Louisiana explores whether to override patents to fight hepatitis C drug costs

Lacking the ability to pay for pricey hepatitis C treatments, the Louisiana Department of Health is exploring a pair of controversial options. One is reaching a deal with drug makers, such as Gilead Sciences, to license production to a generic company, while the other would be to ask the federal government to override patents so cheaper versions can be made by other manufacturers.

The state agency is responsible for covering approximately 35,000 Medicaid beneficiaries and uninsured residents, but covering the cost of hepatitis C treatments at current prices would run an estimated $764 million. In the current year, the Medicaid pharmacy program expects to spend just $76.2 million, according to a department spokesman.

To cope, Dr. Rebekah Gee, the health secretary, sought help from Dr. Peter Bach, who heads the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center. He developed a program and told us that, to pay for the drugs, funds would have to be shifted from other discretionary programs for Medicaid coverage for treating the blind, or else shifted away from school programs for the poor.

“Unfortunately, the costs for curative therapy have limited our ability to provide care to those in need and reduce the risk of transmission to others across the state. … This program illustrates that funding appropriate hepatitis C treatment would come at an extreme cost to Louisiana,” Gee wrote in an April 17 letter to Dr. Joshua Sharfstein, an associate dean at Johns Hopkins Bloomberg School of Public Health. Her effort was first reported by Kaiser Health News.

Gee wrote to Sharfstein in hopes of finding a solution. He responded by assembling a team of health care experts to explore two possibilities that Gee read about: One is whether it is feasible to negotiate a license with a drug maker, a possibility that was recommended last month by a National Academies of Sciences, Engineering, and Medicine committee that is examining ways to eliminate hepatitis B and C.

Read more: The VA got a good price for a hepatitis C drug, so why shouldn’t Medicare?

The other approach would involve tapping a little-known 1910 federal law that could allow the US Department of Health and Human Services to use a patented invention without permission. Under section 1498 of this law, a drug maker could demand a “reasonable” compensation — such as royalties — but cannot stop the government from taking such a step.

The informal panel of experts plans to recommend that Gee consider both approaches, according to Sharfstein, who is also a former deputy commissioner at the US Food and Drug Administration. “We do not see them as mutually exclusive. If a voluntary license can work, that’s terrific. If not, there’s a law for this kind of situation,” he told us. “But there’s no way, under current prices, this problem will be solved.”

Ever since Gilead began selling Sovaldi, its first hepatitis C treatment, three years ago, the public and private payers have been agonizing over the cost. Initially, Sovaldi carried an $84,000 price tag, but doctors quickly wrote prescriptions because the medicine has a cure rate that exceeds 90 percent. Since then, other companies introduced rival medicines, making it easier for payers to win some discounts.

Nonetheless, the sudden burst of prescribing quickly strained budgets. By 2015, Medicaid spent $618 million on Sovaldi and more than $2.1 billion on Harvoni, the Gilead follow-on drug, according to agency data. By then, Medicaid directors around the country began instituting stringent criteria, which included treating only those patients with the most advanced stage of liver disease. Some continue to do so, although this may run afoul of the law.

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Whether either of the recommendations can solve the problem is uncertain.

Aaron Kesselheim, a professor at Harvard Medical School who has studied the 1498 section of federal law, maintained that such policy solutions must be explored in order to alleviate public health problems caused by the price of medicines. But he also noted that any move to help the Louisiana Medicaid program would likely start discussions about other state programs.

As for Gilead or any other drug maker, Kesselheim noted in a Health Affairs essay that he co-authored last year, “the government could make a strong argument that likely company profits would have been capped by payers’ prescribing restrictions as well as more recent price discounts.” In other words, a royalty is better than not booking sales to government programs that are unable to buy the drug.

Gilead, by the way, has previously issued voluntary licenses. Three years ago, the company reached licensing deals with seven generic drug makers based in India to sell lower-cost versions of Sovaldi in 101 low-income and middle-income countries. The goal was to provide greater access and avoid reputational damage as many countries began complaining about the price.

Gee, who was unavailable for comment, has yet to receive the recommendations, though. A Louisiana health department spokeswoman told us that the health secretary “won’t do anything without the support of the governor. What we’re doing right now is to inquire about options, but it’s too soon to determine next steps.”

As far as Bach is concerned, the episode is instructive.

“Hepatitis C is the crucible for the entire pricing systems. It is exactly the promised innovation we’ve waited decades to become reality — an important treatment that solves a huge health problem — and we continue to pay two to three times what Europeans pay. And we can’t afford it. This was our test. The system constructed to incentive innovation failed on the delivery front.”