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Hep C case against Washington state Medicaid harbinger of things to come in era of high-price drugs

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Lisa Jaeger is photographed in her Yakima, Wash. home on Friday, May 6, 2016. Jaeger, who contracted hepatitis C from her husband in the late 1980s, has been cured of the virus after beginning treatment last year using the new drug, Harvoni. (SHAWN GUST/Yakima Herald-Republic)

At 26, Lisa Jaeger learned she was infected with Hepatitis C.

The Yakima native had just had her first child and was experiencing some stomach pain and unusual color in her skin, so she went to see a doctor.

She knew her husband had the virus, but “back in the old school days,” she said, “I didn’t take it real serious.”

Jaeger, now 55, went through three different treatment regimens over the next few decades, each with severe side effects that often confined her to bed. None of them killed the virus.

Then last year, she was cured.

Jaeger received a miracle drug: Harvoni, which eradicates the disease in a simple 12-week course with almost no side effects.

“Now my whole body is coming together,” she said. “I am blessed.”

Not everyone is so fortunate.

Harvoni comes with a $94,500 pricetag for the three-month treatment regimen, and while states and private insurers receive substantial rebates to lower the cost, they’re still scrounging for ways to restrict access to the medication, balancing profitability against patients’ lives.

Washington state’s Health Care Authority was sued this year for forcing Medicaid patients to wait until they were severely ill to receive the cure. The agency even gave millions of unused dollars back to the state, rather than expand its criteria to treat all patients.

In May, a federal judge commanded the state to drop those restrictions and come in line with national medical standards — setting a cautionary precedent for payers nationwide looking to save money at the expense of their clients’ health.

The ruling is “an unequivocal victory,” says Michael Ninburg, executive director of the Seattle-based Hepatitis Education Project.

“At the end of the day, it means that thousands of people in Washington will avoid unnecessarily premature death,” he said.

But as more high-end drugs hit the market, and even long-running generics see explosions in price, insurers say they’re up against a wall of real fiscal limitations.

“It’s just the beginning of a tsunami of often miraculous but incredibly expensive drugs,” said Sydney Smith Zvara, Association of Washington Healthcare Plans executive director. “We just haven’t seen anything yet.”

 

The lawsuit

The February lawsuit against the Health Care Authority was brought on behalf of two Medicaid patients who had been denied treatment with Harvoni because they didn’t meet the state’s criteria: Their livers weren’t yet damaged enough by the virus.

Another 28,000 Washington patients were represented in the class suit,

As of last year, national medical recommendations call for all Hep C patients to receive Harvoni as the standard of care, regardless of disease progression.

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The lawsuit successfully argued Washington’s only reason for withholding the drug was financial, which is illegal. Washington receives federal money for Medicaid, and the Medicaid Act requires that participating states cover medical services deemed “medically necessary.”

Providers say waiting to treat people until they’re sicker also carries the risk of those people developing cirrhosis or liver cancer, which hinders their ability to be cured later in life, and are costly to treat in themselves. It also risks continuing the spread of disease.

The moral stigma of Hep C, often seen as a disease exclusive to drug addicts, seems to skew insurers’ policies, advocates say.

“I think it’s safe to say that if the new drug is for Alzheimer’s, or the new drug is for cancer, and a payer’s response was, ‘We’re going to wait until the cancer metastasizes to Stage 4,’ there would be widespread outcry,” said Kevin Costello, director of litigation in the Center for Health Law and Policy Innovation at Harvard Law School. Costello was co-counsel in the lawsuit.

 

Defining the need

In September, state Medicaid director MaryAnne Lindeblad estimated there were 23,310 Washington Medicaid patients with chronic Hep C, 8,000 of whom were expected to be eligible for Harvoni in 2015 under the state’s restrictive policy.

The cost of treating all those patients, even with rebates, was calculated to be $242 million out of the agency’s $1 billion pharmacy budget, she told state legislators in a letter. (That works out to just $30,250 per patient, less than a third of Harvoni’s $94,500 sticker price.)

“If HCA were to pay for hepatitis C treatment for all Medicaid clients infected with hepatitis C,” Lindeblad wrote in bold, italicized letters, “the cost would be three times the current total pharmacy budget.”

The agency initially requested $77.7 million to treat patients with extensive liver scarring. But then it gave back $44.4 million of that money after not enough patients came forward — rather than making its policy more inclusive and spending that money to treat less-sick patients.

In fact, the HCA only spent about $23 million on Hep C treatments with Harvoni, Sovaldi and Viekira Pak in fiscal year 2015, a spokesperson said.

Accurately predicting how many patients will need the drug is hard when reliable monitoring of the disease doesn’t exist, state epidemiologist Dr. Scott Lindquist said in a March interview, shortly after the lawsuit was filed.

“I don’t think our Hep C data is very representative of what Hep C looks like in our community,” he said. “And that’s a national problem, not specific to the Northwest or Washington or even Yakima.”

In Yakima County, the number of new chronic cases swung from zero in 2012 to 225 in 2014, indicating incomplete data.

Yakima Health District community health director Sheryl DiPietro said a changeover in the state database led to wonky numbers in 2012 and 2013. But going forward the data should be accurate, as long as labs continue to report all positive Hep C tests.

 

What this means for patients: ‘A life-changer’

The week the judge’s ruling came out, ARNP Tanda Ferguson mentioned it to a patient in her Yakima practice.

The woman said a good friend of hers had been contemplating suicide after being denied access to Hep C treatment. She stopped mid-appointment to text her friend the good news.

“It’s a life-changer,” Ferguson said of Harvoni. “It’s pretty amazing to see the difference in the patients.”

The Health Care Authority moved to amend its policies immediately after the ruling. The agency is supposed to report back to the judge in late July.

The agency has stopped denying any requests for Harvoni and similar drugs based on liver damage, spokeswoman Amy Blondin said, and will be sharing revised criteria with medical providers as soon as possible. And, it’s also prioritizing patients whose cases are in appeal. Blondin said there are only two open cases at the moment, both dependent on more information from the providers.

“This is a matter of life and death for lots of people, and it’s a matter of equity,” said Ninburg from the Hepatitis Education Project. “It’s a matter of marginal populations getting access to curative treatment for a potentially fatal condition.”

The ruling means relief for providers trying to give their patients the best care possible, too.

Dr. Blaire Burman, who runs the Hepatitis C treatment clinic at Seattle’s Virginia Mason Medical Center, has been repeatedly frustrated by insurers’ stubbornness to treat infected patients.

“When we apply for treatment, it is really not up to us,” she said. “Insurance should not be dictating how long and what we treat our patients with, and we see that.”

When Harvoni first came out, Ferguson said she submitted 29 patients to receive the prescription. Only one was approved.

Almost all Hep C patients in Yakima are referred to Ferguson, to the point that she helped start a liver clinic at Memorial Cornerstone Clinic to address needs.

Under the state’s previous restrictions, she says she spent 20 hours a week on patient appeals to get Harvoni prescriptions covered. Often, the state would approve only one month of treatment, forcing providers to fight to get the remaining two months covered.

The liver clinic hired someone to do the paperwork, which freed up Ferguson to see patients.

“I’ve successfully treated and cured 250-300 people since the drugs came,” she said.

Ferguson said she uses all of the Hep C breakthrough drugs to treat patients, based on individual needs, but she was recently paid to speak on behalf of Harvoni at a conference. She still requires six months of abstinence from drugs and alcohol of patients who want Harvoni, aiming for a 100 percent cure rate. Providers nationwide disagree on that condition, with many saying drugs or alcohol have no impact on the drug’s efficacy and that it’s just another moral hoop for patients to jump through.

For the coming year, Ferguson has already scheduled consultations for about 200 new Hep C patients.

The court’s decision is “great for patients, and it’s hopeful for providers,” she said.

Cost bemoaned by insurers isn’t real

While predicting accurate usage rates is a challenge, states and insurers looking to estimate future costs of Hep C treatments are not being honest with the public when they trumpet the $1,000-a-pill number.

The truth is, like with most things in health care, no one pays the sticker price.

States automatically receive a 23.1 percent rebate on drugs made by any of the 600-odd manufacturers currently participating in the Medicaid Drug Rebate Program. As a result, the price of Harvoni drops from $94,500 to $72,670.50.

Additionally, many states negotiate supplemental rebates, which may be larger than the automatic rebates and can get states down to paying “far less than half” the price, said Robert Greenwald, a clinical law professor and director of Harvard’s Center for Health Law and Policy Innovation.

And with increased competition from newer drugs, such as Merck’s Zepatier, which came out in January at a list price of $54,600, the actual cost to Medicaid programs for Harvoni could drop into the $20,000 range, Greenwald said.

Hep C Disease Progression

“One could argue that our system is working, because in a relatively short period of time, the price of the cure has decreased dramatically,” he said. “I’m sure all the companies are in there trying to negotiate a system of cost that gets them on the preferred-drug list” with state Medicaid programs, which gets “as many people as possible to take their medications, in exchange for reduced cost.”

Attorney Rick Spoonemore of the Seattle law firm Sirianni Youtz Spoonemore Hamburger which filed the lawsuit against the state, said rebates aren’t even the final story – with the Affordable Care Act picking up 100 percent of the cost of expanded Medicaid in states that chose to expand, the actual state expenditure on some Medicaid Hep C patients is below $10,000 per patient.

The federal government’s portion of the bill drops down to 90 percent by 2020, so Spoonemore says the state should have been trying to get as many people covered now as possible, before Washington has to spend more of its own dollars on treatment.

“It’s a lot of money, but you spend it now, and the savings five, 10, 15 years from now are enormous,” he said.

The cost of Harvoni (and its more toxic predecessor Sovaldi) has been the focal point of the drug’s media coverage, despite the revolutionary news the drugs represent a cure for an infectious disease and could theoretically eradicate Hep C.

But the cost stands out because Harvoni manufacturer Gilead has “already recouped the $11 billion they did in (research and development),” said Dr. Vinay Prasad, assistant professor of medicine and senior scholar in the Center for Health Care Ethics at Oregon Health & Science University.

Harvoni and Sovaldi together have raked in more than $23 billion since their respective approvals.

“The company’s just engaging in blatant profiteering,” he said in a March interview, after the Washington lawsuit was filed. “It’s total arrogance that they think they can charge this and get away with it.”

In December, a U.S. Senate investigation released documents on Gilead’s pricing of Sovaldi, which was approved in late 2013, a year before Harvoni, and costs $84,000 before rebates. The documents show that Gilead knew the high price would generate outcry, but believed it wouldn’t “hinder patient access to uncomfortable levels.”

Investigators noted Gilead was wrong in this assumption.

The documents explain how Gilead based its price for Sovaldi on existing drugs in the market, justifying its higher cost because of better “real world” cure rates.

Acknowledging that Harvoni and similar drugs truly cure the disease, Prasad says there still needs to be a conversation about reasonable pricing.

“What does the future look like? I think we’re reaching a breaking point,” he said. As more expensive, highly effective drugs hit the market, at some point, “Society cannot bear all these things.”

“Nobody thinks that their expensive medicine is preventing other people from getting a cheaper medicine,” he continued. “But at some level it is a kind of a tradeoff.”

With Hep C, the situation is less dire now that there are multiple manufacturers in the market — Gilead, Merck, AbbVie. But if there’s only one product on the market, there is nothing stopping the drugmaker from charging as much as it wants, Prasad said.

If the pharmaceutical market operated like a normal market, he said, drugs that cost $100,000 would be considered luxury items, like Lamborghinis. To capture all the customers who can’t afford Lamborghinis, manufacturers would make Toyotas, he said.

Fortunately for both patients and insurers, the Toyota-level costs in Hep C drugs are emerging now.

 

Big picture ramifications: tip of the iceberg

Both payers and patient advocates nationwide have been watching the Washington case closely, as similar lawsuits are being considered around the country. One suit is pending in Indiana; Delaware recently revised its policy to avoid litigation, and Pennsylvania and New York also have lessened restrictions.

“What I would call this is kind of the first litigation domino in a national campaign to improve access to Hepatitis C treatment for Medicaid enrollees,” Costello said.

The Washington ruling is the first time a federal court has interpreted the “medical necessity” requirements of the Medicaid Act in the context of Hep C treatment, he said.

“The court’s interpretation of those requirements is consistent with what we view to be a state’s moral responsibility, a state’s fiscal responsibility, and a state’s legal responsibility,” he said.

On the fiscal side, he said, long-term modeling shows early treatment for Hep C is cost-effective in reducing health care needs over a lifetime, despite the up-front cost of the drug. The old interferon-based treatments cost up to $120,000, which the state paid with no objection.

“I think the state’s concerns about the short-term fiscal exposure are overstated,” Costello said.

In Massachusetts, where fee-for-service Medicaid programs have provided Harvoni to patients regardless of liver damage, fewer than 20 percent of Hep C patients have sought treatment. Increasing that number would require a separate public health campaign to get people to engage with care, Costello said.

In Lindeblad’s initial letter, Costello says, her calculation seems based on the maximum number of patients at the maximum possible price. In states that have opened up care to all patients who might need it, the cost doesn’t get anywhere near that “nightmare number,” he said.

“When I’m asked the question, ‘Where is all this money going to come from?’ my answer is, It’s not as much money as everybody wants to scare people away with.”

In Indiana, the ACLU sued the state in November, but the case sat in limbo for a few months on procedural grounds. The state has the same restrictive policy as Washington. Though the Washingon case doesn’t hold any jurisdiction over what Indiana eventually does, the precedent could influence that state’s policy.

“It’s certainly something we’ve pointed out to our judge here,” ACLU attorney Gavin Rose said. “I think it’s a persuasive authority that we were right all along.”

In Washington, private insurers have fallen in line with the national recommendations for treatment, but not without pleading their financial limitations.

Chad Murphy, Premera vice president of pharmacy, said the cost savings gained in treating someone with Hep C now rather than later are not a benefit many private insurers are likely to see, as the most costly portions of Hep C treatment usually don’t happen until people hit Medicare age.

“The federal payer ends up being the one that saves the money, just avoids the (cost) of that liver transplant,” he said.

He emphasized that Harvoni and drugs like it are a “great advance for medicine,” but the initial cost “was an absolute shock to the system in total.”

Right now, Murphy said, overall pharmacy costs are increasing 15 to 20 percent each year, a trend expected to continue for the next three to five years.

“And that’s largely driven by these high-cost or specialty drug therapies,” he said.

What’s more, he said, only about 1-2 percent of the population is taking such high-cost drugs, but they account for up to 30 percent of total drug costs. And that number is predicted to increase dramatically.

As far as insurers’ tools to regulate prices, Murphy said the increased competition in the market helps.

Premera wants prescribing doctors in its network to understand how much drugs cost, not just their clinical efficacy. It’s engaged in ongoing discussions with drug manufacturers and industry regulators about fair pricing. The final piece of the puzzle is patients and customers, Murphy said.

The challenge with Hep C treatments, he said, is the fact that not all Hep C patients get seriously ill right away.

Patient advocates argue back that the one-time cost of $94,500 (or $30,000, with discounts) is still cheaper than paying for a liver transplant or for constant care and even disability payments over decades.

But insurers feel like they’re between a rock and a hard place, said Zvara with the Association of Washington Healthcare Plans.

“It’s a tough balance,” she said. “People need to have access ... in a way that doesn’t just break our state budget and make health care premiums unaffordable.”

A good first step would be transparency in how drug manufacturers arrive at their given price for a drug, Zvara said.

“Insurers and doctors have a lot of transparency requirements, but it seems drug companies have a blank check,” she said. “Our health care system can’t afford to have anyone have a blank check.”

“I think that as other drugs come on the market further, for arthritis, multiple sclerosis — tons of things coming down the pipe — that we will hardly even be thinking about Hepatitis C because Harvoni and Sovaldi will become one of many."

 

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