(1):88-96; Lisa I. Backus, Pamela S. Belperio,
Timothy P. Loomis, Troy Shahoumian, Larry A. Mole, ``Hepatitis C Virus
Screening and Prevalence Among Veterans in Department of Veterans
Affair Care in 2012,'' November 3, 2013, available at: http://
www.publichealth.va.gov/docs/populationhealth/hepatitis/AASLD-2013-HCV-
screen-oral-11-03-2013.pdf#.
\7\ Lisa I. Backus, Pamela S. Belperio, Timothy P. Loomis, Troy
Shahoumian, Larry A. Mole, ``Hepatitis C Virus Screening and Prevalence
Among Veterans in Department of Veterans Affair Care in 2012,''
Epidemiology of viral hepatitis. Hepatology, 2013. 58: 216A-219A.
\8\ Lisa I. Backus, Pamela S. Belperio, Timothy P. Loomis, Gale H.
Yip, Larry A. Mole, ``Hepatitis C Virus Screening and Prevalence Among
US Veterans in Department of Veterans Affairs Care,'' JAMA Intern. Med.
2013;173(16):1549-1552.
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There are other subpopulations with elevated rates of HCV
infections, notably prisoners. As many as one in three prisoners are
infected with HCV.\9\
---------------------------------------------------------------------------
\9\ Centers for Disease Control and Prevention, ``Correctional
Facilities and Viral Hepatitis,'' available at: http://www.cdc.gov/
hepatitis/Settings/Corrections.htm.
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Not long ago, treatment options for HCV were relatively poor, but
this situation has changed dramatically in recent years. In the late
1990s, the development of interferon plus antiviral therapy and then
pegylated interferon-based therapy--a difficult to tolerate and
expensive treatment, with a 50-80 percent cure rate--marked a major
step forward.\10\ Within the last year, however, a new and apparently
far superior treatment has emerged. The drug manufacturer Gilead
obtained Food and Drug Administration (FDA) approval to market the oral
antiviral sofosbuvir (brand name Sovaldi), which evidence suggests
offers an 80-95 percent cure rate in most patients after 12-24 weeks of
treatment.\11\
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\10\ Centers for Disease Control and Prevention, ``Hepatitis C FAQs
for Health Professionals,'' available at: http://www.cdc.gov/hepatitis/
HCV/HCVfaq.htm#; HCV Advocate, ``A Brief History of Hepatitis C,''
available at: http://hcvadvocate.org/hepatitis/factsheets_pdf/
Brief_History_HCV.pdf; and U.S. Department of Veterans Affairs,
``Interferon and Ribavirin Side Effects,'' available at: http://
www.hepatitis.va.gov/provider/reviews/treatment-side-effects.asp.
\11\ Centers for Disease Control and Prevention, ``Hepatitis C FAQs
for Health Professionals,'' available at: http://www.cdc.gov/hepatitis/
HCV/HCVfaq.htm#.
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Treatment options for Hepatitis C appear to be fast evolving. In
October of this year, the FDA approved a new drug combining sofosbuvir
with ledipasvir, sold by Gilead under the brand name Harvoni. The
combination product is approved for treatment of Hepatitis C in people
with HCV genotype I, the most common type in the United States, and is
the first treatment for people with this genotype that does not also
require interferon or the antiviral ribavirin.\12\ Other products and
other combination products are likely to come on the market soon.
---------------------------------------------------------------------------
\12\ Food and Drug Administration, ``FDA Approves First Combination
Pill to Treat Hepatitis C,'' October 10, 2014, available at: http://
www.fda.gov/NewsEvents/Newsroom/PressAnnounce ments/ucm418365.htm.
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Along with apparently exceptional cure rates and low side effects,
the other exceptional feature of Sovaldi and Harvoni is the
exceptionally high prices that Gilead is charging. The company is
charging $1,000 for each sofosbuvir pill, meaning the cost of a 12-week
course of treatment is $84,000. Gilead's price for Harvoni is $1,125 a
pill, or $94,500 for a 12-week course of treatment.\13\ Individuals may
be prescribed different courses of treatment, so costs may be lower
($63,000 for a shorter course of Harvoni); and in many cases may be
much higher either because of a longer duration of treatment or
combination with certain other medications ($150,000 for sofosbuvir in
combination with Johnson & Johnson's simeprevir (brand name Olysio)).
---------------------------------------------------------------------------
\13\ Andrew Pollack, ``Harvoni, a Hepatitis C Drug From Gilead,
Wins F.D.A. Approval,'' New York Times, October 10, 2014, available at:
http://www.nytimes.com/2014/10/11/business/harvoni-a-hepatitis-c-drug-
from-gilead-wins-fda-approval.html?_r=0.
---------------------------------------------------------------------------
The Veterans Administration is, of course, the best Federal
Governmental model of pharmaceutical procurement. Thanks to a multi-
pronged procurement system that includes statutorily mandated price
reductions and the ability of the agency to negotiate with suppliers
and to adjust its formulary,\14\ the VA is commonly able to obtain
drugs at a price that is 40 percent or more below published wholesale
prices.\15\
---------------------------------------------------------------------------
\14\ Gretchen A. Jacobson, Sidath Viranga Panangala, and Jean
Hearne, ``Pharmaceutical Costs: A Comparison of Department of Veterans
Affairs (VA), Medicaid, and Medicare Policies,'' A Congressional
Research Service Report for Congress, January 19, 2007, available at:
https://www.hsdl.org/?view&did=713133.
\15\ National Committee to Preserve Social Security and Medicare,
``Price Negotiation for the Medicare Drug Program: It is Time to Lower
Costs for Seniors,'' October 2009, available at: http://www.ncpssm.org/
pdf/price_negotiation_part_d.pdf; Austin Frakt, Steven D. Pizer, Roger
Feldman, ``Should Medicare Adopt the Veterans Health Administration
Formulary?'' Health Economics, April 2011, available at SSRN: http://
ssrn.com/abstract=1809665.
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The VA has negotiated an arrangement with Gilead to obtain
sofosbuvir at a more than 40 percent price discount--a significant cut,
but still leaving the drug costing $594 per pill. The price for Harvoni
is $829 per pill.\16\ The Federal Bureau of Prisons is able to obtain
the same discounts as the VA; state prisons, which house a majority of
the incarcerated in the United States, are not.\17\
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\16\ U.S. Department of Veterans Affairs, ``Pharmacy Benefits
Management Services,'' available at: http://www.pbm.va.gov/PBM/
PharmaceuticalPrices.asp.
\17\ Peter Loftus, ``New Hepatitis Drugs Vex Prisons,'' Wall Street
Journal, April 24, 2014, available at: http://online.wsj.com/articles/
SB10001424052702304311204579510054146055222.
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Prices in the range of $84,000 for a course of pharmaceutical
treatment are, unfortunately, becoming increasingly common, especially
for cancer drugs and biologics. In most cases, however, drug makers
charge such extraordinary prices for products that serve limited
patient populations.
Hepatitis C is a different case altogether. There is a very large
patient population--at least 3.2 million, and perhaps many more.
Neither private nor public payers--nor the health care system
overall--can afford to provide an $84,000 per patient treatment to
every person with HCV.
The math is quite startling:
3.2 million patients x $84,000/patient = $268.8
billion.
For the VA alone, assuming a price of $50,000 per patient, the cost
just to treat those currently under VA care and diagnosed with
Hepatitis C would be $8.5 billion (170,000 patients x $50,000/patient).
Assuming 1 million veterans with HCV (a low estimate of 4 percent
prevalence among approximately 25 million veterans), the cost to
provide treatment to all of them would be $50 billion.
These are rough numbers, of course, because of the uncertainty over
the exact size of the patient population and varying possible per
patient costs. But the rough numbers are sufficient to show how
Gilead's pricing precludes universal treatment.
Now, it is important to emphasize that sofosbuvir treatment for HCV
infection is still in its early days, so it is too soon to have
complete confidence that the drug is as efficacious as early results
seem to suggest, and too soon to suggest that everyone with HCV should
receive the treatment, irrespective of genotype and how their condition
has progressed.
Yet there is some reason to believe that treatment should be
universal and immediate, and Gilead itself is making this claim.
``Gilead and some doctors make the case that even if liver damage is
not serious, people with a chronic virus infection can have various
other health problems, including an increased risk of heart attack.
Treating the disease early is better, they argue, because it avoids
liver damage to begin with.'' \18\
---------------------------------------------------------------------------
\18\ Andrew Pollack, ``Harvoni, a Hepatitis C Drug From Gilead,
Wins F.D.A. Approval,'' New York Times, October 10, 2014, available at:
http://www.nytimes.com/2014/10/11/business/harvoni-a-hepatitis-c-drug-
from-gilead-wins-fda-approval.html?_r=0.
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Without making any claims here about the validity of this view, it
is important to analyze its implications and appropriate policy
options.
ii. rationing is here
The price of sofosbuvir and the size of the patient population
guarantees one thing: The treatment will be rationed.
Insurers and physicians will try to ration the drug on a priority
basis, making it available only to the sickest patients, but there is
absolutely no doubt that it will be rationed.
Indeed, rationing is already underway. Although some formulary and
prescribing decisions are being made against the backdrop of the
remaining uncertainty over the efficacy of sofosbuvir, prescribing
restrictions are explicitly informed by the unmanageable cost of the
drug.
Explained the National Association of Medicaid Directors in a
recent statement: ``The potential for eliminating hepatitis C is an
exciting one. However, the high cost of sofosbuvir (branded Sovaldi),
at $1,000 a pill, requires careful consideration of how to responsibly
decide how to best use this new treatment option, especially in light
of the three million people currently diagnosed with hepatitis C in the
United States. * * * However exciting these new treatments are, the
unprecedented nexus of cost and widespread demand threaten to disrupt
the health care landscape in the near term.'' \19\ The statement was
released in conjunction with a report reviewing and raising questions
about the published studies on sofosbuvir.
---------------------------------------------------------------------------
\19\ National Association of Medicaid Directors, ``Evidence-Based
Reporting Critical to Decisions on Sofosbuvir and Health Care
Innovations,'' May 20, 2014, available at: http://Medicaid
directors.org/sites/Medicaiddirectors.org/files/public/
namd_statement_med_project_report_ 140520_3.pdf.
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States are limiting access to the drug, with cost considerations
narrowing availability beyond the criteria suggested by treatment
guidelines. In Illinois, Medicaid will provide sofosbuvir only to
patients meeting 25 separate criteria, including that they have
advanced Hepatitis C and no evidence of recent substance abuse or
treatment.\20\ In Idaho, Medicaid treatment guidelines require patients
to have advanced liver disease and no indication of substance abuse
within the last six months.\21\
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\20\ Illinois Department of Healthcare and Family Services, ``Prior
Authorization of Sovaldi and Other Medications for the Treatment of
Chronic Hepatitis C,'' August 8, 2014, available at: http://
www.hfs.illinois.gov/assets/080814n2.pdf.
\21\ Idaho Department of Health and Welfare, ``Idaho Medicaid--
Prior Authorization Therapeutic Criteria for Sofosbuvir (Sovaldi),''
May 23, 2014, available at: http://www.healthand welfare.idaho.gov/
Portals/0/Medical/PrescriptionDrugs/HepatitisCAgentsGuidelines.pdf.
---------------------------------------------------------------------------
Summarizes Reuters in a news account describing the national scene:
``Some insurers have already put conditions on who can get the drug,
and states including California and Texas have slowed or put treatment
on hold while they study what to do.'' \22\
---------------------------------------------------------------------------
\22\ Caroline Humer and Deena Beasley, ``Insurers Scrutinize Drug
Costs After $84,000 Sovaldi Surprise,'' Reuters, May 29, 2014,
available at: http://www.reuters.com/article/2014/05/28/usa-healthcare-
hepatitisc-insight-graphi-idUSL1N0OD1F820140528. See also Julie
Appleby, ``There's a Life-Saving Hepatitis C Drug. But You May Not Be
Able to Afford It,'' Kaiser Health News, March 3, 2014, available at:
http://kaiserhealthnews.org/news/insurers-debate-who-should-get-costly-
hepatitis-c-drug/; Drew Armstrong, ``Hepatitis C Drug Price Limiting
State Medicaid Approvals,'' Bloomberg, March 5, 2014, available at:
http://www.bloomberg.com/news/2014-03-05/hepatitis-c-drug-price-
limiting-state-Medicaid-approvals.html ; Jonathan D. Rockoff, ``Sales
Soar for Pricey Hepatitis Drug Sovaldi,'' Wall Street Journal,
March 31, 2014, available at: http://online.wsj.com/articles/
SB10001424052702303978304579473273033614530; Troyen Brennan and William
Shrank, ``New Expensive Treatments for Hepatitis C Infection,'' JAMA
2014;312(6):593-594.
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When the Congress debated the Affordable Care Act, there was a
heated national discussion about rationing of health care. Well,
rationing is already upon us, and it has nothing to do with the
Affordable Care Act. It does have a great deal to do with government
policy, however. Gilead is able to impose outrageous prices because it
possesses a government-granted monopoly, through the grant of patents
and other exclusivities. The government has in its power the ability to
overcome these monopoly barriers, and it should. I discuss mechanisms
to do so below.
It is worth noting the specific nature of the rationing of
sofosbuvir that is now occurring and will continue as long as prices
remain in the current range. This is not rationing because of the real
and unavoidable cost of providing care--of paying for doctors and
nurses, maintaining hospitals, operating sophisticated medical
equipment, or even the expense of developing new drugs. It is rationing
imposed because of artificial monopolies--something far more
objectionable, and much more easily addressed.
iii. research and development: no justification for sovaldi pricing
Big Pharma typically justifies the high price of medicines by
referencing research and development (R&D) costs. Pharmaceutical R&D is
costly, risky and characterized by delayed payouts, the argument goes,
so prices must be high to incentivize investment and reward success.
But the income stream from Sovaldi is so extraordinary that the R&D
rationalization holds no water.
A new study by the industry-funded Tufts Center for the Study of
Drug Development pegs the cost of developing a new molecular entity at
$2.6 billion.\23\ This figure, which relies on secret industry data,
has been widely ridiculed for being too high; but it is important to
note that it is risk adjusted and takes into account the cost of
capital--in other words, that figure is intended to represent the cost
not just of successfully developing a drug, but of the failures
incurred along the way, as well as time costs. Gilead practically
covered this cost in just the first quarter of revenues from Sovaldi!
\24\
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\23\ Tufts Center for the Study of Drug Development, ``Cost to
Develop and Win Marketing Approval for a New Drug Is $2.6 Billion,''
November 18, 2014, available at: http://csdd.tufts.edu/news/
complete_story/pr_tufts_csdd_2014_cost_study.
\24\ Gilead, ``Gilead Sciences Announces First Quarter Results,''
April 22, 2014, available at: http://investors.gilead.com/
phoenix.zhtml?c=69964&p=irol-newsArticle&ID=1920785.
---------------------------------------------------------------------------
We know something as well about Gilead's actual costs. The company
acquired the patents to sofosbuvir through its acquisition of the firm
Pharmasset for $11 billion in 2011. Gilead will cover that expense with
roughly a year's revenue from Sovaldi.
Pharmasset's key assets were its rights to the product that became
sofosbuvir. The product was amidst Phase II tests and just beginning
Phase III tests for some genotypes at the time Gilead acquired
Pharmasset.\25\ Gilead was willing to pay so much for the firm because
it saw the potential for the drug candidate that became sofosbuvir. The
$11 billion purchase price had nothing to do with Pharmasset's R&D
investment in what became sofosbuvir. That investment in the three
years prior to Gilead's acquisition, as detailed in Pharmasset's 10-K
filings, was a very modest $62.4 million ($6.891 million in 2009,
$16.431 million in 2010 and $38.332 million in 2011; total does not
include lesser expenses not attributed to any particular project).\26\
By way of comparison, Gilead is earning roughly $200 million every week
from sales of Sovaldi.
---------------------------------------------------------------------------
\25\ Gilead, ``Gilead Sciences to Acquire Pharmasset, Inc. for $11
Billion,'' November 21, 2011, available at: http://
investors.gilead.com/phoenix.zhtml?c=69964&p=irol-
newsArticle&ID=1632335 &highlight=.
\26\ Pharmasset, Inc. Form 10-K, November 14, 2011, available at:
http://www.sec.gov/Archives/edgar/data/1301081/000119312511311300/
d225717d10k.htm.
---------------------------------------------------------------------------
Gilead has not tried to justify its pricing for Sovaldi through the
tried-and-true reference to R&D costs, because even under Big Pharma's
trumped up claims about R&D costs, Sovaldi revenue far exceeds any
potential claim to reasonable return on investment.
The company has instead chosen to rely primarily on the claim that
sofosbuvir offers value for money, in the sense that an $84,000 course
of treatment is cheaper than the cost of a liver transplant or other
late-stage interventions necessary for some people with Hepatitis C.
This is a creative rationale for an industry that typically disdains
such cost-benefit analyses, insisting that patients should be entitled
to treatment without regard to any financial cost-benefit analyses.
In any case, the ultimate refutation of this claim is simple: The
price is just too much. The system can't, and won't, pay--at least not
for everyone who potentially needs treatment.
iv. brand-name competition offers no cure
What then is to be done? Some have held out hope that competition
from new Hepatitis C products will lower prices, either through direct
price competition or by enabling payers to negotiate prices down. But
there is very little chance that competition from new products will
lower prices anywhere near enough.
A new combination regimen from Merck and including sofosbuvir has
recently failed to show good results.\27\
---------------------------------------------------------------------------
\27\ Bill Berkrot, ``Merck Four-Week Hep C Regimen with Gilead's
Sovaldi Comes Up Short,'' Reuters, November 9, 2014, available at:
http://www.reuters.com/article/2014/11/10/us-merck-co-hepatitis-
idUSKCN0IU00K20141110.
---------------------------------------------------------------------------
However, Abbvie is seeking approval for a new product that may show
greater promise and constitute a legitimate alternative to sofosbuvir
for patients with HCV genotype 1, the most common type in the United
States.\28\ But even assuming Abbvie's product, and perhaps others in
the pipeline, do gain marketing approval and offer comparable benefits
to sofosbuvir for certain patients, they are unlikely to bring steep
drops in price.
---------------------------------------------------------------------------
\28\ Abbvie, ``AbbVie Submits New Drug Application to U.S. FDA for
its Investigational All Oral Interferon Free Therapy for the Treatment
of Hepatitis C,'' April 22, 2014, available at: http://
abbvie.mediaroom.com/2014-04-22-AbbVie-Submits-New-Drug-Application-to-
U-S-FDA-for-its-Investigational-All-Oral-Interferon-Free-Therapy-for-
the-Treatment-of-Hepatitis-C.
---------------------------------------------------------------------------
Brand-name companies do not generally engage in robust competition
over price while their products remain on patent, instead behaving more
as oligopolists. New entrants into a class not infrequently peg their
prices above those of existing sellers. This has been notably true in
the instance of HIV/AIDS drugs, where new drugs in class typically sell
at prices comparable to, or, not infrequently, more than earlier
entrants; new classes of antiretrovirals are commonly priced above
prior ones; and prices tend to increase annually throughout the entire
market.\29\ The Congressional Budget Office (CBO) has found these
trends to be generally true: In four out of five therapeutic classes
examined by the CBO, the breakthrough product price continued to rise
even after the introduction of me-too, brand-name competitors.\30\
---------------------------------------------------------------------------
\29\ See James Love and Thiru Balasubramamian, ``Price Evolution of
Antiretroviral Drugs 1996 to 2002 Maryland Reimbursements for Medicaid
Program,'' August 28, 2003, available at: http://keionline.org/sites/
default/files/ER_James_Love_Thiru_Balasubramaniam_Maryland_Medicaid_
ARV_prices_20030828.pdf.
\30\ Congressional Budget Office, ``How Increased Competition from
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
Industry,'' July 1998, available at: http://www.cbo.gov/sites/default/
files/pharm.pdf (see p. 20). Price rises for brand-name drugs after
they are first placed on the market are commonplace and can be
extraordinary, a reminder that--absent policy interventions--the price
for sofosbuvir may well rise considerably in the years ahead. See
General Accounting Office, ``Brand-Name Prescription Drug Pricing: Lack
of Therapeutically Equivalent Drugs and Limited Competition May
Contribute to Extraordinary Price Increases,'' December 2009, available
at: http://www.gao.gov/new.items/d10201.pdf; and Robert Langreth, ``Big
Pharma's Favorite Prescription: Higher Prices,'' Bloomberg
BusinessWeek, May 8, 2014, available at: http://www.businessweek.com/
articles/2014-05-08/why-prescription-drug-prices-keep-rising-higher#p2.
---------------------------------------------------------------------------
By contrast, generic competition does lower price, but--in keeping
with the experience with limited competition among brand-name
suppliers--prices tend to fall only modestly with one or a few
competitors. The steep price reductions from generic competition are
realized only with large numbers of competitors in the market.\31\
---------------------------------------------------------------------------
\31\ Congressional Budget Office, ``How Increased Competition from
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
Industry,'' July 1998, available at: http://www.cbo.gov/sites/default/
files/pharm.pdf. (The rising prices of generics in the United States
over the last year and the diminished benefit of generic competition is
surely due in considerable part to the reduction in number of generic
manufacturers, and the growing interconnections between generic and
brand-name companies, including through pay-to-delay and other
licensing arrangements, as well as the outright brand-name company
acquisition of generic firms.)
---------------------------------------------------------------------------
Indeed, although there has been considerable talk about a
potentially lower price from Abbvie for its competitor product, there
is little reason to expect dramatic price reductions. Investment
analysts are now speculating that the company may price its drug 10-20
percent below Gilead.\32\ For a product as expensive as Sovaldi, this
would represent a non-trivial savings on the order of $15,000 per
patient. But such a price reduction would not be nearly enough to
reduce pressure on payers, or to avoid rationing.
---------------------------------------------------------------------------
\32\ Ed Silverman, ``If Abbvie Discounts Its Hep C Drug, Would
Pricing Reach a Tipping Point,'' Wall Street Journal, October 14, 2014,
available at: http://blogs.wsj.com/pharmalot/2014/10/14/if- abbvie-
discounts-its-hep-c-drug-would-pricing-reach-a-tipping-point.
---------------------------------------------------------------------------
If the Abbvie product turns out to be a close substitute of
sofosbuvir for patients with HCV genotype 1 and of comparable efficacy,
and if Abbvie does evidence an interest in competing on price, then
perhaps the VA and other payers willing and able to engage in hard
bargaining will be able to reduce prices further. Even so, the
extraordinary high starting point established by Gilead makes it almost
impossible for negotiations to succeed at lowering price to a tolerable
level.\33\
---------------------------------------------------------------------------
\33\ Troyen Brennan and William Shrank, ``New Expensive Treatments
for Hepatitis C Infection,'' JAMA 2014;312(6):593-594. (From the chief
medical officer and chief scientific officer for CVS Caremark: ``The
ultimate approach to cost will be lower prices, which will occur as
more products create competition. However, it will likely entail
narrower formularies, in which the physician choice of a particular
medication is limited by the deals negotiated by insurers and pharmacy
benefit managers. Even then, the costs could still be very high--
restrictive formularies have led to discounts of 30% to 40% for branded
medications, not the greater than 95% discounts that occur when drug
patents expire and generic competitors enter.'')
---------------------------------------------------------------------------
v. the imperative of public use or acquisition
Ultimately addressing the sofosbuvir pricing problem--and avoiding
both unjustified drain on the pocketbooks and treasuries of consumers
and private and government insurers, and needless rationing of this
apparently important medicine--will require a government licensing or
acquisition arrangement. There is no doubt that generic producers can
make and profitably sell sofosbuvir at prices that are two orders of
magnitude cheaper than the Gilead price. With marginal pricing, the
drug can be made available to everyone who is clinically indicated to
receive it, while Gilead can be provided some fair compensation.
Gilead has never claimed that its $84,000 price reflects
manufacturing costs. To its credit, the company has announced a
discount and licensing arrangement for developing countries. Gilead
will make sofosbuvir available in India for $1,800 for a course of
treatment. It has voluntarily licensed seven Indian firms to product
the drug, and there is every reason to expect their price to be far
below the $1,800 level set by Gilead.\34\
---------------------------------------------------------------------------
\34\ Gilead, ``Gilead Announces Generic Licensing Agreements to
Increase Access to Hepatitis C Treatments in Developing Countries,''
September 15, 2014, available at: http://www. gilead.com/news/press-
releases/2014/9/gilead-announces-generic-licensing-agreements-to-
increase-access-to-hepatitis-c-treatments-in-developing-countries.
Gilead's licensing deal for developing countries has been subject to
considerable criticism (see Ketaki Gokhale, ``Gilead Licenses Hepatitis
Therapy in India Amid Price Criticism,'' Reuters, available at http://
www.bloomberg.com/news/2014-09-15/gilead-licenses-sovaldi-to-mylan-
others-for-developing-markets.html), not without reason, but the
company should be given credit for putting forward a legitimate
licensing scheme that will likely make sofosbuvir available in poor
countries for a price 1 percent or less of what is charged in the
United States.
---------------------------------------------------------------------------
In the United States, there is a well-established method for the
government to use patented inventions without permission of the patent
owner, via 28 U.S.C. 1498(a).\35\ Sec. 1498 establishes an absolute
right for the government and its contractors to use patented
inventions, with the only limitation being that reasonable compensation
must be paid.
---------------------------------------------------------------------------
\35\ ``Whenever an invention described in and covered by a patent
of the United States is used or manufactured by or for the United
States without license of the owner thereof or lawful right to use or
manufacture the same, the owner's remedy shall be by action against the
United States in the United States Court of Federal Claims for the
recovery of his reasonable and entire compensation for such use and
manufacture.''
---------------------------------------------------------------------------
Sec. 1498 is most commonly used by contractors, notably defense
contractors, but its reach extends far beyond the defense sector.
Following the spread of anthrax by postal mail in 2001, the use of Sec.
1498 was contemplated to build a stockpile of ciprofloxacin against
potential bioterrorist threats. Although Sec. 1498 was not employed, it
was against the backdrop of a government use license threat that Bayer,
the manufacturer of then-patent protected ciprofloxacin, lowered its
price significantly.\36\
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\36\ In 2001, in the midst of the anthrax scare, Secretary of
Health and Human Services Tommy Thompson, at the urging of Senator
Charles Schumer, began discussion of exercising Sec. 1498 authority to
ensure the government was able to build emergency reserves of
ciprofloxacin to prepare for the possibility of a bioterrorist attack.
(Matt Fleischer-Black, ``The Cipro Dilemma--In the Anthrax Crisis,
Tommy Thompson Distorted Patent Law to Save Public Health. Good Move?''
The American Lawyer. January 2002, available at: http://www.cptech.org/
ip/health/cl/cipro/americanlawyer012002.html.)
Sen. Schumer argued, ``[f]irst, Bayer can only produce so much
Cipro, and we should not put our best response to anthrax in the hands
of just one manufacturer. Second, buying Cipro only from Bayer--who
charges a lot more than generic manufacturers would--means we spend a
lot more and receive a lot less. Hopefully, we won't even need to use
the Cipro we already have on hand, but if we make arrangements to
purchase it from multiple generic drug manufacturers, we'll have it if
we need it.'' (Randall Willis, ``Infringement for the public good?''
Modern Drug Discovery, May 2005, available at: http://pubs.acs.org/
subscribe/archive/mdd/v05/i05/html/05pap.html)
HHS had previously negotiated a price of $1.77 per tablet for
Cipro. On October 22, HHS announced a newly negotiated price of $0.95
per tablet for a purchase of 100 million tablets. Purchasing 100
million tablets at the new price saved the government and taxpayers $82
million. Furthermore, the negotiated agreement provided the government
with the option of making a subsequent purchase of 100 million tablets
at $0.85 per tablet as well as the option of a third 100 million
tablets purchase at $0.75 per tablet. (HHS Press Office, ``HHS. Bayer,
Agree to Cipro Purchase,'' October 24, 2001, available at http://
archive.hhs.gov/news/press/2001pres/20011024.html.) It took less than
one week from the first public murmurings of government use for the
government to obtain a nearly 50 percent discount.
Also worth noting: In the 1960s, the VA used Sec. 1498 to procure a
generic version of the tranquilizer meprobamate at a more than 95
percent discount. (Donald McNeil, ``U.S. Weighs the Hidden Cost of its
Pharmacy Bill,'' October 17, 2001, available at: http://www.
freerepublic.com/focus/news/549769/posts.)
---------------------------------------------------------------------------
It is also worth noting other contexts in which the government
issues non-voluntary licenses on pharmaceutical inventions,
particularly in the context of efforts to overcome anti-competitive
practices. Licenses have been issued to overcome collusive deals
between brand-name and generic firms to delay generic competition (pay-
to-delay cases) and to mitigate the anti-competitive impact of mergers.
What would a government use license look like for sofosbuvir and
related products?
Under a traditional government use license approach, the Federal
Government would authorize generic manufacturers to make and sell the
product for its use--in this case, for distribution to patients under
its care.
The scope of the license could vary considerably. The license could
be to treat patients served only by a particular agency--the Department
of Veterans Affairs, for example, or the Federal Bureau of Prisons. It
could cover all government programs, including Medicaid and Medicare.
It could also be designed to cover all Hepatitis C patients in the
United States, if the U.S. Government were to create a program to
provide pharmaceutical treatment for all Hepatitis C patients for whom
treatment is clinically indicated. The Ryan White HIV/AIDS program is
an example of a disease-specific Federal insurance and treatment
program, though it is a means-tested program.\37\
---------------------------------------------------------------------------
\37\ Health Resources and Services Administration, ``About the Ryan
White HIV/AIDS Program,'' available at: http://hab.hrsa.gov/abouthab/
aboutprogram.html.
---------------------------------------------------------------------------
With the ability to negotiate scaled-up purchases from generic
makers anywhere in the world that satisfy quality considerations, the
government could likely obtain a course of a treatment at a cost of
several hundred dollars per patient.
On top of the cost of purchase, reasonable compensation would need
to be provided to Gilead. There is a fairly rich case law in
determining fair compensation under Sec. 1498, which looks to a wide
range of factors, including licensing practices within the industry.
Within the pharmaceutical sector, licenses are common, and aggregate
around 5 percent, though rates often rise considerably higher. In this
instance, Gilead would have a good claim for a much higher royalty. A
royalty rate of 100 percent would double the price of the product, but
likely still keep costs well below $1,000. Even if Gilead were paid a
royalty of $1,000 per patient, costs might be as little as $1,200 per
patient. Even with a per patient royalty of $5,000, the calculus of
providing treatment would be revolutionized.
It's worth underscoring just how revolutionary would be such a
price reduction. At $1,200 per patient, the cost to treat 3.2 million
patients would be $3.84 billion--as compared to $268 billion at the
$84,000 price. For the VA, the price to treat 170,000 patients would be
$204 million--as compared to $8.5 billion at the current discount
price. For a veteran patient population of 1 million, the cost would be
$1.2 billion--as compared to $50 billion.
With a $5,000 per patient royalty, the costs would be $16.6 billion
for the entire U.S. population, $884 million for 170,000 vets and $5.2
billion for a veteran population of 1 million.
Apart from the political will to pursue such an approach, there
would be significant issues to address. These include:
Establishing a fair and reasonable royalty that satisfies
a reviewing court if challenged by Gilead. Courts tend to look at a
wide range of factors, including royalty rates for comparable licenses,
the licensor's policy to maintain its patent monopoly, the advantage of
the patented invention over alternatives, and the outcome of a
hypothetical arms-length negotiation, but there is considerable
variation in the standard for reasonableness imposed by courts.\38\
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\38\ Fifteen frequently referenced ``Georgia Pacific factors'' were
elaborated in Georgia-Pacific Corp. v. United States Plywood Corp., 318
FSupp 1116, 6 USPQ 235 (SD NY 1970).
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Overcoming the ``data exclusivity'' rights that Gilead
obtains as the party to have obtained marketing approval for
sofosbuvir. These rights prevent generic firms from relying on Gilead's
clinical trials in order to obtain FDA marketing approval, for a period
of five years. Government use of the sofosbuvir patents pursuant to
Sec. 1498 would not include a right to rely on Gilead's testing data.
The government might solve this problem by using its broad eminent
domain authority to acquire a license to rely on the test data.\39\ It
might gain Gilead's agreement to rely on the test data as part of a
negotiation over the price of compensation for the patent license. Or,
it could, in theory, if it chose, repeat the clinical trials needed to
obtain FDA approval.
---------------------------------------------------------------------------
\39\ See U.S. Department of Justice, ``History of the Federal Use
of Eminent Domain,'' available at: http://www.justice.gov/enrd/
History_of_the_Federal_Use_of_Eminent_Domain.html as well as discussion
at Kirby Forest Industries, Inc. v. United States, 467 US 1 at 4-5. If
the government were to use its eminent domain powers to obtain a
license to rely on Gilead's data, it would be required to pay ``just
compensation,'' pursuant to the Fifth Amendment. There would be a
strong argument that just compensation should be zero, since Gilead
would already be paid compensation for a license to use a product
otherwise given monopoly protection. An alternative compensation
approach would look to the cost of the clinical trials undertaken by
Gilead to obtain FDA approval for sofosbuvir, and for the Federal
Government to pay a fair share for the cost of those trials. This
approach is currently followed for use of pesticide testing data under
the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). See
Robert Weissman, ``Public Health Friendly Options for Protecting
Pharmaceutical Registration Data,'' International Journal of
Intellectual Property Management, vol. 1, no. 1/2, 2006, available at:
http://www.essentialaction.org/access/uploads/IJIPM1101Weissman-5.pdf.
Since clinical testing costs for sofosbuvir were in the$100 million
range, paying for a portion of these costs would not significantly add
to the amount the government would pay Gilead.
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A second approach to non-voluntary acquisition of a right to use
Gilead's patents, conceptualized by James Love of Knowledge Ecology
International, would be a patent buyout.\40\ Under this approach, the
Federal Government would simply purchase from Gilead the entire rights
to the sofosbuvir patents, exclusivities and know-how. In practical
terms, the primary difference between this approach and a government
use license would be that a judgment would be made on the overall
compensation to be paid to Gilead for use of its patents and associated
rights, rather than making royalty payments on a per pill or per
patient basis. But underlying the idea is a different theoretical
approach.
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\40\ James Love, ``Non-voluntary Use of Patents for Drugs to Treat
the Hepatitis C Virus in the United States: Mechanisms Available to the
Federal Government, State Governments and Private Actors,'' July 18,
2014, available at: http://keionline.org/sites/default/files/Non-
voluntary_ use_HCV_patents_USA.pdf.
---------------------------------------------------------------------------
See also James Love and Robert Weissman, ``A Patent Buy-Out of
Hepatitis C Treatments, the Case of the United States,'' KEI Policy
Note, forthcoming.
At its core, the idea would be to assess how much Gilead is likely
to earn from the American market for sales of sofosbuvir, make some
modifications as mentioned below, and then pay the company the entirety
of that revenue stream. Why would the government do this? Because for
almost exactly the same amount of money as Americans are going to pay
Gilead for provision of sofosbuvir to a limited pool of patients, the
government could provide the drug to everyone for whom it is clinically
indicated.
In the first half of 2014, Gilead racked up more than $5 billion in
sales in the United States alone, with sofosbuvir provided to just
70,000 patients.\41\ Imagine that this trajectory continues: Sovaldi
becomes a $10 billion seller in the United States, and 150,000 people
are treated annually. The drug's key patents expire in 2025 and 2029.
Let's assume 10 years of monopoly protection for the product. Gilead
will earn $100 billion--just from within the United States--while
treatment is rationed.
---------------------------------------------------------------------------
\41\ Andrew Pollack, ``Gilead's Hepatitis C Drug, Sovaldi, Is On
Pace to Become a Blockbuster,'' New York Times, July 23, 2014,
available at: http://www.nytimes.com/2014/07/24/business/sales-of-
hepatitis-c-drug-sovaldi-soar.html?_r=0.
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Here's how the patent buyout approach might work: Gilead is paid
$100 billion right now. Treatment is made available to everyone who
needs it, as soon as suppliers can ramp up. With a marginal cost of
production of say, $200, the cost of providing medicine to each of 3
million patients is only an additional $600 million.
Now, $100 billion is an extraordinary sum of money. But the point
is, Americans are set to pay this much to Gilead anyway. With Gilead's
current monopoly, we pay that astronomical sum and get rationing; the
patent buyout alternative would at least enable us to provide near-
immediate treatment for everyone in need, with no rationing.
Of course, there could be substantial modifications to the $100
billion figure. In light of the prospect of a competing treatment, we
could imagine that Gilead's revenues will diminish over time and that
an effective buyer could negotiate lower prices. We might decide that
Gilead's current price is simply too high, and impose a fair-pricing
reduction. Perhaps these adjustments cut the payment to Gilead in half,
perhaps more.
The buyout of Gilead's U.S. patent and related rights could proceed
through voluntary negotiation, against the backdrop of a potential use
of the government's Sec. 1498 and/or eminent domain authority. If
Gilead refused to agree, the government could proceed to exercise those
authorities.
The government might choose to shoulder the burden of paying for
the buyout on its own, or it might impose a fee on other payers--health
insurers and self-insuring employers--to share costs. One can imagine
many different ways to allocate costs.
As with the issuance of a government use license, the patent buyout
approach plainly presents a series of challenges. Negotiating or
determining compensation would be contentious. Apportioning costs to
nongovernmental payers would be complicated and likely require
legislation. As with issuance of a government use license, the
government might choose to create a special program for Hepatitis C
coverage, but this would be less necessary because one benefit of the
patent buyout approach is that it would make available generic versions
of sofosbuvir for the private as well as public sector.
But all of these challenges can be addressed.
And the potential complications and contentiousness of either non-
voluntary approach to making sofosbuvir available at marginal cost to
all who need it should not obscure more important realities:
1. The present approach whereby we are at the mercy of Gilead's
monopoly control over sofosbuvir--a government-granted monopoly, at
that--is morally unacceptable, because it requires the needless
rationing of an important medical therapy. The same holds for other new
Hepatitis C treatments.
2. The deference to Gilead's monopoly pricing for sofosbuvir is
fiscally unsustainable. Sky-high prices for medicines with smaller
patient populations are unacceptable, but the health care system can
more easily absorb them. Gilead's pricing for a product needed by a
large patient population is already imposing serious strains on both
public and private payers.
3. Market and voluntary approaches to addressing the excessive and
intolerable pricing of sofosbuvir are almost certain to fail. There is
no reason to believe either brand-name competition or bulk purchasing
negotiations by public or private insurers will reduce the price of
sofosbuvir or competing medicines to acceptable levels.
4. The Federal Government has the legal tools and the capacity to
address these problems through non-voluntary licensing or patent
acquisition.
vi. the broader pharmaceutical policy landscape
The Hepatitis C story is unusual in that an apparently very
effective drug has become available to treat a large patient
population.
But the pricing of sofosbuvir and other Hepatitis C treatments is
no longer unusual, as high five figure and even six figure drugs become
increasingly common.\42\
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\42\ See Peter B. Bach, ``Could High Drug Prices Be Bad for
Innovation,'' Forbes, October 23, 2014, available at: http://
www.forbes.com/sites/matthewherper/2014/10/23/could-high-drug-prices-
be-bad-for-innovation; Alicia Caramenico, ``Unaffordable Lifesaving
Drugs--The List is Growing,'' AHIP (America'sHealth Insurance Plans)
Coverage blog, September 29, 2014, available at: http://
www.ahipcoverage.com/2014/09/29/unaffordable-lifesaving-drugs-the-list-
is-growing.
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The future of pharmaceutical pricing for new drugs is coming into
sharper focus: astoundingly high prices that drain public treasuries,
impose unmanageable costs on private insurers and stress consumers
paying out of pocket beyond their breaking point. This is a future of
price gouging, unsustainable health care costs, and routinized
rationing.
It's not a future we should welcome, and it's not one that we
should tolerate.
We need to find different ways to reward innovators for research
and development other than with patent monopolies and marketing
exclusivities. Research and development does have real costs, and it is
important that it be both supported and incentivized. But monopolies
have proven an enormously inefficient way to do so, and now are
increasingly being deployed in an unsustainable fashion.
Real solutions are not going to come from the margins, because the
pricing system is fundamentally broken. It's past time for a very
serious debate about how we leverage the very substantial public
investment in medical R&D to ensure more access to treatment.\43\ And
it's time also to talk about a new reward system for innovation, which
pays drug developers directly for the public health benefits they
confer--for their innovative contribution, and the risks taken--but
permits immediate, marginal pricing of new drugs.\44\
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\43\ See Robert Weissman, ``The Role of federally-Funded University
Research in the Patent System,'' testimony before the U.S. Senate
Committee on the Judiciary, October 24, 2007, available at: http://
www.judiciary.senate.gov/imo/media/doc/07-10-24WeissmanTestimony.pdf.
\44\ See, for example, S. 627, the Medical Innovation Prize Fund
Act, introduced by Senator Bernie Sanders, which would eliminate patent
and other exclusive rights to market pharmaceuticals, and instead pay
innovators from a medical innovation prize fund.
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It's a great thing that our public and private medical research
system is able to develop important new drug treatments. For patients,
however, those treatments are useful only if they are accessible, and
we've now reached a point where treatments will increasingly be
restricted and rationed because brand-name drug companies have used
monopolies to price them out of reach. We have to do better, and we
can.
Chairman Sanders. Thank you.
Senator Burr. Mr. Chairman, if I could apologize to the
witnesses, I have got a meeting that I cannot miss. I would
very much like to be here to ask some questions. I will leave
you in sufficient hands.
Chairman Sanders. Thank you, Senator Burr.
Let me start off by throwing out some information that I
believe is accurate, but correct me if you think it is not. My
understanding is that Sovaldi was developed by Pharmasset, that
Pharmasset was purchased by Gilead for about $11 billion, is
that correct?
Mr. Weissman. Yes.
Chairman Sanders. My understanding is that in the first
year that the product, Sovaldi, is on the market Gilead will
make about $11 billion and get a 100 percent return on their
investment for purchasing Pharmasset. Is that your
understanding?
Mr. Weissman. Yes.
Chairman Sanders. Obviously, no one can predict what
happens in the future, but there are some estimates that Gilead
can make as much as $200 billion on this one product alone,
having bought the company that developed it for $11 billion.
Does that sound roughly accurate?
Mr. Weissman. It could be more.
Chairman Sanders. It could be more. OK. Both of you raised
the moral issue of a company making a huge profit, charging
unbelievably high prices which results in a whole lot of
people: (A) unable to afford the product; and (B) in the case
of government agencies, whether it is VA or Medicaid, spending
significant sums of money to buy that product, meaning that
they have less money available for other needs.
What is the moral implication of it? Are we comfortable as
a nation with a product being available which can save human
lives, but either individuals or government agencies are not
able to afford that product the company is making unbelievably
high profits? Is that a good way to do health care in America?
Mr. Rother.
Mr. Rother. Senator, we could have a very interesting moral
discussion. I believe there are many moral issues raised by not
only this situation, but health care in general. I do think
that in this country, we have decided that for-profit
institutions have a role, particularly in the pharmaceutical
arena, and we have to live with that.
For me, the moral issue is not so much the profit as it is
are people who need and could benefit from this therapy
receiving it or likely to? And if we do not have a system that
can assure that, I think that raises a very serious moral
question, and we clearly do not in this situation because of
the price. Again, I would say profits are part of our system,
but at this point, we have to question whether or not we have
an ability to serve a real human need.
Chairman Sanders. Let me ask the same question of Mr.
Weissman. Researchers at the University of Liverpool have
estimated Gilead's production costs, or Pharmasset's production
costs for a full course of treatment is approximately $150 to
$250 per person. That is less than \3/10\ of 1 percent of the
price the company is actually charging, which is $84,000. We
also know that, based on the SEC filings from Pharmasset, the
original developers of the drug now known as Sovaldi, they had
intended to charge $36,000, not $84,000. So, how do we get to
$84,000 when the developer of the drug wanted to charge $36,000
especially when the full course of treatment--the production
cost--is $150 to $250? How does this $84,000 magically appear?
Mr. Weissman. Well, maybe one other number to throw in the
mix before answering is the actual R&D expenditure on this
product, so----
Chairman Sanders. It must have been many billions of
dollars, was it not?
Mr. Weissman. It was not.
Chairman Sanders. Oh.
Mr. Weissman. It was probably around $100 million. We know
from Pharmasset's 10(k) filings they spent about $68 million in
the 3 years prior to Gilead's acquisition on their clinical
trials.
Chairman Sanders. Let us repeat that. They spent $68
million for the research and development to develop the drug,
and they are going to make $11 billion the first year the drug
is out and perhaps $200 billion over the course of the life of
the drug?
Mr. Weissman. That is correct. So, I think we are a long
way from worrying about fair return on R&D investments. We are
untethered from the R&D consideration, and I think--where did
the $84,000 figure come from? Because they can. They did not
want to go to six figures, because they thought that was a bad
idea. It might look more--give them more trouble than they
wanted to take. The nature of a patent monopoly is the monopoly
seller chooses the price.
Chairman Sanders. So, you have a monopoly situation where
the person who has a pill that is desperately needed by people
all over this country and all over the world can charge
anything they want for it?
Mr. Weissman. Right, and it is not like $36,000 is a fair
price. That is just a different price.
Chairman Sanders. It is not $94,000, right.
Mr. Rother, did you want to comment.
Mr. Rother. Senator, if I could, I do think that the
traditional justification for high prices in pharmaceuticals is
obsolete, and Gilead, to their credit, has not tried to justify
price on the basis of R&D, because they cannot. And, that is
probably true for many of the new specialty drugs. The price is
divorced from the cost of development.
In earlier public statements, the CEO of the company has
clearly stated that they took the existing price, the standard
of care preexisting, and bumped it up and set their price at
maybe 20 percent higher. That did not take into account the
vast increase in the population that would be appropriate for
this. So, they really did not even think about the public
consequences or the consequences to health payers, governments,
insurers, individual businesses. They just did what I think has
become common practice in the industry, which is that escalator
pricing--taking the current price and, for a new product,
bumping it up regardless of R&D costs.
Chairman Sanders. I certainly believe that when you have a
product that saves lives and eases suffering, you want to get
it out as widely as possible. In fact, in Egypt, where
Hepatitis C is a very, very serious problem, Gilead is going to
sell this product there for $10 a pill rather than the $1,000 a
pill they are charging in the United States. How does that
happen? Should the VA go to Egypt and buy a whole lot of
product there?
Mr. Rother. There are quite serious considerations among
some of my members about sending their infected patients to
Egypt.
Chairman Sanders. Is that something that some of your----
Mr. Rother. Absolutely. It is called medical tourism, and--
--
Chairman Sanders. Right.
Mr. Rother [continuing]. You can save quite a bit of money.
Chairman Sanders. So that we are clear on this: somebody in
the United States who is not in the VA, not in Medicaid, has
Hepatitis C.
Mr. Rother. Right.
Chairman Sanders. Today, they have to pay $1,000 a pill
here, or $84,000 for the treatment. Some of the people you work
with are now suggesting that folks go to Egypt to buy that
treatment for $10 a pill. Is that what I am hearing from you?
Mr. Rother. Medical tourism has actually been a phenomenon
for a while, but this is an extreme situation----
Chairman Sanders. This is extreme, yes.
Mr. Rother [continuing]. Where the differential in the cost
is so dramatic that it is hard not to think about this as a
serious strategy for health insurers, or public programs, for
that matter, who otherwise simply cannot afford this.
Chairman Sanders. Will--my guess is that they make money on
selling it at $10 a pill in Egypt. Do we think they do?
Mr. Weissman. I am sure they do. I mean, they are doing
some interesting things in terms of the licensing in developing
countries so that--they are enabling seven Indian
manufacturers, also, to sell in 91 countries. They will
undercut the Gilead price in Egypt. They will undercut the
Gilead price in India, as well. So, yes, at $800, they will
make a profit, or $900, but they are not trying to make real
profits there.
Chairman Sanders. Yes.
Mr. Weissman. I think what all this speaks to, and even
more than guessing what the marginal cost is, we have a system
that is not functioning properly. The purpose of granting a
monopoly is to incentivize R&D, and now, as Mr. Rother says--it
is correct--we are now incentivizing something else. It is
doing something else entirely. And, if we have a rational
approach to thinking about this, the idea should be making
important medical treatments available to everybody, really, at
marginal cost. So, $200 is the cost of getting it; that is a
real cost. That is the cost it should be. We have to
incentivize and pay some kind of compensation to create some
kind of incentive for R&D----
Chairman Sanders. Right.
Mr. Weissman [continuing]. But, we should not do it by
charging patients super-high prices. We should not do it by
making health insurers unable to pay.
Chairman Sanders. This is a huge issue, which obviously, as
I think you indicated, Mr. Rother, goes well beyond Sovaldi.
And, the issue here is that, as you both indicated, we have got
to come up with an approach which encourages innovation, which
rewards innovators, which lets them make good profits, but at
the same time, once we have that product which saves lives, we
get it out as widely and as cost-effectively as possible
throughout this country and throughout the world. Is that
essentially the goal of what we are talking about?
And, you indicated, Mr. Weissman, we can offer up with the
idea of a prize. In other words, the government says, look,
these are the challenges that we face, the illnesses we want to
deal with and you are going to come up with a product and make
a lot of money, but then it is ours and we are going to
distribute it in a cost-effective way. Is that an approach that
makes sense?
Mr. Rother. I think it is an option that we ought to really
consider, but we also need other options that maybe, I believe,
are perhaps more attainable in the short term, because I think
that is a dramatic----
Chairman Sanders. You do not think the pharmaceutical
industry will be supportive of----
Mr. Rother. Somehow, I just doubt that.
Chairman Sanders. Yes----
Mr. Rother. So, anyway, I think that demanding greater
transparency, moving them toward value-based pricing would be a
big advance. It might not have a huge impact at first, but at
least we would have a more informed debate. At least we would
be able, then, to have a serious discussion about alternatives
and we would have the information that we need, which now is
not available.
Chairman Sanders. Well, in this case, we do have. I think,
Mr. Weissman, you indicated that R&D for this product was,
what, several hundred million?
Mr. Weissman. One-hundred million.
Chairman Sanders. One hundred----
Mr. Weissman. This is an unusual case. Yes, we actually
have information.
Chairman Sanders. All right. So, we do know that their
profit margin is going to be extraordinary based on R&D. But,
your thought is transparency would be helpful throughout the
process?
Mr. Weissman. Well, if I can comment, I think there is no
question about that. There is this recent study from Tufts
where the $2.6 billion estimate for the cost of developing a
new pharmaceutical based on secret industry data is not being
made available, and I think, you know, I agree with all the
points that Mr. Rother made in the testimony.
Chairman Sanders. So, in other words, we have no reason to
believe that that is necessarily accurate?
Mr. Weissman. I would say we have many reasons to believe
that is not necessarily accurate. But, as to the point of
whether the industry would oppose this, I am sure the industry
would oppose your bill at first, Mr. Sanders, but the fact is
that the current system is not just leading to immoral
outcomes, it is ineffective at incentivizing R&D--both in terms
of the irrational outcomes, and we are just not getting very
much back. You could--and what actually is incentivizing quite
a bit is intensive marketing and expenditures on capitalizing
on the monopolies, not actually on the R&D side.
So, I believe, as your legislation proposes, we would have
similar amounts or perhaps even larger amounts available for
actual R&D than currently is available, and to reward actual
results from R&D than is currently done. You just would not
take the hide out of consumers to pay for all the marketing of
the monopolistically-protected product.
Chairman Sanders. I recall speaking to physicians on this
issue who talk about the absurdity of them writing out
prescriptions that are not filled by people who simply cannot
afford to fill them, and think about the enormous waste in
that, of people who do not get the medicine that they should
because they cannot afford it, then end up in a hospital a lot
sicker than they should be.
Mr. Rother, did you want to----
Mr. Rother. Yes. I was actually going to make a point about
physicians. We have been talking to many of the leading
physicians in the field about this issue and they are deeply
troubled. And, I believe we will shortly be able to hold a
press conference with them and give voice from the clinical
perspective to what they see as an unjustifiable----
Chairman Sanders. In the sense that there is a product out
there that their patients need----
Mr. Rother. Right.
Chairman Sanders [continuing]. But cannot afford, is that
the----
Mr. Rother. Absolutely. They understand, as well, the kinds
of tradeoffs that that kind of a price forces health systems to
make because they are the ones then confronted with it. So, I
think you will find a very strong clinical voice. Now, of
course, there are many physicians who receive money from the
pharmaceutical industry, so we have to acknowledge that. But,
these people are the acknowledged leaders in the field and I
think we will find they believe that the current system is not
sustainable and does not work and we need to think about new
ways of rewarding----
Chairman Sanders. So, their frustration is they have
patients who can be treated, but they are unable----
Mr. Rother. Yes.
Chairman Sanders [continuing]. To treat them because of the
cost of the product.
Mr. Rother. That is correct.
Chairman Sanders. All right. What questions am I not
asking?
Mr. Rother. Well, I wanted to make a point--I am sorry that
Senator Burr is not here--about cost effectiveness, because he
was saying we could assume here that if everyone was treated,
we would save all this money. In fact, that is not the case.
The most authoritative body that studies the cost effectiveness
of pharmaceuticals, ICER, has done a study on Sovaldi and they
have concluded that the drug is not cost effective given to
everyone. It could be cost effective if it is very focused on
those people who are the most seriously ill, but that leaves
then untreated many people who really are at risk.
So, this group will be meeting once again in just a couple
of weeks--I am going to be part of that--to look at the next
generation, Harvoni, and will also bring the best independent
analysis to whether the drug is worth it at its current cost.
Of course, I do not know what the conclusion will be, but I
just wanted to put on the record the fact that there has been
very careful analysis of cost effectiveness and the conclusions
do not support the current pricing of Sovaldi.
Chairman Sanders. Mr. Weissman, any last thoughts?
Mr. Weissman. Well, I want to thank you for holding the
hearing. Again, I think that Sovaldi is a flash point issue,
and we should say one reason is because it is such a good drug,
or at least appears to be, based on the early results we have,
whereas most new medicines are not. But, it is a harbinger of
what is to come and even of what we already have. But, because
this one has the profile it has, the high price, the large
population, and apparent high efficacy, we really need to focus
on it and, I think, really push for legislative approaches that
deal with this particular problem as a way to get to a bigger
discussion, but also for administrative actions. I think the
administration has opportunities here to do some things on its
own to take care of at least the current patients in various
Federal systems, which is the bulk of the population.
Chairman Sanders. Well, let me conclude by thanking both of
you for your excellent testimony. The truth is, this hearing
could be held in any number of committees, because it goes well
beyond Sovaldi and the fact that veterans have a
disproportionately high percentage of Hepatitis C than the
general population. The issue here for the Veterans Committee
is that with the limited budget, we want to make sure all of
our veterans get the health care they need, the quality care
they need. But, there is no question in my mind that if we end
up spending billions of dollars on this one particular drug, it
is going to make it difficult for the VA to provide care in
other areas where veterans need it. It is an issue for VA. It
is an issue for Medicaid and it is an issue for Medicare. It is
really an issue for the entire country.
So, we thank you both very much for being here and look
forward to continuing working with you.
This hearing is adjourned.
[Whereupon, at 12:51 p.m., the Committee was adjourned.]
[all]