The $1,000 Pill That Could Cripple the VA’s Budget
Policy + Politics

The $1,000 Pill That Could Cripple the VA’s Budget

  • The cost of one drug could force cutbacks in other areas of VA
  • Sovaldi’s high cost would also impact Medicare, Medicaid
  • The Hep-C treatment will cost more than cancer therapy

The Department of Veterans Affairs, still reeling from a scandal over the negligent treatment of veterans seeking medical care that may have contributed to some deaths, has a new problem on its hands.

While struggling to beef up its medical staff and sharply reduce the time it takes veterans to get appointments at health facilities, the staggering cost of Sovaldi, a specialty drug to treat Hepatitis C, is threatening to blow a $1.3 billion hole in the agency’s budget in the next two years. It’s a fiscal crisis that could force deep agency cutbacks in other areas.

Related: Senate Zeroes in on Inflated Hepatitis C Drug Cost

The issue first surfaced in July when the embattled VA gave the Senate Veterans Affairs Committee a $17.6 billion wish list of resources to begin delivering high quality and timely health care to veterans. VA officials complained that the unexpectedly high cost of using Sovaldi was eating away at their budget.

The VA is the largest provider of care in the U.S. for chronic Hepatitis C virus infections, which can destroy the liver and require a liver transplant or result in death. The VA has 174,000 veterans under its care with documented HCV; another 42,000 could be added once they’re properly tested.

Congress subsequently approved $17.5 billion of new funding as part of VA reform legislation, but none of those funds was earmarked for the Sovaldi treatments. Made by Gilead Sciences Inc. of California and approved by the Food and Drug Administration a year ago, the drug offers huge advances in the treatment of Hepatitis C and related liver problems – and guarantees a cure rate of 90 percent.

Yet the medicine costs $1,000 per pill – or $84,000 for the obligatory 12-week treatment. The 3.2 million Americans who are infected by Hepatitis C could benefit greatly from the treatment. Still, the total cost of covering those people with the new drug would exceed the $300 billion the U.S. is spending annually on pharmaceuticals.

Related: Get Ready for a Surge in Costly Specialty Drugs

Sovaldi is just the leading edge of a surge in specialty drugs that offer important advances in treating cancer, multiple sclerosis and other serious illnesses but that threaten to saddle government, health insurers and consumers with huge unsustainable costs.

The drug already is beginning to strain the budget of one major government agency – and could dramatically run up the costs of other health-related programs, including Medicaid and Medicare as well as federal and state prison systems that are required to provide inmates with health care services.

The VA spent about $220 million on the new drug in the fiscal year that ended September 30, according to agency figures. Other HCV treatments will be coming on the market soon; the VA intends to use those as well.

Although Gilead and the VA negotiated down the price of a tablet from $1,000 to $543, according to one source, the long-term cost of Sovaldi to the VA could be staggering – and will eclipse the treatment costs of most other diseases, including cancer.

Related: 7 of the Most Outrageous Abuses at VA Medical Centers 

Sen. Bernie Sanders (I-VT), chair of the Veterans Affairs Committee, said he was alarmed by what he termed Gilead’s “price gouging” even with the discount. He intends to use the committee to “explore” the problem, he said in an interview.

“This is an issue that has to be explored, because clearly when we put money into the VA, we want to make sure it goes to the doctors and nurses to make sure veterans get the best health care possible – not to pad the profit margin of large pharmaceutical companies.”

He added, “With the VA, our goal is to provide the best quality care and yet we’re being charged an enormous amount of money. Which means it’s not going into other areas, like mental health, etc. . . . We will do everything we can to have these guys lower their prices.”

John Rother, president and CEO of the National Coalition on Health Care, said the VA was facing “a very severe budget shortfall” because of Sovaldi-related costs, and this would “force them to cut back on other services in an already strapped system.”

Related: The $1,000 Pill That Calls for a 'National Dialogue’

Rother and his group of business leaders, health care providers and some drug manufacturers launched a campaign last June to highlight the mounting cost of specialty drugs. Rother has urged pharmaceutical officials to find ways to reduce the cost of breakthrough therapies while continuing to cover companies’ research costs and compensate them for innovations that can save lives and reduce medical complications. 

“Sovaldi is the most effective drug on the market today – a breakthrough drug,” Rother said. “It’s much more effective than anything previous. In that sense, it’s very important from a public health point of view. It’s just a disaster from an economic point of view.”

A spokesperson for Gilead declined to respond to questions from The Fiscal Times about the pricing controversy.

In late July, Gilead was informed it is under investigation by the Senate Finance Committee, whose members became interested in learning why Gilead had decided to more than double the price of the medication before it was put on the market, as The Fiscal Times reported.

Gilead claims the cost of developing Sovaldi was $11 billion. The Senate in an inquiry says the company’s cost between 2009 and 2011 was merely $62.4 million.

Related: Obamacare Insurers Hit High-Cost Patients with High Drug Prices

The committee’s curiosity was sparked by reports Gilead had altered its marketing strategy for Sovaldi after it acquired its creator, New Jersey-based research firm Pharmasset, in 2012. In late 2011, Pharmasset filed documents with the Securities and Exchange Commission that discussed the billions of dollars per year the company expected to take in after Sovaldi was marketed at $36,000 per treatment course. Gilead subsequently more than doubled the price.

“Given the impact Sovaldi’s cost will have on Medicare, Medicaid and other federal spending, we need a better understanding of how your company arrived at the price for this drug,” wrote Finance Committee Chairman Ron Wyden (D-OR) and Republican committee member Charles Grassley of Iowa in a letter to Gilead CEO John Martin.

The Medicaid program for the poor and disabled spends roughly $45 billion to $50 billion a year on pharmaceuticals, out of a total budget of $450 billion. Under a worst-case scenario, the widespread use of Sovaldi could nearly double the cost of pharmaceuticals in the future, to $90 billion to $100 billion, according to Matt Salo, executive director of the National Association of Medicaid Directors.

“State Medicaid programs are definitely challenged by this,” said Salo. “Sovaldi is a big-ticket item. At this point, it’s much higher than cancer treatment.”

Related: Medicaid Expansion Cheaper Than Expected: CBO

Salo said in an interview Tuesday that state and federal officials hold a wide range of views on the severity of the problem. Some predict the cost will soon be out of control, while others contend government agencies and programs can find ways to rein in the costs.

Federal and state officials, for example, likely will be able to negotiate big discounts with the drug manufacturers or establish clinical protocols that limit the number of people eligible for treatment.

“Now that’s a valid point,” Salo added. “But the concern a lot of my members have is that they don’t actually think those types of protocols, while they are certainly medically justified, are going to get upheld in the courts.”

Salo said he could imagine the courts bowing to pressure from the Centers for Disease Control and other public health advocates who say, “This is a communicable infectious disease and it is unconscionable not to cover everyone.”

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