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Sovaldi casts a shadow on US pricing and reimbursement environment – it could have been worse

30 June 2015 Milena Izmirlieva

The US marketing approval of Gilead Sciences' Sovaldi (sofosbuvir) in December 2013 and its subsequent launch at an eye-watering USD1,000 per pill raised serious questions about the price of Sovaldi in particular, but also about the sustainability of paying such high prices for pharmaceuticals in the United States.

The drug is a very effective treatment for Hepatitis C Virus offering higher cure rates and shorter treatment duration than the previous standard of care which mainly consisted of a combination of interferon injections together with ribavirin and the anti-viral agent taken in multiple doses daily for a little under six months to one year. However, at a cost of USD84,000 for the full 12-week course of treatment, Sovaldi quickly presented a problem for payers in the US. Close to USD150 million was spent on Sovaldi by Medicaid in the first quarter of 2014, according to the Medicaid Health Plans of America (MHPA), despite restrictions on access in several states. The Pharmaceutical Care Management Association (PCMA) estimated that treating only 15% to 30% of the eligible HCV-infected Medicare Part D population with new therapies such as Sovaldi and Olysio, excluding any rebates, would increase federal spending by around USD2.9-5.8 billion, equivalent to a 6-11% increase in Part D expenditure in 2015.

Private health insurers also raised concerns about the cost of Sovaldi and subsequent HCV treatments, such as Gilead's Harvoni ((ledipasvir + sofosbuvir) and Janssen-Cilag's (US) Olysio (simeprevir). Meanwhile, CVS Caremark's chief medical officer Troyen Brennan and chief scientific officer William Shrank outlined their concerns regarding Sovaldi's price: in an article, published in The Journal of the American Medical Association (JAMA) in August 2014, they warned that recovering the costs of treating HCV patients with Sovaldi would entail adding up to USD300 to every individual's premium in the US over the next five years. Full details about the estimated impact of the new-generation of HCV drugs and the payer reaction can be found in this IHS report.

A few months on, it's time to consider if there are signs of actual changes in the United States P&R environment as a result of the 'Sovaldi Effect'.

First of all, US pharmaceutical spending continues to grow. Prescription drug expenditure in the country increased by 13% year on year in 2014 to USD374 billion. While new drugs, like Sovaldi, partly contributed to this growth, growth in spending was to a greater extent triggered by the rollout of Affordable Care Act (ACA) provisions which have expanded health insurance access to millions of previously-uninsured Americans. As a result of the ACA provisions the government - at both the centralised and state level is gradually becoming more directly involved in healthcare provision than has ever been the case before in the United States. And this should in due course impact the US pricing and reimbursement environment - to a greater extent than the 'Sovaldi effect'.

Sovaldi and other expensive drugs are, however, clearly behind some of the changes triggered in the US pricing and reimbursement environment. While pricing still remains free in the US, states have taken measures to restrict their exposure to substantial pharmaceutical cost increases by limiting reimbursement access. By November 2014, 27 state Medicaid plans had restricted access to Sovaldi to patients with severe liver disease and access was further restricted for people with recent substance abuse problems, according to a study by Harvard's Center for Health Law and Policy Innovation.

Some health insurers specifically chose to exclude Gilead's HCV drugs from their main formulary of covered drugs. Express Scripts decided to allow exclusive coverage for AbbVie's HCV medicine, Viekira Pak ((ombitasvir + paritaprevir + ritonavir tablets; dasabuvir tablets), from 1 January 2015 after AbbVie offered a "significant discount" in exchange for exclusivity. Gilead itself offered a substantial discount to CVS Health, the second-largest pharmacy benefits manager, which agreed to cover Sovaldi and Harvoni to the exclusion of AbbVie's drug.

Sovaldi and expensive drugs in general still remain under attack. The last few months saw a proposal to the California State Assembly decide on the introduction of rules that require pharmaceutical manufacturers to reveal production costs for prescription medicines with a wholesale cost above USD10,000 per patient and per year. The draft bill, the so called Pharmaceutical Cost Transparency Act of 2015, however, was withdrawn from consideration in April.

All things considered, not much has happened yet in terms of actual pricing and reimbursement reform in the US as a result of the 'Sovaldi effect'. However, Sovaldi and its peers will continue to cast a long shadow over the US pricing and reimbursement environment. The immediate outcome has been to focus on discounts - a familiar development in US pharmaceutical procurement. Nonetheless, the outcome may have been vastly different - and the US may have lost its status as a free pricing market for pharmaceuticals - if there were no competitors with similar efficacy poised to enter the market so soon after Sovaldi and their producers were not willing to offer a sharp discount.

The experience with HCV drugs certainly should give pharmaceutical companies food for thought. More attention should focus on establishing the true value proposition of new pharmaceuticals: particularly those drugs - like the new generation of HCV treatments - which produce long-term savings for the healthcare system as a whole, but short-term extreme cost increases and pain for health insurers and pharmaceutical benefit managers.

Milena Izmirlieva is head of the research team at IHS Life Sciences.
Posted 30 June 2015



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