Senate Finance Committee Releases Results of Investigation Into Gilead’s Pricing Strategy for Hepatitis-C Drugs
Senate Finance Committee Ranking Minority Member Ron Wyden and Republican member Charles Grassley released the results of an eighteen-month investigation into the pricing strategy used by Gilead Sciences, Inc. for its Hepatitis C drug, Sovaldi, and its second-wave successor, Harvoni. The report is considered to be a case study, not a policy study, and it considers the broader implications of Gilead’s pricing decision on the United States healthcare system, specifically issues with accessibility and affordability.
Based on nearly 20,000 internal documents and data from state Medicaid programs, the investigation revealed that Gilead designed its Hepatitis C drug pricing and marketing strategy “to maximize revenue with little concern for access or affordability.”
Senate Finance Committee members found that fostering “broad, affordable success was not a key consideration in the process of setting the wholesale prices,” and that “Gilead justified Sovaldi’s high price point based on price-per-cure.” The investigation also led committee members to believe that Sovaldi’s wholesale price of $1,000 per pill – totaling $84,000 for a single course of treatment – set the stage for Harvoni’s $94,500 price tag.
Gilead was aware, according to documents acquired during the course of the investigation,that it was in a position to create clear savings for payers, but instead chose to pursue a “regimen neutral” price that was justified by “cost-per-cure” calculations. Such a pricing structure resulted in “greater revenue per treatment than previous direct acting anti-virals.” Gilead felt they were more than justified in using the cost-per-cure pricing model given the increased efficiency of Sovaldi.
The investigation revealed that Gilead set a high price for Sovaldi with an eye toward ensuring a high price for Harvoni. Among many factors Gilead considered in determining Sovaldi’s price point was the cost for existing standard of care for Hepatitis C treatment. Gilead wanted to set “a high baseline for the next wave of drugs, such as Harvoni.” By raising the price for the new standard of care set by Sovaldi, Gilead wanted to raise the price floor for all future Hepatitis C treatments, including its follow-on drugs and those of its competitors.
In the 18 months following Sovaldi’s approval, Medicare spent nearly $8.2 billion before rebates on Sovaldi and Harvoni. In 2014 alone, Medicare and Medicaid spent over $5 billion dollars on the two drugs before rebates. Gilead’s recent financial statements show United States sales of Sovaldi and Harvoni, including through public programs and private payers, totaled $20.6 billion after rebates in the 21 months following Sovaldi’s approval.
Despite significant apparent access restrictions, Gilead refused to lower the net price by much – Gilead offered Medicaid programs supplemental rebates of up to 10 percent, provided that states had to drop some or all of their access restrictions. For states that were already facing a steep financial burden, accepting such a precondition would have actually increased the budgetary impact rather than easing it. Only five state Medicaid programs reached agreements with Gilead to receive supplemental rebates in 2014.
When competition drug Viekira Pak entered the market on December 19, 2014, Express Scripts Holding Co. announced that it would make Viekera Pak its preferred treatment for Hepatitis C genotype 1 and would no longer cover Sovaldi and Harvoni for these patients. Gilead’s response was to enter into discounting agreements for both Sovaldi and Harvoni with CVS, Anthem, Humana, Aetna, and UnitedHealth Group. Gilead struck an agreement with Cigna only for Harvoni. While the competition did lower prices slightly, there are still significant concerns – particularly within the public payer community – about high costs for treating the millions of people in the United States infected with Hepatitis C and the budgetary effects of a future single source innovator that might not face competition as quickly.
Senator Wyden summarized the findings by saying,
“Gilead pursued a calculated scheme for pricing and marketing its Hepatitis C drug based on one primary goal, maximizing revenue, regardless of the human consequences. There was no concrete evidence in emails, meeting minutes or presentations that basic financial matters such as R&D costs or the multi-billion dollar acquisition of Pharmasset, the drug’s first developer, factored into how Gilead set the price. Gilead knew these prices would put treatment out of the reach of millions and cause extraordinary problems for Medicare and Medicaid, but still the company went ahead. If Gilead’s approach to pricing is the future of how blockbuster drugs are launched, it will cost billions and billions of dollars to treat just a fraction of patients. America needs cures for cancer, Alzheimer’s, diabetes and HIV. If those cures are unaffordable and out of reach to millions who need them, Congress will not have met its responsibilities to the American people. I reject the idea that America has to choose between soaring, out-of-reach drug prices and one-size-fits-all government policies. Solving this challenge will take fresh, bipartisan thinking and political independence to bring people together.”
Senator Grassley echoed Senator Wyden’s statement, and emphasized his willingness to participate in discussions with his colleagues and the public on the policy questions in the report. He encouraged everyone to read the report for the level of detail into pricing strategy that we do not often get to see.
Discussion
The Gilead example does not represent the life science community well, and highlights the need to put extra thought into the way drugs are priced. Gilead clearly was allowing marketing to drive the pricing ship and displayed what could be considered an almost reckless disregard for availability and affordability. Pharmaceutical companies can, and should, attempt to maximize their profit, but should consider doing so in a way that ensures availability and affordability for patients and payers alike.
While there is no clear answer to the drug pricing dilemma we currently face, perhaps more thought and research should go into drug pricing – questions like: what did the drug cost to develop or obtain; why is the company charging the price they are charging; and how can the company make the drug available to patients in need are questions that should be asked and answered by companies before setting a market price for specific drugs. Pharmaceutical companies would not be able to remain in business if they gave their products away, but they should be part of the solution to make drugs and healthcare more affordable.
Further, throughout the developed world, branded prescription drugs are typically cheaper than they are in the United States. The difference is that in most other countries, the government systems are the only large drug buyers; compared to in America, where our market is highly fragmented, with bill payers ranging from employers to insurance companies to federal and state governments. In the United States, Medicare is unable to negotiate drug pricing. Perhaps another solution lies in some form of legislation that permits Medicare and Medicaid to pay different negotiated prices.
One limitation of the investigation and almost all government lead discussions on drug prices, is the failure to take into account huge discounts and rebates in their reported numbers, and report the aggregate cost vs. the actual cost.
Whatever the solution may be, it’s important for pharmaceutical companies to help be part of the solution, rather than continue to be viewed as the problem. In order to keep the free market alive and well, something needs to be done before a solution is created which would be punitive to both companies and patients who hope to see cures in the future.
Resources
Senate Finance Committee Full Report Gilead Pricing of HCV Drugs
Senate Finance Committee Executive Summary Gilead Pricing of HCV Drugs
A timeline of events pertaining to Gilead, Sovaldi and Harvoni
A glossary of terms pertaining to the investigation
Letters from state Medicaid programs