The next step in deciding whether California will join other state efforts to demystify the drug pricing practices of pharmaceutical manufacturers will be taken tomorrow as the Assembly’s Health Committee votes on a drug pricing transparency bill introduced in February by State Senator Dr. Ed Hernandez (D-Azusa).
Update: SB 1010’s committee vote has been postponed to June 28.
The bill, which was passed by the Senate three weeks ago, comes in the midst of a growing public furor over the pricing of pharmaceuticals that has seen retail prices on many lifesaving specialty drug regimens equivalent to that of a new Porsche Panamera. Much of the outrage has been focused on pharmaceuticals companies that reap vast profits by buying up existing drugs they deem to be undervalued and spiking prices rather than performing costly research and development.
But wholesale prices of first-generation treatments for common medical conditions that have been in the marketplace for decades have also been skyrocketing without apparent justification. The cost of at least 60 brand name prescription drugs have more than doubled over the past 18 months alone — with at least 20 quadrupling in price — as drug companies resort to a pattern of year in, year out increases to drive revenues.
That sticker shock has most impacted the state’s largest purchasers of drugs — the hospitals, health insurers, the California Department of Corrections and the California Public Employees’ Retirement System (CalPERS) that have been forced to absorb the crippling costs whose rippling effects ultimately fall on wages, taxes and state budgets, and pressure insurers to raise premiums.
Sponsored by the California Labor Federation and the consumer organization Health Access California, Senate Bill 1010, its supporters insist, will alleviate some of that pressure by simply requiring pharmaceutical manufacturers to give advance notice of price hikes along with a justification for the increases. It would also require health plans to report the proportion of insurance premiums that is spent on prescription drugs.
“It’s such a basic and modest step,” Health Access California executive director Anthony Wright told Capital & Main, “but it would allow large purchasers to be able to start a negotiation with the drug companies rather than be totally surprised by [a hike] and just accept it as is.”
Those hikes can be as dramatic as they are stratospheric. In 2014, hepatitis C killed 19,659 Americans, making it the most lethal infectious disease in the country. About 3.5 million Americans — and about 750,000 Californians — are currently living with hepatitis C, with roughly half unaware that they are infected, earning the virus the name “silent killer.” Worldwide, that estimate is 200 million. It is the most common cause of cirrhosis and liver cancer. And it is the most common reason for liver transplants worldwide.
That same year, however, saw the introduction of the breakthrough antiviral Sovaldi by Foster City-based Gilead Sciences, which offered a virtual cure. But there was a catch. Gilead priced Sovaldi at $1,000 per pill, which made the 400-milligram tablet one of the most expensive drugs on Earth. A three-month course of the treatment cost around $84,000, and that set the stage for a battle between desperate patients and reluctant health insurers.
That cost was also a big concern for the state, because hepatitis C disproportionately affects low-income people, who are more likely to be on Medi-Cal, along with prisoners, whose health care is also the state’s responsibility. Between July 2014 and November 2015, California paid $387.5 million to treat just 3,624 patients with the disease.
Last year, CalPERS reported that specialty drug spending increased 32 percent to $438 million annually, and Governor Brown’s 2015 budget was forced to set aside supplemental funding of $228 million to pay for a fraction of the patients who are on public assistance programs to receive Sovaldi and a newer, even more expensive Gilead hep C antiviral called Harvoni.
“It’s actually a topic that makes me very angry,” said Dr. Catherine Moizeau, a Sacramento physician who specializes in treating hep C patients, most of whom are on Medi-Cal. “I’m furious about the way they’ve priced these drugs and made it so difficult for everybody.”
For hep C doctors, the concerns with the exorbitantly priced drugs come downstream with the treatment of the 75-80 percent of Medi-Cal patients whose benefits are administered by a managed care plan. Despite the drug offering cure rates greater than 90 percent, initially, managed Medi-Cal companies limited authorization for Sovaldi and Harvoni, rationing the drugs to only those patients with one foot in the grave.
“There’s been unprecedented pushback that we had in the last two years by the payers,” Moizeau recalled. “I mean [they were] literally throwing these people under the bus, saying that, ‘We’re just not gonna pay for these meds.’”
Finally last July, the state’s Department of Health Care Services changed its guidelines for the medications, lowering the standard of illness from stage 3’s advanced fibrosis of the liver to stage 2’s substantial fibrosis of the liver, “as a result of an increasing body of scientific research about the effectiveness of newer hepatitis C medications.”
“The bottom line,” Moizeau noted, “is we’ve got a situation in California where we’re still experiencing rationing for an infection of all things! Which is kind of crazy, because, you know, if a person has a relatively dangerous infection and there’s a cure for it, you would want to get that infection treated and cure it. … You have to have substantial fibrosis of the liver — F2 fibrosis of the liver! — before Medi-Cal will pay for your hep C treatment meds.”
For Big Pharma the stakes are high. The market for new-generation hepatitis C treatments is expected to reach $20 billion by 2020. And the industry insists that steep prices are necessary to recoup research and development costs, which for new drugs average around $1.4 billion before FDA approval. But exactly how that price gets calculated remains shrouded in secrecy. Though Gilead has never revealed Sovaldi’s full price tag, it did report that it spent around $880 million on development between 2012 and 2014 — but only after paying $11 billion to buy Pharmasset Inc. to acquire its research and patents on the new antivirals. Sovaldi has since paid off handsomely, generating nearly $8 billion in sales in just its first year.
And though the price of the drug has since come down, thanks in part to Merck’s lower-priced Zepatier, which was introduced in January at a list price of $54,600 for a 12-week regimen, nobody is certain how much anybody pays for any drug, since institutional and state buyers negotiate their own volume prices as well as benefitting from additional rebates and discounts that are confidential.
“California is well known to have very aggressive negotiators for our Medicaid program,” said Emalie Huriaux, director of federal and state affairs for San Francisco’s Project Inform, which advocates on behalf of hep C patients. “So we don’t know what California pays for these drugs for Medi-Cal. Gilead has said publically that they are offering Medicaid discounts in the 50 percent range. I can’t prove that that’s true or not. We hear the pharmaceutical manufacturers often will tell us something, and we’ll try to confirm it with the health plans, and they’ll tell us something different. But we often have no way of verifying what the truth is about these negotiations, what prices are, what types of discounts were offered or were accepted. And so it’s very difficult to find the truth.”
In an email to Capital & Main, Sara Radcliffe, the president and CEO of the biomedical trade organization California Life Sciences Association (CLSA), dismissed SB 1010’s transparency claims, arguing that the bill’s reporting requirements could actually backfire by creating a “gray market” in which secondary distributors might hoard drugs and sell to the highest bidder. But she also defended the current system.
“Insurers, pharmacy benefit managers, and other large purchasers will continue to negotiate discounts, rebates, and other concessions on medicines,” she offered, “setting, on average, four-fifths of any price increase on brand medicines in 2015 alone.”
Anthony Wright said the vote result is far from certain: “[Big Pharma] is pulling out all the stops; they’re making ridiculous claims — everything from fliers to web ads that say this is getting in the way of President Obama’s ‘cancer moonshot.’ They are trying to make the case that this very modest notice for disclosure bill will somehow block the cure for cancer.”
A spokesperson for the Governor declined to comment on whether Brown intended to sign the bill should it survive tomorrow’s Assembly Health Committee hearing and a subsequent floor vote.
“I hope [SB 1010] has perhaps a chilling effect on some of these really extreme, seemingly arbitrary price increases,” reflected Sara Flocks, a policy coordinator for California Labor Federation. “To be able to really start a conversation with policy makers about all of the cost drivers in health care, and also, when we’re spending very limited dollars and when the price of drugs means that we are actually limiting access to cures, we need to have a conversation about how this market works and if there’s a market failure.”