Denise Gibson, a hepatitis C patient, takes her first dose of Sovaldi at a neighborhood clinic in Sacramento. IMAGE BY Carl Costas for CALmatters

What's California's prescription for rising drug costs?

SACRAMENTO -- In a small room at a neighborhood clinic in Sacramento, a handful of hepatitis C patients wait to see their physician, hoping they’ll be found sick enough to be approved for a cure.

The low-income patients hope to be prescribed new breakthrough drugs, such as Sovaldi or Harvoni, which offer cures with almost no side effects. But treating the virus comes with a high price tag: at least $84,000 for a course of treatment. Getting Medi-Cal to pay for such drugs can involve a long, arduous process of tests and paperwork to prove infection has progressed to liver damage.

“If you’re practically dead … they’ll approve you,” said Laura Castillo, 54, who has been navigating the Medi-Cal system for four months to get Sovaldi. The former legal clerk said she contracted the virus from a blood transfusion in the early 1980s. Patients can live for years symptom free with hepatitis C, but left untreated, it can eventually lead to liver disease and death. Castillo has waited for treatment with substantial liver damage, which burdens her with overwhelming fatigue, depression and what she describes as a “brain fog.”

“It’s very, very frustrating, knowing that you have an illness and there is a cure, and you can’t do anything about it,” Castillo said.   

Castillo’s physician, Dr. Catherine Moizeau, says she treats hundreds of Medi-Cal patients who wait months to get approval for the hepatitis C drugs. Moizeau says health plans, under state guidelines, are rationing the drugs because of the high cost. But Medi-Cal officials say patients receive the treatments based on medical necessity, not on cost.

Hepatitis C drugs are not the only part of California’s troubling drug spending picture. Despite recent cost-cutting measures, such as putting tighter controls on which patients get coverage for which drugs and when, California’s spending on pharmaceuticals has gone up, and so has the number of pricey drugs it is covering. It’s not clear state agencies have the means to balance drug cost pressures in a way that serves the best interests of patients, taxpayers and public health.

“There are very few tools in our toolbox” to control pharmaceutical spending, said Diana Dooley, secretary of California’s Health and Human Services. She says high prescription drug costs are a problem across California’s public and private health insurance, and should be addressed on a national level.

Dooley’s agency convened a working group, called for in Gov. Jerry Brown’s January 2015 budget proposal, "to address the state’s approach regarding high‑cost drug utilization policies and payment structures.” High-level discussions continue behind closed doors.   

Drug price concerns will also be a matter of public policy debate this year. California voters are expected to decide in November on a measure to put a ceiling on what the state pays for drugs, and lawmakers have proposed drug price transparency requirements on pharmaceutical manufacturers and health insurers.

“We all have to do everything we can to try to control these drug costs,” Dooley said.

CALmatters analysis found that state prisons, a California public pension system, and a subset of the Medi-Cal program spent $600 million more on pharmaceuticals in 2014 than in 2012. That does not include the Medi-Cal population in a health plan, nor does it account for discounts the state may have received from drugmakers.

Over the past decade, Medi-Cal has seen a 57 percent increase in the drugs it covers that cost $600 or more per prescription. And when it comes to hepatitis C drugs alone, Medi-Cal estimates it will spend almost $482 million over this fiscal year and last. As of September 2015, only 4,200 Medi-Cal patients had received the drugs in that time period, out of 237,000 who are estimated to have the disease.

These cost trends exist despite new protocols various state agencies have introduced to tamp down on pharmaceutical spending.

In 2012, the California Public Employees' Retirement System started requiring members to pay the difference for brand name drugs when a generic is available. Members now also experience more “step therapy,” where they must try cheaper drugs first before getting covered for more expensive drugs.

More drugs -- about a 38 percent increase between 2012 and 2015 in one portion of the program -- were placed on a list of drugs where a doctor had to get approval from a pharmacy benefits manager before a prescription is covered. Tens of thousands more people in CalPERS faced more controls on prescribed treatments because of the new policies.

“No one has (an) unlimited budget … not even in America,” says Melissa Mantong, a pharmaceutical consultant who makes recommendations to CalPERS management. “At some point, the resources we have, it’s not going to be able to take care of all the people that we need to take care of if we don’t use our resources wisely.”

Other California health programs are also cutting costs by getting stricter about which patients get which prescription drugs and how. In 2010, the California Department of Corrections and Rehabilitation introduced a computer system to steer providers to pre-authorized health care decisions, with anything outside of the standards needing approval. The prison system introduced tighter management of painkiller use, and patients taking 10 or more drugs. While the Department of Corrections says it has saved tens of million of dollars this way, drug prices are driving spending back up.

Medi-Cal says pharmaceutical costs are kept under control by a strong push toward generic drug use for the 10 million enrollees who get health services through health plans. Up to 95 percent of the prescriptions dispensed by these plans are lower-cost generics.

The Department of Health Care Services, which manages Medi-Cal, says it has a 20-year practice of controlling drug costs by negotiating deep discounts with drugmakers.

“We are negotiating as hard as we ever have been,” said Jennifer Kent, director of the Department of Health Care Services.

When Medi-Cal does not get a state-negotiated discount on a particular drug, medical providers have to request approval for coverage for the treatment. 

Medi-Cal paying for more high-cost drugs

The number of drugs directly reimbursed by Medi-Cal priced at over $600 per prescription has risen by 57 percent over the last decade. The federal government defines "specialty drugs" as those costing $600 per month or more. 

“The people that pay for healthcare, be it the government or employers, are asking for more prior authorization because we’re having to scrutinize every penny we spend now,” said Steve Miller, senior vice president and chief medical officer at Express Scripts, which manages pharmacy benefits for health plans nationally, including 7.5 million Californians.  

Miller said involvement from the payer is meant to get “the right patient, the right drug, at the right dose.” But the process, can be “clunky” and cause delays and frustrations for patients like Laura Castillo.

“Some of that steering … is appropriate,” Anthony Wright, executive director of Health Access, a nonprofit consumer advocacy coalition, said about when health insurers and other payers get involved with patient-doctor decisions to cut costs. Using generics can be just as effective and save money for taxpayers, he said. But waiting for approvals can put a barrier between patients and the care they need.

“It may be additional time, additional pain, additional health problems before you get to take the drug,” Wright said.

Drugmakers say the value of the new hepatitis C drugs, the first of which hit the market at the end of 2013, is worth the cost, and in the long term, may eventually even bring cost savings to the overall health system.

The new hepatitis C drugs involve only a few months of treatment, and produce a cure in about 90 percent of patients. The older generation of treatments are cheaper, but are also about half as effective, and have side-effects that resemble the flu.

“These patients are now healthier. They’re more productive. They’re functioning,” said Priscilla VanderVeer, deputy vice president of communications at the Pharmaceutical Research and Manufacturers of America (PhRMA).

PhRMA-funded research suggests health care services can be avoided because of the hepatitis C cure, and will add up over time. The average annual cost of a Medi-Cal enrollee with hepatitis C is $27,409, and includes almost three times the average days of hospitalization as someone without infection. Treating a patient without the virus costs the California Medicaid program an average of $15,018 a year.

“You’re going to have less people who need long-term medication therapy for their hep C, they’re not going to need liver transplants, they’re not going to need significant hospitalizations,”  VanderVeer said.

Without these cures, VanderVeer argued, hundreds of thousands more hepatitis C patients would have advanced liver disease in a decade, which would incur billions of dollars nationally in Medicaid programs.  

Health consumer advocates and economists argue that paying a lot for some drugs that only treat a limited population may not serve larger public health interests, or be the best use of taxpayer dollars.

For example, Wright says, if the cost of the new hepatitis C drugs were cheaper, the hundreds of millions of dollars spent on treating just a few thousand patients could have been spent to help eradicate the disease.

“You could imagine a strategy to provide this cure in a much more broad population strategy,” Wright said.

Specialty drugs, which the federal government defines as costing $600 or more a month, are raising concern among health insurers and state agencies. In CalPERS, for instance, specialty drugs are taking up a larger share of total drug expenditures, despite the fact that they account for a small percentage of prescriptions.

Drugmakers are investing more into these types of drugs, said pharmaceutical economist Joel Hay of the University of Southern California, because “the profits are very high.”

But paying a high price for drugs that treat a small number of patients raises an equity question, Hay said. It may not be fair to the larger patient population for a health system to pay a high price for cancer drugs that extend a patient’s life by three weeks.

“You can get a lot more lives saved if you take that budget and put it into colon cancer screening or any number of other more efficient, more effective interventions,” Hay said.

The cost pressure from specialty drugs may not go away soon. Pharmaceutical benefits manager Express Scripts estimates that this class of drugs will continue to grow in Medicaid programs by 13.6 percent over the next three years.

Other new treatments meant for the larger public could also soon weigh heavily on public health programs, says Miller of Express Scripts. Treatments for Alzheimer’s, liver disease and high-cholesterol are around the corner.

“Are we going to have a sustainable (pharmaceutical) industry where we are making sure the drug companies make enough money where they can bring great new products to the marketplace, yet we control cost well enough that people – all people, even the most vulnerable, have access to the drugs they need?” asked Miller.

State Medi-Cal administrators say it’s too soon to assess the sustainability of current prescription drug spending trends. If more high-cost drugs come on the market and treat small populations, it won’t have a major budget impact, said Kent of California’s Department of Health Care Services.  

But if new drugs are similar in scope to the hepatitis C drugs; priced very highly, and with the potential to treat a million people in the state, that would be a different story. 

More patients challenging denied drugs
When Californians are denied coverage for health care, such as a pharmaceutical treatment, they can appeal the decision to a health insurance regulator. Reviewers at the state Department of Managed Health Care either uphold or overturn a health insurer’s decision.

“Is that sustainable? Probably not,” said Kent.

Meantime, access to new hepatitis C drugs is slowly opening up in Medi-Cal. As of July 2015, patients with a less advanced stage of liver disease can get covered for the drugs, as well as IV drug users and women who want to get pregnant. 

In the Sacramento clinic waiting room to see Dr. Moizeau one Thursday, a woman clutched her box of Sovaldi, which arrived by FedEx that morning. Another patient was moved to tears, when, after four weeks of being treated with the new generation of hepatitis C drugs,  Dr. Moizeau announced to the group that her virus was undetectable.

Laura Castillo just got her medication in March, after an attorney helped her challenge denied coverage for Sovaldi through a health insurance regulator. Castillo says she’s glad she’s in treatment now, but she doesn’t know why her Medi-Cal health plan made it so hard for her to get the medicine.

“They need to get it together,” she said. “It’s our health and our life that they’re messing with.”

CALmatters data reporter Matt Levin contributed to this article. CALmatters is a nonprofit journalism venture dedicated to explaining state policies and politics. Pauline Bartolone wrote this article while participating in the California Data Fellowship, a program of the Center for Health Journalism at USC’s Annenberg School of Journalism.