Out of your pocket

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Even drugs you may never take are costing you money.

Yes, that’s the way insurance (and Medicare) are supposed to work: group healthcare coverage averages the costs of the “many well” with those of the “relatively few ill” to come up with a reasonable cost we all pay.

That is a good system, in general. Don’t we all prefer to know that, should we or someone we love require a medical treatment that costs, say, $100,000 — or even $100,000 a month — it will be available under our existing healthcare coverage without bankrupting us?

Medicare routinely adds such new treatments to its coverage, even when the longevity benefit provided by some of these is measured in months. This fact is something we seem to have accepted as a society.

But what if it turned out that each new treatment that extended some patients’ lives could cost everyone on Medicare an extra $40 a year or more out of pocket? Would there come a point where this would lead to a reconsideration? 

This number and some more shocking ones come from a recent Associated Press (AP) investigation into Medicare’s costs for new treatments for hepatitis C — a viral condition spread by contact with infected blood that affects some 3 million Americans (170 million worldwide). It can cause severe liver disease, requiring expensive transplants in advanced cases.

Until last year, there was no single treatment that cured most cases of hepatitis C, and even those that helped a number of patients came with serious side effects.

In 2014, Gilead Sciences obtained FDA approval for Sovaldi (sofosbuvir), which when paired with existing drugs cures the condition in 12 weeks for over 90 percent of patients. Gilead currently charges $84,000 for one course of the drug in the U.S.

Gilead argues that cost is reasonable, given that lifetime costs of other treatments for the typical patient can be considerably more than that, not to mention all the additional suffering those treatments entail.

However, the basic structure of the drug was developed primarily through university research underwritten by U.K. and U.S. government funding (including NIH grants). In India, where Gilead’s patent was rejected on the grounds that its underlying technology had already been invented, the same treatment is available from generic manufacturers for $300.

Last fall, the AP asked Medicare’s Office of the Chief Actuary to calculate what this new hepatitis C treatment would cost Medicare in 2015. The actuary estimated that the Medicare Part D prescription drug program would spend $9.2 billion on hepatitis C drugs — a 96 percent increase from the $4.7 billion spent in 2014.

“That works out to nearly 7 percent of drug costs for all of Part D,” the AP reported, emphasis added.

How does such a sharp increase in the cost to treat one particular condition affect overall out-of-pocket costs of individual Medicare beneficiaries?

According to AP, “Because Medicare prescription benefits are delivered through private insurance companies, it’s difficult to tease out the effect on premiums.

“But another indicator called the Part D deductible gives a general idea. A deductible is the amount of drug costs that beneficiaries are responsible for each year before their insurance kicks in.

“In 2016, the prescription program’s standard deductible is going up by $40, to $360. It’s by far the largest increase in the deductible since the inception of Part D 10 years ago.”

And it’s not only new breakthroughs that are leading to huge increases in treatment costs. As has been widely reported, last September, Turing Pharmaceuticals raised the price of a long-time treatment for parasites from $13.50 to $750 per pill, literally overnight. Why? Because they could.

 These cases raise some general questions that, fortunately, are starting to be discussed more widely:

Should drug manufacturers be able to continue setting drug prices based solely on what the market will bear, particularly when taxpayer-funded research is utilized? If not, what principles should guide us in imposing restrictions on the basic economic freedom to set prices?

Some private insurance companies and state Medicaid programs restrict which patients are covered for new treatments like Sovaldi. As consumers, should we expect or even encourage insurers, including Medicare, to limit usage of the most costly new drugs?

Should our willingness to share the economic costs of medical advances be conditioned on the amount or quality of benefit they produce? That is, should a cure, like Sovaldi, be treated differently from a treatment that extends the life of a cancer patient by a few months?

We live in an age of rapidly advancing medical knowledge and lengthening lives. Many illnesses that once were fatal have become chronic diseases we can live with for many years.

The benefits are undeniable. As treatments proliferate and costs rise, however, we may find ourselves facing uncomfortable economic choices.

I invite you to share your opinion about these matters. Please write or email us. We will print as many responses as space permits in a future issue.