[Senate Hearing 113-746]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-746

                        HEPATITIS C AND VETERANS

=======================================================================

                                HEARING

                               BEFORE THE

                     COMMITTEE ON VETERANS' AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            DECEMBER 3, 2014

                               __________

       Printed for the use of the Committee on Veterans' Affairs


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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

                              ----------                              

                            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

                              ----------                              


                      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
---------------------------------------------------------------------------
    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
---------------------------------------------------------------------------
    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
---------------------------------------------------------------------------
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.''
---------------------------------------------------------------------------
    \11\ Kaiser Health News, Who Should Get Pricey Hepatitis C Drugs, 
May 5, 2014. http://kaiserhealthnews.org/news/sovaldi-who-should-get-
pricey-drug/
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \2\ Centers for Disease Control and Prevention, ``Hepatitis C FAQs 
for Health Professionals,'' available at: http://www.cdc.gov/hepatitis/
HCV/HCVfaq.htm#.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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#.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
     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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.]
      

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