A state and a biopharmaceutical company agreed recently on a new way to pay for treating patients with Hepatitis C, the most deadly infectious disease in America.
At a time when politicians and drug companies are squabbling over drug prices, the deal between Louisiana and Asegua, a subsidiary of Gilead Sciences, is promising and somewhat unusual. Roughly 80,000 are infected with Hepatitis C in the state, half of them on Medicaid or in the corrections system, the two targets of the recent deal.
The agreement, however, fell short of the solution that Louisiana worked hard to put into place. The Centers for Medicare and Medicaid Services (CMS), the agency that sets and oversees reimbursement rules when federal dollars involved, ultimately restricted the state’s efforts.
Considering that Louisiana has the second-highest poverty rate in the nation—and is considered one of the least healthiest states—one would have expected CMS to eagerly help Louisiana achieve its goal of eliminating Hepatitis C.
The anticipated plan was described by Neeraj Sood, professor of public policy at the University of Southern California, in this way: “A single drug manufacturer [will] provide all the hepatitis pills the state needs for a lump sum, payable annually over a five-year contract.” The company “will stand ready to supply as many pills as the state requires. The price-per-pill model disappears, so Louisiana can treat as many patients as it wants without worrying about the costs of treating additional patients.”
This structure is generally called a “subscription model.” Incentives align. Both parties have reason to find and treat as many sick people as quickly as possible. Louisiana has a definite annual payment obligation it knows it can meet (with federal help), and the drug company gets a fixed flow of cash for five years.
At a meeting in December, Rebekah Gee, Louisiana’s top health official, emphatically endorsed the subscription model. “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… And so the company is guaranteed to get that,” no matter how many patients are treated.
This plan was lauded by health policy experts.
Scott Gottlieb, M.D., former commissioner of the Food and Drug Administration, described the payment plan as, “potentially ground-breaking.” In the New York Times, Tina Rosenberg called it a “big deal” and suggested that the model be replicated “in other places and for other drugs.”
Unfortunately, when it came time to put the contract up for bids, Louisiana had to replace its plan with something far more conventional: an expenditure cap.
Under the approved model, Asegua, which won the competition, gets paid for the patients it treats. The only difference between this and a traditional “price-per-pill” approach is that if Louisiana’s costs exceed a fixed cap, Asegua has to treat patients for free.
Such a model is clearly not sustainable for other states and other medicines in the long term.
The attraction of a true subscription model—a multi-year contract with fixed payments—is obviously attractive. Without such guarantees, the attraction quickly evaporates, and so does the likelihood of eliminating a disease.
Certainly, the deal that Louisiana and the Gilead subsidiary struck last month after competitive bidding was a good first step, and the state’s officials, from Gov. John Bel Edwards on down, deserve praise. But it was not the “big deal” that Rosenberg and others expected—or that Gee previously described.
A pure subscription model may not be the answer for every state and every disease. But it’s worth considering, especially since it has drawn support from policy experts across the political spectrum. And it is certainly the right choice for Louisiana today. It’s a shame that federal officials were not ready to show the imagination and determination to make it happen.