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Demand for expensive hepatitis C drug strains insurers

When ‘miracle’ cures, cost collide

Laurel Welch, a retired nurse from Barnstable, was exposed to hepatitis C 25 years ago. She began taking Sovaldi in January. “My virus is now undetectable,” she said.

JULIA CUMES FOR THE BOSTON GLOBE

Laurel Welch, a retired nurse from Barnstable, was exposed to hepatitis C 25 years ago. She began taking Sovaldi in January. “My virus is now undetectable,” she said.

When scientists envision breakthrough medicines of the future, they’re thinking about drugs like Sovaldi. Since being approved for US sale in December, the hepatitis C pill has racked up a cure rate of more than 90 percent. It’s a staggering, life-altering statistic for the estimated 3.2 million people in the United States infected with the virus, which over time ravages the liver.

“My virus is now undetectable,” said Barnstable resident Laurel Welch, 65, a retired nurse who contracted hepatitis C through contact with contaminated blood 25 years ago and began taking Sovaldi in January. “I was so sick for so long. Now I’ve got a new life.”

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Sovaldi, sold by California-based Gilead Sciences Inc., may also represent the future of cutting-edge drugs in another way: At $1,000 a pill and $84,000 for a full treatment regimen — plus the cost of companion medicines — it’s straining the finances of insurance companies.

Demand for Sovaldi is growing so fast that insurers have begun restricting who can immediately get it, to the dismay of patients.

Gilead and others say the large upfront costs will eventually reduce long-term medical expenses of people with hepatitis C. For now, however, insurance companies and government payers can’t see that far.

“The impact on state budgets is, frankly, breathtaking,” said Christopher “Kit” Gorton, president of Network Health, one of the insurers that cover Medicaid patients, a large segment of the infected population. “It’s a big challenge for everyone.”

A half dozen Massachusetts insurers that contract with Medicaid, the government health insurance program for low-income earners, paid out a combined $23.3 million in Sovaldi-related claims between January and March, according to the Massachusetts Association of Health Plans, an industry group. It was enough to result in quarterly losses for most Medicaid insurers in the state.

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MassHealth, the government Medicaid program that insures many patients directly, spent about $10.8 million on the new hepatitis C treatment during the first three months of the year.

“It’s a significant cost driver,” said John Polanowicz, the state secretary of health and human services. But he hailed Sovaldi as “a drug that could take out hep C” and potentially save millions of dollars that would otherwise be spent treating diseases caused by the virus, such as liver scarring and cancer.

Gilead also stresses the many millions of dollars that won’t have to be spent on hepatitis C patients’ medical care years from now.

“It represents a finite cure, an important point to consider when comparing the price of a pill or bottle to the lifetime costs of treating a chronic disease,” said spokeswoman Cara Miller.

Like many prescription drugs, Sovaldi was in development for more than a decade. It began as a research project at Emory School of Medicine in Atlanta, and the early drug discovery work was done by New Jersey drug company Pharmasset Inc. Gilead paid $11 billion to acquire Pharmasset in 2011, primarily to gain the rights to market its hepatitis C drug candidate.

Federal grants and Pharmasset’s research outlays on Sovaldi totaled more than $14 million, but Gilead spent tens of millions more to shepherd the drug through clinical trials.

Borrowing from the playbook of scientists who developed drug “cocktails” to fight the HIV virus, Gilead’s researchers used Sovaldi in combination therapies that could attack hepatitis C without causing the severe side effects of earlier treatments.

The drug’s price is based partly on Gilead’s calculations of how quickly it can recoup its development and acquisition costs before the approval of competing drugs that could bring down the cost of treatment.

But under pressure from insurers, which worry about even greater payouts as more hepatitis C patients clamor for the new pill, state health officials are drafting guidelines advising which patients need to be covered immediately.

The guidelines would help insurers set priorities for treating a virus that can remain dormant for years, or even decades.

Many people are thought to have contracted it through needles or infected blood in the 1960s or 1970s — when screening procedures were less stringent — and still don’t realize they have it.

“From a financial standpoint, this is not sustainable,” said Laurie Doran, chief financial officer at Boston Medical Center’s insurance arm, HealthNet Plan. “We didn’t budget for [Sovaldi]. I don’t believe anyone really knew how expensive this drug was going to be.”

The drug contributed to a first-quarter financial loss at Partners HealthCare, the giant Boston system that runs Massachusetts General and Brigham and Women’s hospitals and recently bought Neighborhood Health Plan, a Medicaid-contracted insurer.

“We’re getting three or four new [coverage] requests a day,” said Neighborhood Health chief medical officer Paul Mendis.

Even as it awaits state guidelines, Neighborhood Health has developed its own criteria for Sovaldi treatments, drawing on advice from infectious-disease specialists. “I’m not happy with Gilead’s price,” Mendis said. “One thousand dollars a pill — really?”

State government and insurance industry leaders say patients whose doctors prescribe Sovaldi will be able to get it eventually. But some patients who have been told to wait say they’re the victim of health care rationing — long a taboo in US health care.

Insurers in Massachusetts don’t call it rationing. But they say they will have to adopt a “gated” approach to reimbursing doctors and hospitals for the high cost of the drug if they want to stay in business.

“A lot of experts think everybody doesn’t need to get this drug in the first instance,” said Lora Pellegrini, president of the Massachusetts Association of Health Plans. Setting coverage priorities for Sovaldi, she said, could create a model for dealing with other high-priced drugs being developed. “This is the tip of the iceberg,” Pellegrini said.

But there could be some price relief on the way. Insurers, as well as patients responsible for expensive Sovaldi copayments, are eagerly awaiting the arrival of competing new-generation hepatitis C treatments they hope will work as well as Sovaldi at lower cost. That could force Gilead to reduce its prices as well.

But, whatever the cost, there seems little question that Sovaldi is a breakthrough drug.

Dr. Raymond T. Chung, vice chief of the gastrointestinal unit and medical director of the liver transplant program at Massachusetts General Hospital, said earlier injectable hepatitis C treatments cured fewer than half of patients and often caused side effects ranging from fatigue to muscle aches to depression.

Newer versions approved by the Food and Drug Administration in 2011 — including one made by Boston’s Vertex Pharmaceuticals Inc. — lifted the cure rate to about 70 percent. But the drugs still had to be injected and were difficult to tolerate.

By contrast, Sovaldi has cured at least 90 percent of patients nationally with few side effects. Its initial success was so impressive that Vertex decided to abandon the hepatitis C market and focus on cystic fibrosis drugs.

“This has just been an epochal game-changing moment for us,” said Chung, who wrote an article on the history of hepatitis C treatments in the New England Journal of Medicine. “We were making incremental progress for years with each subsequent improvement in treatment. But patients have been coming in our office wanting an all-oral treatment they can tolerate.”

Hepatitis C patient Rafael Caban, 60, who works at the information desk at Massachusetts General, said he didn’t take previous drugs because he was afraid the side effects would make him too sick to work. With Sovaldi, he said, “I feel there’s a burden lifted from my shoulders. According to my doctor, all traces of hep C have disappeared from my blood.”

John Garrett, 75, who runs a Medford research firm, said previous drugs prescribed for his hepatitis C proved ineffective, but Sovaldi has been “astounding.”

As for the cost, which is covered by his insurance, Garrett said, “This cures a major disease. What I tell people who complain about price is: ‘When was the last time we cured a major disease?’ This is a medical miracle.”

Robert Weisman can be reached at robert.weisman-@globe.com. Follow him on Twitter @GlobeRobW.

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