Louisiana is creating a drug-price revolution

Louisiana is putting the final touches on a revolutionary deal that promises to simultaneously control health care costs and increase access to a drug that actually cures Hepatitis C, an infectious disease that kills more Americans than any other, including HIV/AIDS.

The idea is remarkably simple: The state would pay a flat fee over a set number of years — in effect, a subscription — and in return, the drug company provides the drug to every sick patient covered by the state, without limit.

{mosads}Both the state and the pharmaceutical manufacturer gain financial certainty from such an arrangement. The state can spread out its costs over a number of years, and tens of thousands of people with the disease can start taking the medicine and get cured, substantially reducing its long-term health obligations. 

Several experts have praised the innovative arrangement. Neeraj Sood, professor of public policy at the University of Southern California, remarked that the model “can lead us out of our prescription drug crisis by bringing universal access without breaking the bank.”

“This is a big deal,” Tina Rosenberg wrote in The New York Times. “The model can be used in other places and for other drugs.”

The subscription model has been deployed in Australia using drugs to fight Hepatitis C and it has saved it an estimated $4.9 billion over five years, according to a study published in February in the New England Journal of Medicine. Researchers estimate that 93,000 more Australians over five years will be treated for Hepatitis C under the state subscription model than with a traditional reimbursement arrangement.

{mossecondads}A 2018 article in the New England Journal of Medicine, written by Peter Bach of Sloan Kettering, Mark Trusheim of MIT and Sen. Bill Cassidy (R-La.), who is a physician, suggested that such a payment model will not only result in more people being cured of the disease but also fewer people becoming infected in the future, further reducing long-term costs. The fact that a market-based model potentially could provide such benefits bodes well for future pricing innovations that could save taxpayer money.

“A subscription model is flat,” said Rebekah Gee, Louisiana’s top health official. “So we can guarantee a number of years of guaranteed spend” on drugs to treat Hepatitis C. “The idea is that we take our spend now. … Let’s say it’s $35 million: We’ll give [the drug company] that or less, and we get unlimited access. And so the company is guaranteed to get that,” no matter how many patients are treated.

It is no wonder Gee chose to focus on Hepatitis C: The virus causes liver failure and cancer and ultimately necessitates either a liver transplant — at an average cost of $800,000 — or causes death. The ability to actually cure Hepatitis C is a recent achievement: In December 2013, the U.S. Food & Drug Administration approved Gilead’s Sovaldi, which cures Hepatitis C for nearly all patients with a three month regime. Since then Gilead, Merck, Abbvie and Bristol Myers Squibb have developed additional Hepatitis C drugs.

While competition in the market for Hepatitis C drugs has lowered prices substantially, some states still restrict access to the drugs, despite the health benefits and substantial long-term cost-savings these medicines provide. Five years after Sovaldi’s approval, only about 15 percent of Americans with Hepatitis C have been treated, and only 384 of the 35,000 people in Louisiana with the disease who are on Medicaid or in prison received treatment in 2017, despite the Health Department’s acknowledging that “Hepatitis C is a lethal and contagious infection causing a public health crisis” in the state.

Gee approached Gregg Alton of Gilead last year and told him that “together they could eradicate the disease in Louisiana,” and early this year Gee asked Gilead and other drug manufacturers to bid on a contract that would call on a drug manufacturer providing an unlimited supply of a Hepatitis C drug for the next five years. Gee has placed the state’s efforts in the context of other significant public health achievements, observing, “We have eradicated polio in Afghanistan. Why can’t we eradicate Hepatitis C in Louisiana?”

On March 26, she announced that Asegua, a subsidiary of Gilead, won the bid with its drug Epclusa, which “has an overall cure rate of 98 percent across all six main types of hepatitis C,” the state reports.

While Gee hopes the final contract will go into effect in July, the critical element to the arrangement is that the state fully commit to a fixed payment over five years, no matter the number of patients treated. That way, Louisiana would have a huge incentive to get people living with Hepatitis C on Epclusa and cure them quickly so the virus doesn’t infect others. However, if Louisiana has free rein to terminate the contract, or if the arrangement caps the number of patients that can be treated per annum, then the state will have created no revolution — only a pedestrian bulk purchase of drugs.

It is unlikely that Gee and supporters at the Commission on Medicare and Medicaid Services (CMS) will back away from their original intent, and the introduction of a subscription model for access to Epclusa would be a win for the Trump administration as well as Louisiana.

Gee’s innovation holds the promise to have an enormous impact on drug reimbursement across the country — not just for the states’ obligations to Medicaid and prison health care but also for Medicare and commercial insurance.

Given the flood of exciting new drug developments that promise cures for a whole range of serious and debilitating illnesses, Louisiana’s subscription drug model may be the breakthrough America’s health delivery system needs.

Ike Brannon is a senior fellow at the Jack Kemp Foundation, a nonprofit charitable organization committed to advancing growth, freedom, democracy and hope. He is a director of the nonprofit Organ Reform Group and Network, which seeks to find ways to increase people’s access to organs for transplants. Follow him on Twitter @coachbuckethead.