Until Sovaldi, the class of products known as "specialty drugs" was mainly tailored to relatively rare conditions. The drugs are complex, which makes them more expensive to produce, driving up the price for consumers. And because they treat rarer conditions, there were fewer potential customers — another factor driving up prices.
Specialty drugs have always been expensive. They account for roughly 25 percent of U.S. spending on prescription drugs, but just 1 percent of all prescriptions, according to a newly formed coalition lobbying for lower prices.
But Sovaldi set off a particular shock wave largely because it treats a more common ailment — some 3 million people have hepatitis C. They can't all afford an $84,000 course of treatment, but still, critics argue, the drug's large potential customer base means that a once-narrow slice of drug spending could explode.
"If this sets a pattern for other drugs then we're really in deep trouble "¦ it's the combination of the price and the volume," said John Rother, who helped start the Coalition for Sustainable Rx Pricing. The new organization, which also includes AARP and other health care advocates, launched Wednesday.
The pharmaceutical industry says critics are missing the point. Yes, Sovaldi is expensive, it argues, but that's because it works. Sovaldi cures about 90 percent of patients with a common form of hepatitis C within its 12-week course.
Spending $84,000 on a cure might seem expensive up front, but it's a lot more efficient in the long run than paying for a string of less effective treatments, including hospitalizations that run the risk of complications, the drug industry says.
A report from Optum, a consulting subsidiary of United Healthcare, agrees. Even very expensive drugs can be cost-effective if they work well enough, Optum said in a report issued before Sovaldi's price was released.
"It is certainly possible that the combination of higher cure rates and reduced side effects, combined with reduced treatment times, may mean even greater cost-effectiveness in the future," Optum's analysts wrote.
A pharmaceutical industry official said insurers' effort to crack down on Sovaldi and other specialty drugs is short-sighted. The insurance industry is under tremendous pressure to keep premiums low, especially in the first few years of Obamacare enrollment, and it's reacting to that pressure by steering health providers and consumers away from products that are more expensive in the short term, the official said — but is running the risk of foregoing longer-term savings.
The basic dynamics underneath this tension are nothing new: Pharmaceutical companies want insurers to cover their drugs, which helps them make money; insurers want to avoid shelling out tens of thousands of dollars for expensive treatments, which helps them make money.