The debate over the price of specialty drugs is intensifying and could well be the next major healthcare issue to dominate the national, even international, agenda. In a nutshell, how will society pay for breakthrough scientific innovation?
Specialty drugs, complex therapies used to treat severe illnesses such as cancer, multiple sclerosis and Hepatitis C, are coming in with price tags that have purchasers sounding alarm bells. At $1,000 per pill, the newest Hep C medication runs about $86,000 for a course of treatment. Two major insurers have publicly cited the price of this single new drug as contributing to next year’s rise in premiums.
In fact, analysis by our team at PwC’s Health Research Institute shows that this one new therapy will impact overall U.S. health costs by .5% this year and .2% next year. Considering the nation’s total healthcare budget is $2.8 trillion, that is a remarkable budgetary impact for one product.
But the story doesn’t end there. Drug costs represent just 15% of total health spending, compared to nearly one-third spent on inpatient care. Short-term budget spikes could become long-term savers from both a cost and health standpoint. For the most severe patients, the price of Hep C medication – that is nearly 90% effective – is three to six times less than treating a lifetime of cirrhosis ($270,000) or providing a liver transplant ($580,000.) Patients essentially “cured” of Hepatitis C can go on to have productive, long lives.
Yet not every case is so severe that it would incur the highest medical bills. And as people switch jobs and health plans, the insurer or employer that pays for the expensive medication today may not be the one that reaps the long-term savings.
The issues surrounding how we pay for breakthrough treatments are complex and merit a thoughtful national conversation. What are the ethical implications to determining who gets what treatment when? Why can’t insurance company actuaries factor new products into their risk calculations? How do drug companies determine prices for new products? And is there a better approach to financing medical innovation?
It would be tempting to hope the battle over the new Hep C medication will blow over. But with additional Hep C therapies expected on the market and 70% of the FDA drug approval pipeline now filled with specialty drugs, we will continue to grapple with this important issue.
Ceci Connolly is the Managing Director of PwC’s Health Research Institute, a research organization dedicated to objective analysis on the issues, policies and trends important to health organizations and policymakers. Ceci is a veteran journalist and co-authored Landmark: The Inside Story of America’s New Health Care Law and What It Means for Us All.