Economics

High Cost of Hepatitis C Drug Hits California Budget

Published

11 years ago

February 5, 2015

By David Siders, Sacramento Bee

Last year, after the Food and Drug Administration approved a breakthrough new drug for hepatitis C, health officials around the country warned of dire consequences for state budgets.

The drug is expensive – about $1,000 a pill, or $84,000 for a regular course of treatment – and many people it could help receive publicly funded care.

In California last week, Gov. Jerry Brown’s administration quantified the impact: Tucked inside Brown’s annual spending plan was $300 million for the cost of new hepatitis C drugs, including Sovaldi, the drug approved in December 2013.

The single budget item – $100 million this fiscal year and $200 million in 2015-16 – eclipses proposed general fund spending.

“It’s huge,” Michael Cohen, Brown’s director of finance, said. “It was clearly something that caught folks by surprise.”

The state estimated that in 2000, about 600,000 people in California were chronically infected with hepatitis C, the blood-borne illness that can ravage the liver. An estimated 5,000 people in the state are estimated to be infected each year.

While older treatments were less effective and brought debilitating, flu-like side effects, Sovaldi offered a high cure rate in a less toxic pill.

But the cost of the treatment and the large number of people lining up for it has forced states to confront an enduring question of health care in America – one exacerbated by the federal health care overhaul’s expansion of Medicaid coverage in the states: How much should the public pay for effective but costly cures?

“The treatment is exceptional,” said state Sen. Ed Hernandez, an optometrist and Los Angeles-area Democrat. “I mean, it’s probably one of the best things to ever happen.”

On the other hand, he said, the cost is alarming: “There’s good, and there’s bad.” The treatment’s emergence comes amid a dramatic expansion of Medi-Cal, the state’s version of Medicaid, with California projecting caseloads growing to almost 12.2 million next year.

“This is a huge exposure to the state,” said Charles Bacchi, president and chief executive officer of the California Association of Health Plans.

The state Department of Health Care Services estimated this week that, as of October, roughly 1,695 Medi-Cal recipients had received Sovaldi or Johnson & Johnson’s hepatitis C drug Olysio, or a combination of the two.

For those treatments, Medi-Cal has paid about $108 million, the state said.

In addition, California Correctional Health Care Services said it has treated 315 inmates with Sovaldi since July, at an estimated cost of about $26 million to $30 million. The illness is often associated with a history of injection drug use and, in older patients, blood transfusions, and is more prevalent in prisons than in the general population.

Prison officials said they anticipate budget savings in future years as cases of cirrhosis and liver cancer decrease due to the cure. Competition may also drive down future costs.

Demand, however, appears to remain high. Julia Logan, quality officer at the California Department of Health Care Services, said shortcomings of old hepatitis C treatments resulted in a “backlog of patients” waiting for Sovaldi and other new drugs. Similarly, in the state prison system, officials said some patients who previously deferred treatment are now being considered for it.

John Martin, chairman and chief executive officer of Gilead Sciences.

In future years, Logan said, “I think that there will continue to be many thousands more people getting treated for hepatitis C.”

Shortly after Sovaldi was approved, the drug’s maker, Gilead Sciences Inc., came under intense criticism from lawmakers, insurers and health care advocates for the price. The drug maker reported $8.6 billion in sales of Sovaldi in the first nine months of 2014.

Gilead Sciences did not respond to requests for comment. In an earnings conference call in October, John Martin, the company’s chairman and chief executive officer, said Sovaldi and drugs like it “provide savings to payers, providers, patients and our entire health care system over the long-term.”