Medicare spent $4.5 billion last year on new, pricey medications that cure the liver disease hepatitis C — more than 15 times what it spent the year before on older treatments for the disease, previously undisclosed federal data shows.

The extraordinary outlays for these breakthrough drugs, which can cost $1,000 a day or more, will be borne largely by federal taxpayers, who pay for most of Medicare’s prescription drug program. But the expenditures will also mean higher deductibles and maximum out-of-pocket costs for many of the program’s 39 million seniors and disabled enrollees, who pay a smaller share of its cost, experts and federal officials said.

The spending dwarfs the approximately $286 million that the program, known as Part D, spent on earlier-generation hepatitis C drugs in 2013, said Sean Cavanaugh, director of Medicare and deputy administrator at the Centers for Medicare and Medicaid Services (CMS).

The most-discussed of the new drugs, Sovaldi, which costs $84,000 for a 12-week course of treatment, accounted for more than $3 billion of the spending. Spending on another drug, Harvoni, hit $670 million even though it came on the market only in October. Bills for a third drug, Olysio, often taken in conjunction with Sovaldi, reached $821 million.

Medicare also spent $157 million on older hepatitis C drugs in 2014, bringing the total spending for the category to more than $4.7 billion.

The spending surge is unlike anything Part D has seen. The nine-year-old program has benefited in recent years from a slowdown in prescription drug costs as several blockbusters, including the cholesterol-lowering drug Lipitor and the blood thinner Plavix, lost patent protection and have faced competition from generics.

The new hepatitis C drugs, along with other expensive specialty medications in the pipeline, threaten to drastically increase the program’s costs. The federal government spent $65 billion on Part D in 2013, according to the Medicare Payment Advisory Commission. That figure doesn’t include monthly premiums paid by patients.

An analysis published last year on the Web site of the ­health-policy journal Health Affairs suggested that 350,000 Medicare beneficiaries have hepatitis C, although many don’t know it.

It generally takes the government more than a year to compile data on drug spending, but CMS provided the data on hepatitis C drugs to ProPublica in response to a Freedom of Information Act request and follow-up inquiries.

Medicare officials said they are watching the costs carefully, and early indications suggest that this year’s spending is on track to match or even exceed last year’s, Cavanaugh said.

“We’re all waiting to see when it plateaus or when it possibly goes back down,” he said in an interview. “When will that pent-up demand be sated?”

Medicare’s costs for the drugs, at least in 2014, appear to be far higher than those incurred by state Medicaid programs for the poor, which collectively spent $1.2 billion on the drugs in the first nine months of the year. (This data is preliminary; data for the entire year is not yet available.)

Many Medicaid programs, as well as private insurance companies, took a more restrictive approach toward the drugs than Medicare did, often requiring that patients have advanced liver disease to be eligible to receive the pills.

Medicare has a more permissive standard, requiring the insurance companies that administer Part D on its behalf to cover medically necessary drugs for any indication approved by the Food and Drug Administration or recommended in clinical guidelines.

The new hepatitis C drugs have a higher cure rate — 90 percent or higher — than previous treatments, as well as fewer harmful side effects. Some studies have shown that, despite their price tag, the drugs justify their cost based on the better quality of life they provide and the health expenses that patients avoid in the future.

“Curing hepatitis C will likely go on to prevent liver cancer, go on to prevent patients needing liver transplantation, go on to save health-care dollars down the road,” said Adam Peyton, a liver specialist at the University of Miami Health System in Florida who prescribed $13.5 million worth of hepatitis C drugs in Part D last year. “It’s upsetting that there’s been so much negative publicity for such a positive breakthrough in medicine.”

Still, the drugs may not save money for Medicare, even in the long run. A recent study in the Annals of Internal Medicine suggested that only about one-quarter of the $65 billion needed to pay for the new drugs for eligible patients (not just those on Medicare) would be offset by avoiding hospitalizations and other treatment costs. The vast majority of patients with hepatitis C do not go on to get liver transplants.

Federal taxpayers cover the preponderance of the cost of treating patients in Part D, but enrollees also have to pick up a share, which can vary based on their drug usage. Once a Medicare enrollee spends $4,700 out of pocket on drugs — in this case, just a few days of a prescription — “catastrophic” coverage kicks in. At that point, Medicare picks up 80 percent of the cost, the health plan pays 15 percent, and the patient pays the remaining 5 percent.

Some costs probably will be passed along to Medicare beneficiaries who do not have hepatitis C, in the form of higher deductibles and maximum out-of-pocket costs, said Jack Hoadley, a research professor in the Health Policy Institute at Georgetown University.

For example, next year the standard drug deductible in the program — the amount a patient has to spend before coverage kicks in — will increase to $360 from $320.

Sen. Bernard Sanders (I-Vt.) has been a critic of the high price of the new drugs, particularly Sovaldi. “The cost of Sovaldi is not only an economic issue in terms of the impact of the cost of this drug on the VA, on Medicaid, on Medicare, it is a moral issue, and that is how many people in this country will suffer, how many will die very painful deaths because of the excessive costs of this particular product,” Sanders said in a written statement to ProPublica.

This year, an additional competitor has come on the market, the Viekira Pak made by AbbVie, giving insurance companies leverage to negotiate larger rebates in exchange for a spot on their preferred-drug lists. Those rebates can slice 40 percent to 50 percent off the list prices of the drugs.

The law that created Medicare Part D does not allow the government to negotiate rebates directly, but it allows the private insurance companies that administer the program to do so. Details of the rebates are confidential.

Gilead Sciences, the maker of Sovaldi and Harvoni, has defended its prices, saying they are fair given the value the drugs provide to patients. In a statement, the company said that it has “established one of the most comprehensive patient assistance programs in the industry to help ensure cost is not a barrier to Sovaldi and Harvoni for patients in the U.S. with high co pays or who lack adequate insurance.”

Medicaid experts acknowledge that anticipated legal challenges may compel state Medicaid programs to stop rationing the new drugs.

Medicare patients with hepatitis C recognize how much the drugs cost but say the results have changed their lives.

Robert Serrano, 61, one of Peyton’s patients, who said he is on Medicare because he is disabled, said Sovaldi cured him. He had a liver transplant in October 2008, but the disease had started to attack his new liver.

“It was a long road for me with this condition that I had and the medications,” he said. “Now at least I’m able to cut grass and do the little things I didn’t do in life. It’s been a blessing.”

Written by Charles Ornstein for ProPublica, March 29, 2015.

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