State Medicaid directors have asked Congress to consider several policy options to help fight the profound impact on Medicaid budgets from the high cost of Sovaldi and other specialty drugs.

An Oct. 28 letter from the National Association of Medicaid Directors to congressional committee leaders lists nine federal policy options for review, ranging from those that would directly affect manufacturers – such as price controls, higher mandatory Medicaid rebates or a new “best price” policy – to new ways of providing federal support for Medicaid. It was addressed to the chairman and ranking members of committees with jurisdiction over federal health care programs: Senate Finance and Health, Education, Labor and Pensions and House Energy and Commerce and Ways and Means. The policy options listed are all program reforms or new programs that would require legislation.

The Medicaid directors “wish to begin a dialogue with you on federal policies which strike a better balance between appropriate access to new pharmaceutical cures and treatments for consumers and the long-term fiscal health of the Medicaid program,” the letter says.

Concerns about the high cost of Gilead Sciences Inc.’s Sovaldi (sofosbuvir), with its wholesale acquisition cost of $84,000 for a 12-week course of hepatitis C virus treatment have been circulating since the product launch in late 2013, and concerns about the cost of HCV treatment have only been exacerbated with the recent launch of Gilead’s latest HCV drug, Harvoni (sofosbuvir/ledipasvir) priced at $94,500 for 12 weeks ([A#00141020011]). Many patients with HCV are low-income and enrolled in Medicaid, so states are bearing much of the cost of treatment.

Although it does not give specific figures on the number of patients treated or amount spent, NAMD observes that “to date, several states have reported that their first quarter 2014 prescription drug expenditures for hepatitis C treatments has doubled or tripled compared to their entire 2013 spending, which may reflect patients and providers waiting for these new treatments to enter the market.”

Furthermore, NAMD does not believe the increase in pharmacy spend will be short-lived, nor will it be limited to Sovaldi or the treatment area of hepatitis C. The letter says that sponsors of other breakthrough hepatitis C drugs have signaled that they do not intend to compete on price, so that the budget impact of hepatitis C will last for many years. It also says it expects sponsors of breakthrough therapies in other disease areas will launch those products with the same pricing rationale, entering the market “at increasingly high price points.” The letter mentions specialty drugs in the pipeline including immunotherapy treatments for cancer, cholesterol management, Alzheimer’s disease and multiple sclerosis.

“The evolving situation with high-cost breakthrough drugs is an issue that has brought together the state Medicaid directors,” the letter says, and the budget impact of the high-cost drugs “requires an immediate federal solution.”

Options For Controlling Medicaid Drug Budgets

While NAMD says it does not endorse any particular approach at this time and that open discussion may lead to other ideas, it offers “an initial list of policy strategies” for Congress to consider:

Direct price control that would lower costs for all federal health care programs. “Congress can exert downward pricing on Sovaldi and similarly-priced specialty drugs targeting large patient populations. While we recognize that direct price controls would be a politically volatile topic which could be expected to encounter substantial pushback, a strong case can be made for the unique circumstances of hepatitis C in particular.”
Federal bulk purchasing modelled on federal purchasing of vaccines for children. The government could purchase product “with subsequent discounted distribution of product to the states or a requirement that states pay only the administrative fee.”
Enhanced federal match rates paid to state Medicaid programs to compensate for the cost of “curative” specialty drugs.
“Mandate additional rebates from a manufacturer, for example, one that is triggered if a disease state or condition affects a certain percentage of the Medicaid population.”
“Modify the ‘best price’ policies for breakthrough drugs to include the selling price in other countries.” (Medicaid drug rebates must be based on the “best price” available to any purchaser in the U.S. market or average manufacturer price minus 23%, whichever price is lower.)
“Risk corridors or other reinsurance approaches, based on subsidizing any state spending in excess of clearly articulated federal projections of coverage and costs.”
Creation of a separate federal program to finance the provision of Sovaldi and other high-priced drugs, similar to the Ryan White and state AIDS Drug Assistance Programs for HIV/AIDS drugs.
Allow Medicaid to use cost-effectiveness research to exclude products that are not cost-effective from program formularies.
Allow waivers for states to contract with manufacturers outside of the Medicaid rebate program to allow innovative payment arrangements. “For example, allow states to enter into outcomes-based contracts with manufacturers, where payment is made per successful course of treatment rather than per pill.” (Former CMS Administrator Mark McClellan recently said HCV drugs could be a good fit for outcomes-based contracts – [A#00141006009].)

Medicaid Not Designed To Cope With High-Cost Drugs

The letter gives background on why Medicaid programs are unable to cope with high-cost drugs. It observes that the financing of Medicaid and federal coverage requirements are not designed to allow states to handle the pricing strategy behind Sovaldi and other “curative” types of drugs. The high prices for Sovaldi and Harvoni are based on the premise that the drugs can cure patients of their hepatitis C infections, thus avoiding even higher health care costs for treating those patients years into the future.

Such a cost trade off doesn’t work for Medicaid, the letter explains, because, “at the state level, Medicaid is financed on an annual or biannual funding cycle, with funding appropriated in the context of balanced budget requirements in all but one state.”

“It is not practical to expect Medicaid programs to finance the significant up-front costs of Sovaldi and other breakthrough hepatitis C treatments, at the expense of providing other needed services, on the promise of seeing savings 10, 20, or 30 years later. In this timeframe, the beneficiary will likely have transitioned to another source of coverage” such as Medicare, so the future savings will benefit payers other than Medicaid, the letter says.

“It is not reasonable to expect states to finance the full cost of an expensive treatment whose associated savings will likely accrue to another entity decades in the future,” NAMD wrote.

Furthermore, while manufacturers give Medicaid programs mandatory rebates equal to 23% of drugs’ average manufacturer price, programs also typically are able to negotiate supplemental rebates that bring the net cost down even further.

That’s not so with Sovaldi, NAMD says. “To date, the supplemental rebates states have secured for Sovaldi are minimal, with any further concessions predicated on unrestricted access to the drug. States, neither individually nor collectively, are sufficiently equipped to secure the concessions required to make Sovaldi-like pricing a sustainable proposition.”

While this is partly due to the leverage Gilead has due to the unique curative properties of Sovaldi, NAMD also says programs are limited by the federal requirement that Medicaid must cover any FDA-approved outpatient drug whose manufacturer has agreed to pay the mandatory rebate.

As a result, the only formulary management tool programs have is prior authorization. However, “while states are employing their PA authority in a range of ways that fit the available evidence and their program structures, this tool is limited and should not be seen as a long-term solution for new hepatitis C therapies and similarly-priced products for other diseases and chronic conditions,” the letter says.

During Gilead’s earnings call on Oct. 28, the company acknowledged that Medicaid programs are restricting coverage of Sovaldi to sicker patients through prior authorization and that it expects the programs to apply the same approach to Harvoni ([A#14141029005]).

Medicaid Directors Urge Federal Policy Changes To Fight High-Cost Drugs

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