Why does Gilead's Sovaldi cost $84K in the U.S. and $57K in Britain?

Gilead's Sovaldi

The hue and cry over dramatic drug prices keeps getting louder, with trade groups and associations adding their voices. And in a more worrisome development for makers of branded drugs, insurers are stepping up their arm-twisting campaigns.

At the moment, there's not a lot that payers can do in the U.S., without an official cost-effectiveness body to set parameters--and make tough choices. Otherwise, Gilead Sciences ($GILD) wouldn't have collected more than $2 billion from its high-priced poster child Sovaldi during the first quarter.

But as Reuters reports, insurers are already pressing companies developing pricey drugs. And in the meantime--till Sovaldi rivals are approved later this year and early next--they're continuing to draw limits on patient eligibility for the expensive drug.

Last week, a powerful private insurers' association scolded Gilead for the $84,000 price on the hepatitis C drug. This week, a coalition of other groups--from employers to unions to the powerful lobbying group AARP--is calling for a "national dialogue" on pricing.

As AARP's Debra Whitman told Kaiser Health News, "This is an issue other countries have solved." In Germany and the U.K., Sovaldi's price is far less, because regulators actually consider cost as they decide whether to pay for particular treatments.

In Germany--which launched a strict pricing program as part of budget cuts--Sovaldi costs $66,000 for a 12-week treatment course, Whitman said. In Britain, where the National Institute for Health and Care Excellence (NICE) measures the cost-effectiveness of new treatments, it's $57,000, she said.

In the U.S., drugs are priced by companies, subject to mandatory Medicaid rebates and negotiated discounts with private insurers. But the negotiating power only goes so far; insurers have to cover new treatments if they're significantly better than older ones, so drugmakers have the upper hand. In a way, insurers were blindsided by Sovaldi's price and its speedy uptake.

Not so with the next round of hep C approvals. Express Scripts CMO Steve Miller tells Reuters that payers are already talking with rival companies about their pricing--months before approval. That's a once-unheard-of step.

If those pricing talks don't work--and Merck ($MRK), at least, has said it's not interested in a price war--then insurers' only recourse will be to limit volume, Reimbursement Intelligence's John Whang told the news service. That presumably means strict prior authorization policies to direct expensive hep C drugs only to the sickest patients.

In essence, insurers are taking on the task of cost-effectiveness decisions, and trying to negotiate; pharma companies retain their pricing edge. And the U.S. retains its distinction as the market that pays more--and in the process, funds a disproportionate share of R&D. "We are the only country in the world that pays exorbitant prices to provide innovation first here, but that's what we need and that's what the American people have come to expect," Sen. Richard Burr (R-NC) told Reuters.

So far, even the groups calling for changes are fine with that--lawmakers "don't need to have a direct role," John Rother, president and CEO of the National Coalition on Health Care, told Kaiser Health News. Rother calls the price tag on Sovaldi an "abuse of market power," but hopes companies will play ball. If talks with drugmakers don't work, then lobbyists may turn to lawmakers, he told Kaiser, but that's certainly not the preferred solution. "The hope is we can resolve this quickly and through the private sector."

- read the Kaiser Health News story
- get more from Reuters