An End to the Greatest Health Care Rip-off of the Century?

The poor son of a garment maker, Jonas Salk gave away $7 billion in potential earnings when he released his polio vaccine to the public in 1955.

Fast-forward to 2015. Our medical system is by far the most expensive in the world, and many people are beginning to understand that overall, we rank near Romania in health outcomes.

Why is it that an MRI costs $1,080 in America and $280 in France?

And why is it that a cancer diagnosis in America doubles your chance of going bankrupt?

It has to do with undisclosed deals that have been made with private pharmacy benefits managers and insurance companies to get more money from you.

But it’s not all bad news.

There’s something happening right now in the health care industry that makes me think the future could be bright.

The Greatest Health Care Rip-off of the Century

About a year ago, Gilead Sciences released a much-anticipated drug called Sovaldi.

It could cure hepatitis C in 90% of cases, without common side effects.

I don’t know about you, but if a loved one had hepatitis, I’d do anything to see the fatigue, aches and pains and constant nausea disappear.

That’s why Sovaldi had people so excited.

But there was a catch, a big one. Each Sovaldi tablet sold for $1,000.

Jonas Salk must be rolling over in his grave.

Gilead stock soared from revenues on Sovaldi, with a full course of treatment costing more than $84,000 if all goes well. If it doesn’t, treatment is extended and can cost as much as $168,000.

Those with good health insurance became winners — freed from a deadly disease. But the insurance companies and state health care plans became losers. UnitedHealth Group reported that it laid out $100 million in the first quarter of 2014 in insurance premiums for Sovaldi. Money was moving from insurance companies to drug companies in huge chunks. And it isn’t over. There are more than 3 million people in the United States with hepatitis C, and there are 150 million cases on the planet.

Gilead took in $2.8 billion from Sovaldi in July, August and September of last year alone.

Ultimately, the loser in this face-off between insurance companies and drug companies will be you. Even if you don’t have hepatitis C, you’ll end up paying for it in the form of higher premiums and taxes.

Will Competition Help?

With the promise of billions of dollars for drug companies, the hepatitis market instantly flooded with drugs. In late 2014, Johnson & Johnson received permission to market Olysio — at a paltry $22,120 for a 12-week course. However, Olysio doesn’t achieve the cure rates of Sovaldi.

Then, a few months ago, Gilead released another hepatitis C therapy — Harvoni. A basic treatment with Harvoni is $94,500 over 12 weeks. That’s even more than Sovaldi, but the story is a bit complicated. Sovaldi has to be taken with other drugs, raising its price another $10,000. Harvoni is a standalone treatment. And some lucky Harvoni patients may be cured after an eight-week course, dropping their total price to about $63,000. Either way, Gilead will still get all the money.

And now there’s yet another hepatitis drug, this time from AbbVie: its Viekira Pak, just approved in the U.S. last month. But guess what… It costs just as much as the others — about $84,000 for a 12-week course of therapy.

What happened to competition driving down the cost of goods in America?

Nothing quite this uncompetitive has ever happened before with drugs, but you can be sure that insurance companies weren’t about to watch their massive profits of the last decade erode for very long. Yes, the same companies that drive your doctor crazy (and you too, when you see your bills), even though they seem to contribute absolutely nothing to making anyone healthier, skim money from employers who provide insurance, as well as hospitals and doctors who give the care.

And we may be seeing the emergence of a frightening power — insurance companies and providers, like Express Scripts, playing drug companies against each other. Right after Viekira Pak was approved in the U.S., AbbVie signed a deal with Express Scripts. In exchange for an undisclosed (and probably hefty) discount, AbbVie’s drugs will be the only listed therapy for hepatitis C for Express Scripts’ 25 million patients. If your insurance company uses Express Scripts and your doctor decides Harvoni is better medicine, the only way you’ll get it is if you shell out $94,500.

So how is Gilead responding? Certainly not by reducing its official price.

Secret Deals

A couple of weeks ago, Gilead negotiated a deal with CVS Health Corp., which covers millions of patients. If CVS is where you get your pills through your insurance, you’ll get Gilead’s drugs whether your doctor likes it or not. Gilead has made similar deals with Humana and Harvard Pilgrim.

Those are just the deals we know about. There’s no telling how many undisclosed deals have been made with private pharmacy benefits managers and insurance companies.

Even more new hepatitis C therapies are expected to enter the market over the next couple of years, which is remarkable for millions of patients. We don’t know if the cost of drugs will go down over the years. What we do know is that people like George Paz, the CEO of Express Scripts, have suddenly gained extraordinary power to play drug companies off each other, and drug companies will be forced to create better, more valuable drugs.

But the future of medicine is bright. Right now we’re looking at a discovery that could bring the pharmaceutical industry to its knees. It could make most of the drugs we take now completely obsolete.

Read more here.

Regards,

Stephen Petranek
for The Daily Reckoning

The Daily Reckoning