By Yevgeniy Feyman:

Public health care systems (CTAF analyzed the effect on California’s Medicaid program and Department of Corrections patients) necessarily have limited resources. So spending money on a very expensive drug – even if it’s extremely cost effective – means not spending the money on other things. The CTAF report notes that cost offsets over 20 years will pay for about 40 percent of the increased spending on HCV treatments. While this is an impressive cost-offset, the report also points out that this falls outside of typical guidelines of sustainability, which would require prices of between $34,000 and $42,000 per course of treatment. […]

[O]ur fragmented insurance system often makes it unprofitable for insurers to cover expensive, cost-effective drugs. This is why PBMs like Express Scripts are limiting access to Harvoni only for patients with particular profiles, and those who have reached the late stages of fibrosis. […] A combination of multi-year insurance contracts, and perhaps an expansion of the ACA’s permanent risk adjustment to include all insurance plans would encourage better coverage of such drugs. […]

[P]rice controls in Europe keep down prices of patented pharmaceuticals. But there is undoubtedly a trade-off between innovation and regulation. And it’s worth noting that at least in 2003, generic drugs – priced in a very competitive market – typically cost less in the U.S. than in other OECD countries. […]

[W]e should consider improving our credit mechanisms. To put it bluntly, if we paid for houses the way we pay for drugs, only the rich would own homes. Thomas Philipson and Andrew von Eschenbach have written about what credit mechanisms in the pharmaceutical sector might look like. Federally-subsidized loans for Medicaid programs could help these programs cover expensive drugs with large benefits that accrue over time. For privately-insured patients, federal guarantees or subsidies (perhaps we could trade out the mortgage interest subsidy!) for health-related loans could make these credit mechanisms function much more smoothly. And for high-mortality diseases, third-party credit mechanisms (your family taking on credit to pay for your treatments) could be used.

Lastly, drug makers will likely still have to make some concessions – particularly if reforms at the FDA succeed. As the health care system broadly shifts to risk-based payments, pharma will have to follow suit. This might materialize as outcome-based, milestone payments, for instance. A payer would pay a certain percentage of the drug cost up-front, and the rest would be tied to patient outcomes over a certain time-period. Also, if adaptive licensing reforms are implemented, drugmakers will have to accept higher failure rates down the line in exchange for getting more drugs conditionally approved early on. This will require them to be nimble and efficient at running clinical trials.