The breakthrough hepatitis drug Sovaldi has sparked a vigorous debate about the financial sustainability of U.S. healthcare and the role of government in regulating prices.
"The Sovaldi example has brought us to a crossroads," said Karen Ignagni, president and CEO of America's Health Insurance Plans, during a conference hosted by The Atlantic. "We're having the kind of conversation we need to have."
The biggest problem with Sovaldi, Ignagni said, is "the company in this case is asking for a blank check. You can't give anybody a blank check in healthcare anymore."
Spending by private and government payers on the roughly $80,000-per-course Sovaldi threatens "to blow up" the budgets of state and federal budgets, families and health plans, she said.
Ignagni called for a new model of drug benefits that she describes as "coverage with evidence," where prices drugs would be reduced if "the evidence isn't meeting the promise."
Part of the issue of spending is the evolution of specialized medications like Sovaldi for complex conditions that take years and many millions in R&D to develop and must go through a long and winding regulatory approval. More than a quarter of the nation's $300 billion is devoted to speciality medications that only 1 percent of the population uses, according to Steve Miller, the chief medical officer at Express Scripts.
"The regulatory process is the same as it was 40 years ago," said John Castellani, president and CEO of Pharmaceutical Research and Manufacturers of America. "We have to modernize the discovery process to bring down the costs of discovering medicine. But we can only be as innovative as our regulator."
Indeed, Ignagni would like a more rigorous review of drug efficacy as part of a "coverage with evidence" paradigm. "More comparisons head to head are going to be very important, and not comparing a drug to a placebo," she argued.
Igagni, though, is skeptical of regulatory approaches to drug pricing and comparative effectiveness, noting that the ACA-created Patient-Centered Research Outcomes Institute is not instructed to consider cost as a factor. She thinks the challenge is largely the province of the private sector.
Miller, from Express Scripts, the nation's largest pharmacy benefits management company, argues that government purchasing can work, that the business model has to be tweaked for drug companies too if payers are going to get a better deal. Drug companies won't negotiate down prices unless they can get "a guaranteed market share."
It works at the Department of Veterans' Affairs, which unlike Medicare is allowed to negotiate prices, he said. "The VA can get good prices because they can guarantee the pharmaceutical companies that they can get good market share. Medicare can't do that."
Some leading pharmaceutical companies argue that the system does even out with drugs growing more affordable over time, and that the same thing should happen with speciality medications.
Pointing to the vast array of low-cost antihypertensives and statins available for cardiovascular disease, Kirsten Axelsen, VP of global policy for Pfizer, argued that prices of most drugs fall over time and that even speciality drugs in oncology are gradually dropping.
Another critique of the nation's drug market, from PhRMA's Castellani, is that there are failed "market signals" for patients, payers and providers.
"Very few patients pay directly for their medicine," Castellani said. But on average drugs represent 40 percent of a patient's out-of-pocket costs, compared to about 4-5 percent for inpatient and outpatient care, 7 percent for ER care and 12 percent for primary care visits, he said. "Our concern is whether the insurance model is the right one," he said.