By Monica Chou
How State Medicaid Reimbursements are Limiting Hepatitis C Coverage and Solutions
Hepatitis C has rapidly become a major public health problem, and accessibility to new and affordable treatments has been highly sought after. Hepatitis C virus (HCV) can be transmitted by blood transfusions or contaminated needles; although no symptoms are present at the outset, chronic Hepatitis C infection can give rise to liver complications such as cirrhosis or liver cancer. As the leading infectious killer in the U.S., HCV chronically infects 2.7 million to 3.5 million people in the U.S. Since first coming onto the U.S. market in in 2013, Sovaldi has been one of the few, if only, medications to successfully treat Hepatitis C at a cure rate of over 90% after 12 weeks of treatment, with few side effects. Sovaldi holds considerable exclusivity due to its novelty. As such, Sovaldi costs $1,000 per pill, leading to a costly $84,000 for a 12-week treatment regimen. In contrast, Sovaldi costs less than $1 per pill.
Sovaldi pricing has received nationwide attention; to the point of rare bi-partisan partnership taking action. On July 11, 2014, Senate Finance Committee Ranking Member Ron Wyden (D-Oregon) and senior Committee Member Chuck Grassley (R-Iowa) requested information on Gilead Sciences’ pricing tactics that have negatively affected public payers’ access to Sovaldi. The lawmakers deemed the investigation pertinent since the medication raises “serious questions about the extent to which the market for this drug is operating efficiently and rationally,” and Sovaldi’s price “appears to be higher than expected given the costs of development and production and the steep discounts offered in other countries.” After an 18-month investigation and hearing, Congress released an extensive report on December 1, 2015, detailing Gilead Sciences’ pricing, marketing, and development mechanisms on Sovaldi and Harvoni.
Among other conclusions explaining the price variation, the report determined that Gilead did not easily provide access to states’ Medicaid programs. Medicaid programs spent $1.3 billion on Sovaldi, before rebates, in 2014 alone, yet less than 2.4 percent of Medicaid-eligible patients with HCV received treatment. In fact, many states have resorted to restricting access to covering a limited number of Medicaid patients. Some states, such as New Mexico, limit Medicaid coverage to the sickest patients, or those who have pre-existing liver damage. These states require healthcare providers to “perform risky liver biopsies on patients to prove how sick they are, or wait until patients have late-stage liver disease before they can be eligible for coverage.”
A recent study examined how consistently state Medicaid programs abided by recommendations made by the American Association for the Study of Liver Disease and the Infectious Diseases Society of America on treating, managing, and preventing HCV. Out of the 42 states (including the District of Columbia) that had publicly available Medicaid reimbursement criteria, 74% restricted access to Solvaldi to those with advanced fibrosis or cirrhosis, which occurs at stage F4 of the disease. Furthermore, a majority of states limit Medicaid reimbursements to patients who have abstained from drug and alcohol use for a certain period of time, even those who have undergone opioid substitution therapy. From these findings, the study concluded that current state Medicaid reimbursements may violate federal Medicaid law, which provides that state Medicaid programs plans must include drugs manufactured by pharmaceutical companies that have negotiated rebate plans with the Secretary of Health and Human Services, except for those under the restrictive lists of drugs.
Some states have rearranged their Medicaid program policies by forming a pool with other states and purchasing alternative treatments exclusively in an effort to force coverage away from Solvaldi. As of January 2015, Missouri and 24 other states successfully reached a negotiation with AbbVie to secure an extra 20 to 30 percent rebate system for their Medicaid patients. However, these negotiations place restrictions on Medicaid enrollees, who are required to stay sober for 90 days before beginning the Viekira Pak treatment. Although Missouri anticipates to save $4.2 billion from these rebates, the lag time of over six months for calculating rebates into the state budget means it will be too soon to determine the overall cost savings on Medicaid spending. The Missouri state department also plans to provide Solvaldi to an estimated 15 to 20% of HCV patients who cannot be effectively treated by Viekira Pak, which implies that the medication cannot clinically treat all people infected by HCV. Exclusive Medicaid negotiations with alternative treatments could lead to unintended leftover costs from providing for patients whom Viekira Pak is not a valuable option.
Recent litigation on the state level has addressed issues of Medicaid coverage of Sovaldi. In B.E. v. Teeter, Washington Medicaid enrollees, who were HCV patients that did not receive DAA medication, brought a class action suit against the Washington State Health Care Authority (“WHCA”), under claims of violating the Medicaid Act for categorically excluding them from “medically necessary” drugs. The federal district court sided with the plaintiffs’ argument, granting their motion for preliminary injunction, given that the plaintiffs had satisfied all the factors necessary to warrant such a remedy. In doing so, the court determined that the plaintiffs’ evidence “will likely establish that the WHCA is failing to follow its own definition of medical necessity by refusing to provide DAAs to monoinfected enrollees with a F0-F2 score and offering only “monitoring” in lieu of this breakthrough treatment.”
This decision significantly marked the first time that a federal court deemed restrictions to Hepatitis C state Medicaid programs as illegal, and thus could provide a precedent for other states to follow suit. Consumers from California and, again Washington, have also recently filed suits against private insurance companies, such as Anthem Blue Cross and Group Health Cooperative. Since these lawsuits have involved gathering a class of injured plaintiffs, however, issues of class certification under Rule 23(a) and 23(b)(2) will need to be resolved, as they were in B.E. v. Teeter. As such, law suits filed on behalf of a consumer class may not be the most efficient resolution, since time constraints and litigation costs could prolong the desired remedy, if the court chooses to grant it.
Massachusetts employs a fee-for-service program for distributing Solvaldi. As such, the state has relatively unrestricted access to Sovaldi compared to other states; yet, only an estimated 1,075 members have been approved for treatment regimens among the 7,658 members living with HCV. In an unprecedented move, on January 2016, Massachusetts Attorney General Maura Healey issued a letter warning to sue Gilead Sciences for potentially violating unfair trade practice under section 2 of chapter 93A of the Mass. Gen. Laws. However, the lawsuit may not contain the merits required to bring an action under consumer protection law. The AG eventually spent months negotiating with Gilead Sciences and recently, on June 30, 2016, reached a new drug rebate program to provide unrestricted coverage to MassHealth patients in need of Hepatitis C treatment. Since the MassHealth rebate program was recently implemented on last August 1st, the effectiveness of the pricing solution will need to be monitored further to determine whether Medicaid coverage of Solvaldi is expanded to offer more treatments to those in need.
Monica Chou anticipates graduating from Boston University School of Law in May 2018 and plans to practice health law.
The Orphan Drug Act: Unintended Consequences From Salami Slicing
Prescription drug prices are a top cause of increasing U.S. health care costs, with specialty drugs (such as Sovaldi) especially being the culprit for impacting cost trends. Even though specialty drugs constitute less than 1 percent of the total prescriptions, they account for 35 percent of the projected drug cost trend for 2017. This is a 10-percentage point increase from 2015, when specialty drugs accounted for 25 percent of the projected drug cost trends. In particular, patients, insurance companies, and providers have been closely scrutinizing orphan drugs (pharmaceuticals that target rare diseases and disorders) based on their soaring profitability and recent media exposure. According to EvaluatePharma’s 2015 drug report, 2014’s top selling orphan drug in the U.S. had sales of over $3.65 billion, amounting to $54,780 of average revenue per patient. The average orphan drug costs $111,820, which is over four times pricier than the mainstream drug cost of $23,331. This begs the question – how did orphan drugs become one of the fastest-growing products in the pharmaceutical industry?
The 1983 Orphan Drug Act incentivized pharmaceutical companies to invest and manufacture new drugs 
to treat rare or orphan diseases. Historically, pharmaceutical manufacturers did not produce drugs for small patient populations. Over forty years later, the Act has stimulated life-saving treatments for over 25-30 million Americans who suffer from an estimated 7,000 rare diseases, according to the National Institutes of Health.
The FDA established the Office of Orphan Products Development (OOPD) to facilitate the evaluation of developing orphan products through the Orphan Drug Designation program. This program grants special status (orphan designation) to orphan drugs and biologics, which are defined as those aiming to treat diseases/disorders that affect fewer than 200,000 people in the U.S. For a drug to achieve the orphan designation status, both the drug and the rare disease treated must meet certain requirements listed under 21 CFR §316.20 and 316.21. These rare diseases include genetic disorders such as Gaucher disease, cystic fibrosis, certain pediatric cancers, and follicular B-cell non-Hodgkin’s lymphoma.
The OOPD utilizes both “push” and “pull” incentives to promote product development. The “push” includes grants to subsidize clinical research costs, tax breaks on clinical research costs, and waivers of expensive marketing application fees. The “pull” incentives include market exclusivity for a seven-year period that is broader than for non-orphan drugs; during the exclusivity period, the FDA cannot approve a manufacturer’s application for the same orphan drug as a different manufacturer. However, if a competitor manufacturer demonstrates that their clinical uses of the same orphan drug is superior to that of the original version, the new version is not deemed as the “same drug,” in accordance with CFR 316.3(b)(13)(i),(ii). Orphan drug patent and market exclusivity adds up approximately 0.8 years more protection against pharmaceutical competition, compared to normal patent exclusivity protections. As such, the combination of broader exclusivity, small patient populations, and higher expected profits have played out favorably for orphan drug manufacturers because they can charge astronomical prices on their products.
These “push” and “pull” incentives, however, can often lead to manipulation by pharmaceutical companies in an effort to maximize profits and extend their monopolies. According to a recent six-month Kaiser Health News Investigation, a third of orphan drugs approved by the OOPD have been “either for repurposed mass market drugs or drugs that received multiple orphan approvals.” A 2015 commentary from the American Journal of Clinical Oncology reported that these loopholes have resulted in abuses of the patent system, where “[t]he industry has been gaming the system by slicing and dicing indications so that drugs qualify for lucrative orphan status benefits.” This so-called “salami slicing” technique occurs when mass market drugs, not deemed “true orphans,” are being repurposed towards treating small patient populations in an effort to attain additional FDA approval. As such, despite the many successes of the Orphan Drug Act, critics are calling for reforms to close loopholes and address escalating prices.
According to Martin Makary, the study’s author and Professor of Surgery at John Hopkins, funding support that was originally designed for rare disease drugs are now being funneled towards blockbuster drug developments. Off label uses result in drug price inflation that often leads to higher health insurance premiums. Take rituximab, for example, the top-seller orphan drug of 2014, which was originally approved for the treatment of follicular B-cell non-Hodgkin’s lymphoma. Although the disease affects about 14,000 patients per year, the drug was repurposed to additionally treat rheumatoid arthritis, a more prevalent disease that afflicts over 1.3 million patients. As such, the authors of the 2015 commentary proposed pricing negotiations and implementing clauses to reduce the exclusivity period. These could serve as checks on certain drug products that have exceeded past treating 200,000 people, the Orphan Drug Act’s threshold.
Former Rep. Henry Waxman, co-sponsor for the monumental Hatch-Waxman Act and proponent of the Orphan Drugs Act, had suggested amending the Act back in the 1990s, but those and subsequent efforts at reform have failed. According to Rep. Waxman, “Orphan drugs are orphans no more; they’re very popular. [But], there are pharmaceutical companies that handle their whole business plan to make sure their drug can be categorized as an orphan drug.” His statement sums up the ongoing dilemma and atmosphere of the drug market price gouging.
On February 3, 2017, however, Sen. Chuck Grassley, chairman of the Senate Judiciary Committee, wrote that he had opened an inquiry on the potential manipulation of the Orphan Drug Act. Sen. Grassley states that he has already contacted staff members of the Senate Health, Education, Labor and Pensions Committee to determine whether the Act’s incentives are truly benefiting the patients it intends to protect. In March 2017, Senators Orrin Hatch (R-Utah), Chuck Grassley (R-Iowa), and Tom Cotton (R-Ark) sent a letter to the U.S. Government Accountability Office, asking for an investigation into this matter. The Senators raised the possibility that regulatory or legislative changes might be needed "to preserve the intent of this vital law;" giving drug makers incentives to develop drugs for rare diseases.
Amidst federal regulation, several states have been pushing legislation on the monitoring and management of general prescription drug costs. For instance, Vermont recently enacted Act 165, Pharmaceutical Cost Transparency, which requires the state to annually identify up to 15 state purchased prescription drugs on which significant health care dollars have been spent, as well as require drug manufacturers to disclose wholesale acquisition costs. Other states, such as Louisiana, Massachusetts, Minnesota, and New York, have proposed bills with similar disclosure requirements. As such, the current trend towards drug price transparency legislation could provide potential solutions towards curtailing the escalating orphan drug pricings.
With the recent state legislative proposals and a potentially informative Senate inquiry, the spotlight remains on drug manufacturers to explain their salami-slicing, repurposing tactics on orphan designation.
Monica Chou will graduate from Boston University School of Law in 2018 and hopes to practice Health Law.
