Would You Pay $84,000 for a New Liver?

http://www.bloombergview.com/articles/2014-05-29/would-you-pay-84-000-for-a-new-liver

There’s a new drug called Sovaldi, manufactured by Gilead Sciences Inc., that can cure hepatitis C. Not every case of it, mind you, but most. 
Up until recently, treatments for hepatitis C were modestly effective. Patients were given a cocktail of drugs plus injections of interferon for 24 - 48 weeks and cure rates range from 40 - 80%, depending on the severity of the disease. However, these drugs are poorly tolerated, particularly the interferon component which causes flu-like symptoms in patients. As a result, many with hepatitis C often eschew treatment.
However, there is new hope for hepatitis C patients. A breakthrough drug from Gilead, Sovaldi, is a pill that cures hepatitis C in more than 90% of patients in just 12 weeks.

This is exciting news, because 3.2 million people in the U.S. have a chronic hepatitis infection, and statistics suggest that 5 to 20 percent of them will end up with cirrhosis of the liver, and 4 percent will develop liver cancer. Those are big numbers, which makes Sovaldi a big deal.

The catch is that Sovaldi is priced at $84,000 for a full course of treatment. Medicaid programs and prisons are dithering about whether to pay for it, and insurers aren’t so happy, either. The implication is that Sovaldi should cost a lot less so that insurers and the government don’t have to pay so much for it.

As always in the development of pharmaceuticals, we have once again washed up on the shoals of marginal versus average cost pricing. Drug development has a very high fixed cost, thanks to all the research needed to find drugs and bring them to market. The cost of actually making the pills, on the other hand, is trivial. So the optimal pricing strategy -- for everyone, not just pharmaceutical companies -- is to charge rich countries a lot and sell the drug at near-marginal cost in poor countries. If the rich countries insist that they should also get the drug near-marginal cost, then they benefit in the short term. But over the long run, the company loses money on its products, and then we don’t get any new drugs.

Here’s a drug that likely cost hundreds of millions to develop and bring to market. It has a 10-year patent life to recoup its costs and make some money for the developers. 

Instead of complaining that Sovaldi is expensive, we should be discussing trade-offs. Do we want to cure hundreds of thousands of cases of cirrhosis, at a cost of tens of millions of dollars? Are we willing to risk reducing the return on pharmaceutical research to so low that we lose a lot of valuable new drugs?

That’s a debate worth having. “Should people in the helping professions make a decent income” probably isn’t.