Medicaid health plans demand state help to cover pricey new hep C drugs

Molina Healthcare CEO J. Mario Molina--Courtesy of

How can Medicaid pay for the pricey new generation of hepatitis C drugs? Insurers want to know. And they're now asking state health agencies to pitch in, Reuters reports.

The revolutionary new drugs boast astronomic cure rates and price tags to match. Gilead Sciences' ($GILD) new Sovaldi, for example, costs $84,000 for a 12-week course of therapy. The treatments could cost the U.S. $200 billion or more over the next 5 years, a major boon for the drugmakers--and a major burden for payers.

California-based Molina Healthcare, which covers 2 million Medicaid patients in 11 states, has requested "carve-outs," or direct reimbursements for Sovaldi above and beyond its contracted rates in those states. "The drug was approved in December and it was not factored into our rates for 2014. We are going back to the states and saying, 'How do you want us to handle this?'" Molina CEO J. Mario Molina told Reuters.

Insurers are worried about more than just Sovaldi. Some physicians are prescribing the drug alongside Johnson & Johnson's ($JNJ) Olysio--a $150,000 combo. In February, Gilead applied to the FDA for approval of a similar combination treatment that notched a 99.1% cure rate in clinical trials. And there are more hep C drugs in the pipeline. AbbVie's ($ABBV) three-drug cocktail is also up for FDA approval, and Bristol-Myers Squibb ($BMY) is working on its own combination treatments. Merck ($MRK) and Vertex ($VRTX) are also in the race.

All of these companies will have to win over insurers if they're to live up to Wall Street's high expectations for their hepatitis C products. In February, Gilead CEO John Martin said private insurers had already engaged the company in negotiations to cover Sovaldi, which analysts have predicted could bring in between $5 billion and $6 billion in sales this year. Gilead has long argued that Sovaldi is well worth its high price, because the drug will prevent long-term and costly complications of hepatitis C, which can include liver failure or cancer.

But when it comes to setting the stage for how the country will bear the costs of treating hepatitis C, few payers will be as powerful as Medicaid, which covers an estimated 62 million Americans. Other insurers that manage Medicaid plans are in discussions with state agencies about how to handle hepatitis C costs, including Aetna ($AET), WellPoint ($WLP) and HealthNet, Reuters reports.

Medicaid programs have not made any decisions yet about how to proceed, but Matt Salo, executive director of the National Association of Medicaid Directors, told Reuters that they're more likely to allow insurers to renegotiate contracts or build in risk-based payments than they are to grant carve-outs. "We are sensitive to the potential that this is a meteor falling out of the sky and devastating a business model (for insurers)," Salo said.

- here's the Reuters story