Price and affordability of direct-acting antiviral regimens for hepatitis C virus in the United States

Supply chain

The supply chain demonstrates the transfer of possession of the drug. In the supply chain, there are three main entities, the pharmaceutical company, wholesale distributors, and pharmacies.

Pharmaceutical companies are generally large, for-profit, multinational corporations that do expensive research and drug development. Most drugs are sold by pharmaceutical companies to wholesale distributors. Wholesale distributors store products, manage the inventory, and subsequently distribute the supply to pharmacies and other medical facilities. They largely act as a supply chain middleman between pharmaceutical companies and pharmacies.

Pharmacies are responsible for safe storage of drug products, dispensing medications to patients, and managing billing and payment between patients and insurance companies. Non-retail providers such as hospitals, clinics, and federal facilities purchase the majority of their products from wholesale distributors. In contrast, chain and food store pharmacies often purchase directly from the manufacturer as they have in house capabilities for warehousing and managing inventory. Pharmacies operate the last step in the supply chain, delivering the medication to the patient [10–12].

Payment pathway

Though the supply chain is fairly linear, the payment pathway is less straightforward. In terms of financial transactions, the members of the supply chain continue to be involved, with the addition of Pharmacy Benefit Managers (PBM). PBMs are a third party that helps negotiate financial transactions on behalf of their clients, generally insurance companies. Payments are made in two ways: 1) the initial payment and 2) rebates from the pharmaceutical company after payment has been made.

The initial payment pathway is essentially the reverse of the supply chain. The PBM, on behalf of the insurance company, pays the pharmacy. The pharmacy in turn pays the wholesale distributor, and the wholesale distributor pays the pharmaceutical company. At each stage a percentage of payment is retained. Discounts on the initial payment are given based on large purchasing power and prompt payment [10–12].

Rebates are money that is paid back by the pharmaceutical company after initial payment. Therefore, the final price paid to the pharmaceutical company is the initial payment it receives, minus the subsequent rebates. Pharmaceutical companies give rebates to PBMs, pharmacies, and government organizations. Formulary payments are rebates made to PBMs for giving the manufacturer’s drug some preference over similar drugs by inclusion in the PBM’s formulary, often with a lower copay or fewer restrictions than competitor drugs. Market share rebates are given after a PBM demonstrates that they were able to successfully direct consumers to the manufacturer’s product over the competitor’s product. Discounts are also given after a predetermined volume of drug sales have been achieved. Prompt pay rebates are given when pharmaceutical companies receive their initial payment within a defined time period [10–12].

The amount of money paid during initial payment and rebate is generally not publically known due to the lack of transparency in the pharmaceutical company’s negotiations with payers. However, the basis for negotiation starts with the publically available list price set by the pharmaceutical company, called the Wholesale Acquisition Cost (WAC). In setting the WAC, a predominant consideration is what the market will bear. Drugs are priced based on what pharmaceutical companies believe can maximize profits, rather than what price will cover prior investment and increase access to consumers. Consideration is also given to cost-effectiveness models, budget impact models, and benchmarking against similar regimens. Further they assess expectations of shareholders, cost of research and development, manufacturing and marketing [10–12].

United States special pricing considerations

In the United States, certain government groups get special consideration for initial pricing and rebates as a condition of including drugs in their formularies. The basis for this pricing often takes into account the Average Manufacturer Price (AMP), the average price paid by wholesale distributors to pharmaceutical companies. This amount is not publically available.

Medicaid is a government subsidized healthcare program available for individuals with low-incomes. Though subsidized by the federal government, Medicaid is run independently in each state. The availability of Medicaid coverage was recently expanded in 31 states under the Affordable Care Act to allow greater access to healthcare. For new brand name drugs, Medicaid receives a minimum drug rebate of 23.1 % of the AMP, or the difference between the AMP and the lowest price paid by a private sector payer (known as “best price”), whichever amount is greater. As a condition of having drugs covered by Medicaid, 340B pharmacies, non-federal entities servicing indigent populations, receive drugs priced equivalent to Medicaid pricing.

Medicare is a federally subsidized insurance available to Americans aged 65 or older and younger people with disabilities. Medicare Part D is the prescription drug benefit for Medicare beneficiaries, established in 2003 as part of the Medicare Modernization Act. In order to garner support from the pharmaceutical industry to pass this legislature, a provision was included prohibiting the government from negotiating with pharmaceutical companies over Medicare drug prices. An estimated $15–16 billion could be saved annually if negotiations were permitted [13]. Part D plans are managed by private insurance companies that set formularies and tiered pricing of drugs. Private plans negotiate discounts, but these are often less than those negotiated by federal agencies [14].

The Federal Supply Schedule (FSS) sets drug prices for the Veterans Health Administration, Department of Defense, Public Health Service, Indian Health Service, and federal prisons. The initial price paid by the FSS has to be under the federal ceiling, which is the AMP minus 24 %. With further negotiations for rebates, the FSS often pays even less [10–12].

Many groups lack special consideration for discounts and rebates. In particular, state prisons and jails do not fall under the auspices of the FSS and do not receive Medicaid related rebates. State jails and prisons also contribute to calculations of best-price, this further limits the discounts pharmaceutical companies are willing to provide. Given they lack the negotiating leverage of larger organizations, these entities pay among the highest prices for pharmaceuticals [10–12].

United States pricing

Non-United States pricing

The United States pays a disproportionate amount for pharmaceuticals, even in comparison to other developed nations. This in part reflects the fact that countries with single payer healthcare systems are better able to negotiate affordable rates with pharmaceutical companies, and many have better mechanisms to control costs. In the case of sofosbuvir (SOF), the U.S. price for 12-weeks is $84,000, whereas the UK price is $54,000, and the price in Spain is $25,000.

In low and middle-income countries, where over 80 % of HCV infected individuals reside, there is a degree of cost sharing and subsidizing by developed countries because the market will not bear higher price points. Pharmaceutical companies have several strategies to increase access in these countries without losing control of the product. Tiered pricing categorizes countries by per capita gross national income, and selects prices based on tier. For instance, in Egypt, SOF has been priced at $900 for a 12 week course of treatment. However, even at lower prices, poor and uninsured individuals in these countries are often unable to afford these medications [17].

Voluntary licensing enables the patent-holder to license one or more manufacturing company to produce generic medications, usually in exchange for a royalty [18]. In these cases, the extent to which prices can be reduced largely relies on the terms agreed upon between the patent holder and manufacturer. For example, terms may specify allowed price ranges, or set limits on the number of patients or categories of patients eligible to receive these generic treatments [19]. Gilead Sciences currently holds agreements with 11 Indian companies to manufacture generic SOF, ledipasvir/SOF, and velpatasvir/SOF for 101 developing countries [20]. For distribution of daclatasvir, BMS currently employs a tiered pricing scheme. However, notably, BMS has entered into the first ever licensing agreement for a HCV Medicines Patent Pool, which will provide daclatasvir licenses, free of royalties, for 112 developing countries [21]. In China and India, patent applications for SOF were denied altogether. This will allow generic manufacturers full freedom to produce and distribute medications, as well as increase the potential for market competition to drive down prices to an affordable level [22, 23]. Finding ways to allow patients in low and middle income countries to access DAAs remains one of the major challenges to eradicating HCV.

Affordability

Though cost-effectiveness is an important consideration in selecting medical therapies, the ultimate affordability of a treatment determines whether it can realistically be utilized. In the case of DAAs, while cost of cure is roughly equivalent to that of interferon-based treatments, the number of patients eligible for treatment is dramatically increased. Though immediate broad implementation of DAA treatment would be money saving over time, the upfront cost of therapy with current pricing is largely believed to be prohibitive. Further, given the United States lacks a single payer system, there is less of an incentive for insurance plans to assume the cost of upfront HCV treatment in order to avert the future costs of complications that may occur after a patient moves to another plan.

Implications for the future

Barriers to DAA treatment have stemmed from the actions of both pharmaceutical companies and payers. While it is in the interest of pharmaceutical companies to treat as many patients as possible, the high prices set for DAAs have made scale-up of treatment unrealistic. Further, the concern over disproportionate allocation of resources to HCV treatment has resulted in payers enacting significant restrictions to treatment that are not based in guidelines or scientific data. These systemic barriers to care will likely require systemic solutions. The HCV guidelines were recently amended to remove prioritization for special populations, advising early treatment for all patients [32]. To date, lawsuits over denial of care have been filed in five states and likely will emerge in many others. These efforts may help clarify the legality of arbitrary rationing of treatment.

Given price negotiations and rebates are largely impacted by competition and drive for market share, the emergence of new DAAs may result in further cost decreases. Merck’s newest drug combination, grazoprevir/elbasvir, was recently approved by the FDA at a WAC of $54,600 for a 12 week course of treatment. With this dramatically lower price, there is hope that further reductions in cost of HCV care may be possible in the near future. However, experience with HIV and the pricing of antiretrovirals suggests that pharmaceutical companies are able to sustain high drug pricing over decades. Calls for an HCV analog to the AIDS Drug Assistance Program may reflect a more realistic option for improving access to DAAs in the United States [8].