The high cost of hepatitis C treatment puts therapy out of reach for the neediest patients. Now, policy experts have proposed a novel pricing strategy, implemented at the state level, that could help many more patients access treatment. “Revenue-based contracting” could emancipate states from price restrictions that, in large part, allow them to currently provide curative hepatitis C treatment to less than 3% of Medicaid recipients and prison inmates in need.
“Increasing prices raises incentives for pharmaceutical innovation but limits patient access. This is the crux of the problem,” said lead author Neeraj Sood, PhD, professor and vice dean for research, Sol Price School of Public Policy & Leonard D. Schaeffer Center, University of Southern California, Los Angeles, CA. “Negotiating on revenues rather than price is the answer. Revenue-based contracting allows us to increase profits and incentives for innovation without limiting access.”
Under this novel policy proposal, Dr. Sood and colleagues recommend that state policymakers offer a single pharmaceutical company an upfront lump sum either equal to or lower than the state’s current spending on all hepatitis C drugs, with drug companies competing for this contract. In return, the contracted drug company would pay the state a rebate equal to 100% of the drug cost for all of the state’s beneficiaries with hepatitis C, such as Medicaid and prison populations. However, the state shares the cost of its expenditures, net of any manufacturer rebates, with the federal government.
This strategy simultaneously lowers government expenditures at both the state and federal levels and dramatically expands access to hepatitis C treatment. It does so by exploiting market competition between firms in a voluntary transaction. “Firms that do not participate in negotiations or firms that are not chosen for the deal risk losing their current Medicaid business,” Dr. Sood and coauthors wrote. “We believe that this risk of losing current business will encourage all firms to participate in negotiations and compete with each other, resulting in savings for the state.”
Under the existing system of “price-based contracting,” drug companies negotiate with Medicaid to set prices. When negotiating prices, the company’s goal is to maximize revenues. However, high prices increase the cost of providing access to the drug to additional patients. Thus, under the conventional policy, higher company profits mean reduced drug access.
“The novel strategy of ‘revenue-based contracting’ breaks this link between profits and access,” wrote Dr. Sood and coauthors. “Firms can increase profits by negotiating a higher lump sum payment. But once a lump sum payment is set, the state’s cost of providing drugs to additional patients is close to zero as the unit price of the drug is zero. Thus, firms are able to increase profits without limiting access.”
For the plan to decrease state costs and broaden access, the researchers maintain that three conditions be met:
- The lump sum paid must be less than current spending by the state on all hepatitis C drugs.
- The state has the capability of expanding patient access to treatment.
- The state funnels as many patients as feasible to the contracted hepatitis C drug.
Under the proposal, certain additional costs are unavoidable. First, a minority of patients may require different hepatitis C drugs for treatment. Second, the cost of pharmacy dispensing fees will endure. Nevertheless, these additional costs will pale in comparison with proposed savings, the authors believe.
At the behest of the Centers for Disease Control and Prevention (CDC), experts at the National Academies of Sciences, Engineering, and Medicine have previously proposed a fix to this problem of hepatitis C drug access among the indigent. Their proposal called for the federal government to buy up hepatitis C drug patents and then have generic manufacturers supply these drugs to those in need (ie, Medicaid patients and inmates).
Dr. Sood and colleagues cite several limitations of the National Academies proposal. For one, “under the federal patent licensing approach, firms may be reluctant to participate out of concerns that they may lose their intellectual property or related products or non-Medicaid markets.”
To be sure, certain bureaucratic roadblocks must be overcome for the proposed system of revenue-based contracting to work. For instance, the lump sum payment to be doled out by states is not a typical “medical assistance” cost covered by federal matching. Furthermore, this proposal could end up breaching current federal anti-kickback statutes.
“Implementing this strategy poses some challenges, but they are surmountable,” concluded the authors. “States that pursue this novel strategy for improving access to hepatitis C treatments will likely see improvements in health and reductions in downstream costs associated with hepatitis C morbidity and mortality. We can eliminate hepatitis C in the US if several states can successfully implement this strategy.”