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News September 2014

Washington Watch

Sovaldi – This New $8 Billion Wonder Drug Will Only Cost You $1,000 (per pill)

By Alan M. Schlein

In 2009, in order to get the Affordable Care bill through Congress, lawmakers dropped a key provision that would have allowed Medicare to negotiate drug prices. The provision, included in the president’s original plan, could have saved Medicare billions of dollars. But it was dropped as a way of getting the powerful pharmaceutical industry aboard in support of the health care reform legislation.
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The trustees were careful to avoid the ongoing debate over the extent to which Medicare’s spending slowdown can be attributed to changes in the 2010 health care reform law. But whatever the reason, the slowdown has been dramatic. Medicare, which covered an estimated 52.3 million people in 2013, spent $582.9 billion and for the second year in a row, beneficiary costs were largely unchanged.

Sovaldi, a new drug, which has been hailed as a breakthrough treatment for the 3.2 million Americans infected with hepatitis C, costs $1,000 a pill. While it is highly effective and has fewer side effects and takes less time than older therapies, it costs $84,000 for a typical patient.

But lawmakers want to know why the high U.S. price is much higher than in other countries, as well as previously estimated in the U.S. In a letter sent recently, two U.S. senators, Finance Chairman Ron Wyden, D-Ore., and Sen. Charles Grassley, R-Ia., asked Gilead Sciences, the drug’s maker, to provide detailed pricing information on the new drug. Their request coincided with Gilead’s reported record sales of $5.7 billion in the first six months of the year.

Pharmasset, the drug's original developer, said the price of treatment would be $36,000, the senators wrote, citing documents filed with the Securities and Exchange Commission. Gilead Sciences acquired Pharmasset in 2012 for $11 billion. Sovaldi sales could hit around $8 billion this year, analysts estimated, which would make it one of the top-selling pharmaceutical drugs worldwide.

“Given the impact Sovaldi's cost will have on Medicare, Medicaid and other federal spending, we need a better understanding of how your company arrived at the price for this drug," the lawmakers wrote.

The letter noted that Sovaldi is offered at steep discounts in some other countries. For example, it can be up to 99 percent cheaper in Egypt than in the United States, the Wall Street Journal reported, and in Europe the cost is about 2/3 the price that it is in the United States.

While the lawmakers are awaiting answers, two advocacy groups, Medicare Rights Center and Social Security Watch, released a report highlighting the high cost of Sovaldi to push for legislation to impose drug price controls.

They want Congress to allow Medicare to use its size and clout to negotiate drug prices, the way the Veterans Administration and Medicaid does. Medicare is currently prohibited by law from negotiating bulk discounts.

“We could save money, lower the deficit and not ask seniors to pay more,” argues retiring Rep. Henry Waxman, D-Calif., a long-standing drug industry critic. “The only opposition is from drug companies because they will make a little less money if they have someone negotiating prices with them,” he told Kaiser Health News recently.

The fight over Sovaldi’s cost is already causing consternation for health insurers and state Medicaid directors, among others, who have many patients needing the drug, but limited dollars to pay for it. The biggest problem is in the prison system because it has a disproportionate share of hepatitis C patients. The blood-borne disease is most frequently transmitted through needles shared by intravenous drug users. The infection can cause liver damage, cirrhosis and cancer.

In 2009, in order to get the Affordable Care bill through Congress, lawmakers dropped a key provision that would have allowed Medicare to negotiate drug prices. The provision, included in the president’s original plan, could have saved Medicare billions of dollars. But it was dropped as a way of getting the powerful pharmaceutical industry aboard in support of the health care reform legislation.

The president’s initial plan would have instituted a public health insurance program, which would have allowed the federal government, because of its size, to have considerable negotiating power to draw down drug prices. But that never became part of the final legislation. Ignoring the more than 50 times the Republican-controlled House of Representatives has voted to roll back or kill Obamacare altogether, the two advocacy groups are trying to get Medicare the ability to negotiate discounted drug prices.

The pharmaceutical industry has long opposed price controls or allowing the government to negotiate for Medicare drug prices. Imposing price controls on Medicare could hurt seniors by altering “the competitive nature of the program,” and “could increase beneficiary premiums, cause job loss and reduce incentives for innovation,” argues Robert Zirkelbach of the drug lobby, Pharmaceutical Research and Manufacturers of America.

Nonetheless, the Medicare Rights Center and Social Security Works, in their new report, suggest four ways Medicare could save on drug costs – all of which are controversial and come with strong adversaries.

The advocates are pushing for legislation introduced last year by Waxman in the House of Representatives and by Sen. Jay Rockefeller, D-W.V., that would require drug makers to offer discounts similar to those they make in the Medicaid program, for people who are enrolled in that program as well as in Medicare, often called the “dual eligibles.”

Before Medicare prescription drug benefits existed, the federal government benefited from discounts on prescription meds for those covered by both Medicare and Medicaid. Bringing back this “dual eligibles” discount could lead to $141.2 billion in total Medicare savings over 10 years, according to the report.

Another recommendation the advocates are pushing is to allow Medicare to create its own “public” drug insurance plan that could directly negotiate drug prices – the very provision that was dropped from the original Obamacare proposal sent out by the White House. Allowing the Medicare program to negotiate drug prices could significantly cut costs over time – $20 billion over 10 years, according to the report.

The two groups also are pushing to get bigger discounts from manufacturers to eliminate the Medicare Part D “doughnut hole” – the period in which enrollees pay the full cost of their drugs – in 2016 instead of 2020, as the Affordable Care Act mandates.

The Medicare Rights Center and the Social Security Works groups also recommend reducing the reimbursement to doctors, hospitals and others who administer some Medicare drugs from 6 percent over the sales price to 3 percent. Doctors and oncology centers oppose cutting reimbursements, arguing that the additional money helps them pay for office overhead, staff and patient services.

Will legislation give Medicare power to negotiate or demand rebates move through a Congress in re-election mode? Not likely, even Waxman concedes. “Republicans, but even a lot of Democrats, are looking to the drug companies for campaign support,” he told Kaiser Health News recently.

For more details on the report: http://www.medicarerights.org/pdf/drug-savings-brief-july-2014.pdf

 

Medicare and Social Security: Good News? Bad News? Same Old News?

Medicare won’t run out of money four years longer than was projected last year, according to the new Medicare’s Hospital Insurance Trust Fund. That’s also 13 years later than projected the year before passage of the Affordable Care Act.

But while Medicare looks to be in good shape until 2030, a part of the Social Security Trust Fund is in dire shape. The overall Social Security Trust Fund will be depleted in 2033, the same as expected last year.

People who get disability payments under Social Security are facing an immediate crisis, the trustees said. The Disability Insurance Trust Fund is projected to run out of money in 2016, just two years from now, unless Congress intervenes.

“The projected reserves of the DI Trust Fund decline steadily from 62 percent of annual cost at the beginning of 2014 until the trust fund reserves are depleted in the fourth quarter of 2016,” the Social Security report said. After that, the program would be able to pay only 81 percent of scheduled benefits.

The disability program has seen a sharp increase in enrollment in recent years, but Congress, so far, has done nothing to change its financing, which currently is 1.8 percentage points of the overall 12.4 percent Social Security payroll tax paid by employers and workers.

Social Security provides benefits to 59 million people, and, on average, about 10,000 baby boomers become eligible each day. Payroll taxes and other revenue dedicated to Social Security would cover about three-fourths of the promised benefits if its trust fund runs out, administration officials said.

But to fix the Disability Insurance Trust Fund problem, Treasury Secretary Jacob Lew wants to temporarily reallocate some payroll tax revenue to disability benefits from the surplus built up for retirement benefits. “There is probably no other alternative that could provide the desired results” in the next two years, Lew said. Congress approved a similar reallocation in the 1990s and lawmakers will have to enact this kind of reallocation to fix the problem. But changing how Social Security is paid for could also become another hot-button political issue between Republicans and Democrats.

For Medicare, the news was mostly positive. “Medicare is considerably stronger than it was just four years ago,” Health and Human Services Secretary Sylvia Burwell said. The recent slow growth of the program’s spending will likely mean that the Medicare Part B premium charged to beneficiaries – currently $104.90 per month, will likely remain the same for the third year in a row.

Long-term, however, Medicare’s prospects remain troubled. All of the trustees – including the secretaries of HHS, Treasury, Labor and the two public members, stressed that Medicare’s financial problems are nowhere close to fixed – especially with 78 million baby boomers about to reach Medicare age.

“Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation,” the report said. Former Congressional Budget Office and Medicare expert Robert Reischauer, one of the two public trustees, put it bluntly. “The sooner lawmakers face that reality, the better,” Reischauer said.

The trustees were careful to avoid the ongoing debate over the extent to which Medicare’s spending slowdown can be attributed to changes in the 2010 health care reform law. But whatever the reason, the slowdown has been dramatic. Medicare, which covered an estimated 52.3 million people in 2013, spent $582.9 billion and for the second year in a row, beneficiary costs were largely unchanged.

Reischauer was careful to push for Congressional action now, before it gets to a crisis stage. Under current law, he argues, both Medicare and Social Security “are fiscally unsustainable over the long run and will require legislative intervention.”

Lawmakers have talked about the idea of higher premiums for more affluent Medicare beneficiaries and potentially reducing the annual cost-of-living adjustments for Social Security. Both of these discussions often come up in the context of broader agreements on federal spending and tax overhaul legislation, but realistically, the prospects of any action happening in an election year are slim at best.

 

[Contributing to this report were Kaiser Health News, the Wall Street Journal, the New York Times and the Los Angeles Times. ]

Alan Schlein is the author of "Find It Online," and an internet consultant. He can be reached at
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