Debate over Sovaldi is Misleading

August 7, 2014

Much has been made of the $84,000 price tag for the Hepatitis C treatment Sovaldi, a groundbreaking new drug from Gilead Sciences that can cure Hepatitis C. According to the head of the health insurers' trade association, the drug is simply too expensive.

But NCPA Senior Fellow John Graham explains that such a charge is inaccurate. Sovaldi appears wildly expensive because the drug requires one big upfront cost. In the long run, however, the $84,000 drug can prevent far more expensive medical costs that would otherwise occur.

  • As reported by the New York Times, more than half (60 percent) of Hepatitis C patients end up with chronic liver disease, while one-fifth have cirrhosis.
  • While not all Hepatitis C patients will need one, a liver transplant can cost up to $600,000.

Graham explains that liver disease can develop over two or three decades. In 2015 and 2016, patients can expect to see medical costs rise by 0.7 percent each year due to patients (an estimated 80,000 per year) taking advantage of the new drug. But starting as early as 2017, spending growth should begin to fall slightly as long-term costs are averted.

Despite these long-term gains, Graham notes that insurers remain concerned about the price of the drug. Because so many Americans routinely change their insurance, many insurers are loathe to pay out large sums of money that may not save them costs in the long-run.

Graham's answer to this type of problem? Health status insurance. Such insurance would not last just one year but would insure a person against future chronic illnesses, creating incentives to catch problems early, before they become more serious (and more expensive).

Source: John R. Graham, "Reforming Health Insurance to Promote Diagnostic and Pharmaceutical Innovation," Health Policy Blog, National Center for Policy Analysis, August 6, 2014.

 

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