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Insurers often take sting out of high price of drugs

Mitchell Hartman Feb 4, 2015
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California-based bio-pharmaceutical company Gilead Sciences released strong quarterly earnings Tuesday – revenues more than doubled from a year earlier and profits beat analysts’ estimates. Then, on Wednesday, the company’s stock fell more than 8 percent on the Nasdaq exchange.

The stock decline is pegged to Gilead’s telling investors that the company will offer deeper discounts in 2015 than it did last year on its most successful new drugs – Sovaldi and Harvoni – that are highly effective treatments for hepatitis C. The list price for an eight-to-12-week course of treatment with either drug ranges from $84,000 to well over $100,000.

Discounts being negotiated by health insurance companies and pharmacy benefit managers will double to 46 percent in 2015, according to the company, while discounts for Medicaid and Veterans Administration programs are expected to be above 50 percent.

These new drugs are very costly to research and test, and have an astronomical list price, says Dr. Kavita Patel, who treats patients with hepatitis  C and researches drug pricing at the Brookings Institution. But “what is advertised as the ‘sticker price’ is not what anybody really pays if you have private health insurance,” she says.

Large insurers are likely to get the best deals on these drugs and pass at least some of the savings on to their customers, she says. Many patients in those plans will only pay up to a specific limit for the drugs, and then their health plan – whether private or government-run – will pick up the rest, according to Patel. Some patients may still face very high drug costs, or hurdles other than cost, to get the drugs – including multiple screenings, approvals and delays from their health plans, she says.

Health economist Gail Wilensky, a senior fellow at Project HOPE and an administrator of Medicare and Medicaid in the early 1990s, says the market is working properly in this case to allow prices for specialty drugs to fluctuate as competitors bring new hepatitis C drugs to market. Gilead and other pharmaceutical companies try to recoup as much of their development costs as they can in the window of time before they face serious competition from rival drugs, she says.

Gilead is facing that competition. And she says charges of overpricing in this case may be unjustified. Wilensky says she believes Gilead initially set its pricing so high not only to recoup drug development costs for hepatitis C and other research, but also because successful treatment with Sovaldi and Harvoni can dramatically decrease the long-term cost of hepatitis treatment and drugs, since in many cases it cures what has been until now a devastating chronic condition.

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