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Gilead: Forbes Is Salty Over The Vermont Initiative

Summary

Vermont's initiative to require drug makers to justify price increases passed in June.

Forbes believes focusing on the list price for drugs is a mistake, and questions Vermont's end game.

Vermont wants to shine a light on rising drug costs and prompt federal lawmakers to negotiate lower prices.

Gilead's strategy of charging different prices for HCV drugs in the U.S. and emerging countries could come under scrutiny.

The initiative could help tamp down runaway drug prices. GILD could get caught in Vermont's dragnet.

Rep. Christopher Pearson and Rep. Susan Hatch Davis of Vermont

Rep. Christopher Pearson and Rep. Susan Hatch Davis of Vermont

Drug prices have been in public consciousness for nearly a year. How they are priced and who should have access to them are issues likely to be debated during the presidential race. Gilead (NASDAQ:GILD) is in the middle of the debate because its HCV drugs are so expensive (list prices of $90k) and HCV is so prevalent. Forbes weighed in on the matter after Vermont passed its initiative ("Vermont Initiative" or the "Initiative") to force drug companies to explain their price increases. Forbes' overall assessment is that the Initiative is a move in the wrong direction. Below I will lay out Forbes' argument and respond in-kind.

The Situation

Drug prices have been rising at multiples of the rate of inflation. They have caused financial burdens for the populace and now they have created a budget crisis for many state attorneys general. In June Vermont became the first state to require drug manufacturers to disclose the costs of their drugs and/or justify price increases.

Each year the Department of Vermont Health Access, which manages the state's publicly-funded health insurance programs, is to identify up to 15 prescription drugs ("Pharma 15") for which [i] the wholesale acquisition cost has increased by 50% or more over the past five years or [ii] by 15% over the past 12 months.

Forbes On Using The List Price:

For starters, as with other areas of our healthcare system focusing on list prices is a mistake. No one (except the uninsured) pays list prices. Focusing on the so-called "wholesale acquisition cost" ("WAC") is entirely wrongheaded. The WAC price might be compared to the so-called "chargemaster" price at many hospitals - a hospital might charge $20 for a Tylenol, but would rarely get paid that much. That's because insurers negotiate significant discounts off of these list prices.

A similar story plays out in pharmaceuticals ... It's been reported that the average discount for Sovaldi and Harvoni (two highly-effective, but nominally expensive hepatitis c drugs) has fallen close to 50%. As I've written elsewhere, the major discounts that PBMs negotiate (in the form...


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