Abusive specialty drug pricing threatens healthcare system

There are few greater economic challenges facing American families and taxpayers than the high cost of healthcare.  High health costs result in lower incomes, higher premiums and out-of-pocket costs, fewer jobs, higher taxes and deficits, and fewer available resources for important private and public investments. And if you are looking for an example of why healthcare costs so much, look no further than the $1,000 per pill price of a new prescription drug called Sovaldi used to treat Americans with hepatitis C (HCV), a virus that can lead to liver disease.

The path that brought us to $1,000-per-pill drug prices is straightforward.  As a way to encourage medical innovation, we grant drug companies exclusive rights to manufacture and sell their product for a period of time so they can recoup their research and development costs and make a reasonable profit on their investment. This system has generally worked well to date.  

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But some drug companies are abusing the market power we grant them and are setting excessively high prices for specialty drugs, thereby putting the sustainability of the health care system at risk.

The pricing of Sovaldi is a prime example of this problem. This important new HCV medicine, manufactured by Gilead Sciences, Inc., can be combined with other medications to treat patients more effectively than previous FDA- approved treatments. But Sovaldi’s list price tops $84,000 for a single patient’s 12-week regimen.  When other drugs that are prescribed with Sovaldi are added to the mix, the total medication costs can top $160,000.  

The potential impact of Sovaldi’s excessive price becomes clear upon considering that an estimated 3.2 million Americans are infected with HCV. If every infected American was to take this drug at its current price, the total cost would top $268 billion—when you add the cost of other drugs prescribed with Sovaldi the cost is well in excess of $300 billion -- more than what we spent on every other brand name prescription drug in 2013 combined.

American patients, employers, and taxpayers cannot afford this abuse of market power, and businesses, health plans, consumers, and state governments are uniformly objecting. Matt Salo, the executive director of Medicaid Directors, says the cost of this one drug has the “potential to throw a wrench into short-term state budgets.” Dr. Sharon Levine of the Kaiser Permanente medical group calls Gilead’s pricing of Sovaldi “outrageous.”  And AIDS Health Care Foundation President, Michael Weinstein, chides Gilead as setting “a new benchmark for unbridled greed…”

But Sovaldi is just the beginning.  A generation of specialty drugs now in the pipeline could threaten access to affordable medication for all Americans if they continue to be priced at these extraordinary levels. In fact, some market analysts are projecting yearly specialty drug costs to quadruple to $400 billion by 2020. Consumers, businesses, and taxpayers will get stuck with that bill, in the form of higher insurance premiums or higher taxes.

Drug manufacturers may well deserve a substantial reward for innovative new treatments, but charging prices that threaten our entire health care system is not the way to get it.

The rights we’ve granted drug companies give them extraordinary market power when they discover an innovative therapy. However, with great power comes great responsibility. The pricing strategy currently being used by Gilead is as untenable for drug companies’ long-term business interests as it is for the health care system; at these prices, it is only a matter of time until the money runs out. When that happens, it is not only patients who lose, but also the next generation of innovators. The drug industry will need to show restraint if America is to have the resources to continue to reward true medical breakthroughs.

We need a smarter approach. As a coalition of more than eighty member organizations,—including medical societies, businesses, unions, health care providers, faith-based associations, pension and health funds, insurers, and consumer groups that collectively represent over 100 million Americans, we invite the industry to come to the table to find a sustainable solution. We stand ready to help create a better path forward that reflects our common interest in innovative, high quality, and affordable health care.

Rother is president and CEO of the National Coalition on Health Care.