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91–803 PDF 2015

S. HRG. 113–746 

HEPATITIS C AND VETERANS 

HEARING 

BEFORE THE

COMMITTEE ON VETERANS’ AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

DECEMBER 3, 2014 

Printed for the use of the Committee on Veterans’ Affairs 

( 

Available via the World Wide Web: http://www.fdsys.gov 

(II) 

COMMITTEE ON VETERANS’ AFFAIRS 

BERNARD SANDERS, (I) Vermont, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

PATTY MURRAY, Washington 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK BEGICH, Alaska 

RICHARD BLUMENTHAL, Connecticut 

MAZIE K. HIRONO, Hawaii 

RICHARD BURR, North Carolina, Ranking 

Member 

JOHNNY ISAKSON, Georgia 

MIKE JOHANNS, Nebraska 

JERRY MORAN, Kansas 

JOHN BOOZMAN, Arkansas 

DEAN HELLER, Nevada 

STEVE ROBERTSON, Staff Director 

LUPE WISSEL, Republican Staff Director 

(III) 

C O N T E N T S 

DECEMBER 3, 2014 

SENATORS 

Page 

Sanders, Hon. Bernard, Chairman, U.S. Senator from Vermont ........................ 1 

Burr, Hon. Richard, Ranking Member, U.S. Senator from North Carolina ....... 3 

Hirono, Hon. Mazie K., U.S. Senator from Hawaii ............................................... 5 

Moran, Hon. Jerry, U.S. Senator from Kansas ..................................................... 16 

WITNESSES 

Valentino, Michael, R.Ph., MHSA, Chief Consultant, Pharmacy Benefits Management Services, U.S. Department of Veterans Affairs; accompanied by 

David Ross, M.D., Ph.D., MBI, Director, HIV, Hepatitis C, and Public 

Health Pathogens Program, Office of Public Health/Clinical Public Health, 

Veterans Health Administration ........................................................................ 6 

Prepared statement .......................................................................................... 8 

Response to posthearing questions submitted by Hon. Mazie K. Hirono .... 17 

Rother, John, President and Chief Executive Officer, National Coalition on 

Health Care, on behalf of the Campaign for Sustainable Prescription Drug 

Pricing ................................................................................................................... 23 

Prepared statement .......................................................................................... 25 

Weissman, Robert, President, Public Citizen ........................................................ 29 

Prepared statement .......................................................................................... 31 

(1) 

HEPATITIS C AND VETERANS 

WEDNESDAY, DECEMBER 3, 2014 

U.S. SENATE, COMMITTEE ON VETERANS’ AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 11:34 a.m., in room 

SR–418, Russell Senate Office Building, Hon. Bernard Sanders, 

Chairman of the Committee, presiding. 

Present: Senators Sanders, Hirono, Burr, and Moran. 

OPENING STATEMENT OF HON. BERNARD SANDERS, 

CHAIRMAN, U.S. SENATOR FROM VERMONT 

Chairman SANDERS. My apologies to everybody. There were some 

votes that were announced yesterday that Senators had to be at, 

so we pushed back the hearing, so we appreciate everybody being 

here. 

Today’s hearing is dealing with a very, very important subject. 

It contains, I think, some very good news and some news which is 

not so good, and that is what we are going to discuss. 

The good news is that for the very first time, there is now available on the market an effective, fast working, and life-saving drug 

to treat a very, very serious illness in this country, which is Hepatitis C. Hepatitis C impacts some three-to-five million Americans, 

and disproportionately affects veterans. So, the good news is that 

we have a drug now which replaces other less effective treatment, 

which can have terrible side effects, with a much, much better 

drug, and that is very welcome news. 

The bad news is that this particular drug, called Sovaldi, manufactured by a company called Gilead, is so expensive—it is on the 

market for about $1,000 a pill with a course of treatment at about 

$84,000—that while this drug is terribly valuable, the reality is 

that many people cannot afford it. 

I became aware of this issue when, as Senator Burr will remember, a number of months ago, VA came to us with a request for the 

funds they needed to deal with the problems in the VA, and there 

was a line item for $1.3 billion just for Hepatitis C treatment, 

which made me aware of the problem. 

So, the question that we are going to be exploring today is the 

impact of a drug to treat Hepatitis C. Because VA negotiates drug 

prices with the pharmaceutical industry, it was able to get a substantial discount for the drug, yet, it is still very, very expensive. 

And if the VA is going to spend billions of dollars for one drug to 

treat one illness, the reality is that there is less money available 

to deal with the many other problems facing the VA. 

2 

One of the issues that Senator Burr and I are working on, which 

is a very terrible issue, is suicide rates and mental health issues 

among veterans, and I want to see VA do a better job and provide 

treatment for more people. It is an expensive proposition to treat 

mental illness. But, because VA may have to spend outrageous 

sums of money for one drug, there is less money available to deal 

with other issues, like treating mental illness. 

Prior to the manufacturing of these new drugs from Gilead, the 

primary method for treating Hepatitis C was Interferon, an 

injectable medication that has many side effects that are emotionally and physically painful for most patients. Additionally, many 

patients require additional medical intervention, including liver 

transplants. These treatments are expensive. According to research 

by Dr. John Gaetano of the University of Chicago, who has special 

expertise in hepatitis, it is estimated that costs for a person with 

liver damage over a 10-year period can exceed $270,000, and the 

average liver transplant in 2011 cost $577,000. Therefore, if we can 

get cost-effective treatment to people with Hepatitis C and prevent 

these very, very costly procedures, in the end VA, Medicare, Medicaid, and the American people save substantial sums of money. So, 

we have to figure out how we get treatment to these people in the 

most cost-effective way. 

Gilead, the manufacturer of Sovaldi, is, as I indicated, providing 

this drug at a treatment cost of $84,000. We invited Gilead to be 

with us today to answer the questions as to why their product is 

so very, very expensive and I am upset that they have chosen not 

to be here. Apparently, as they told us, all of their executives seem 

to be traveling all over the world and were unable to be here today 

to answer our questions. 

No one denies the appropriateness of companies that do research 

and development to make a decent profit on their product. That is 

the way the system works. But, what we are looking at here with 

Gilead is not a decent profit. What we are looking at is very clearly 

a very, very excessive profit and a lot of that profit is going to be 

paid for by the taxpayers of this country. 

Gilead purchased Pharmasset, the company that developed the 

drug now known as Sovaldi, for $11 billion. According to some estimates, Gilead is expected to make more than $200 billion on the 

sale of Sovaldi. Let me repeat that. They purchased the company 

that developed the product for $11 billion. It is estimated that they 

will make $200 billion on that one product. 

So, the issue that we are really dealing with today is not only 

the impact of the cost of this drug on VA, Medicaid, and Medicare, 

it is a moral issue—how many people in this country will suffer, 

and how many will die very painful deaths because they can not 

access the drugs they need because of the excessive costs. I am 

pleased we have some great witnesses here today who are going to 

help us explore this issue. 

While this is a national issue—I mentioned a moment ago that 

some four million people in this country are suffering with Hepatitis C—VA currently has 174,000 veterans receiving care for Hepatitis C, and the estimate is that an additional 42,000 veteran patients have not yet been tested to see if they, too, have the disease. 

3 

A full 25 percent of VA patients with Hepatitis C have advanced 

liver disease, which is also called cirrhosis of the liver, and in the 

last 10 years, the number of veterans with liver cancer, a common 

side effect of Hepatitis C among the veteran population, has increased ten-fold. This is especially true of Vietnam-era veterans. 

And, the one point that I also want to make is a lot of people 

in this country, including veterans, inadvertently got this virus by 

walking into a hospital and getting treatment before we knew how 

Hepatitis C was spread. Maybe they got a blood transfusion from 

a needle that was previously used and they ended up with Hepatitis C through no fault of their own. 

Another point I want to make is that, according to Bloomberg 

News, Gilead is working on deals with generic drug makers to sell 

Sovaldi to about 80 developing countries for a tiny, tiny fraction of 

the cost for which they are selling that product to Americans. Now, 

I happen to think it is a good thing that people in Egypt, where 

Hepatitis C is very prevalent, and in other developing countries 

around the world, that people get this drug at an affordable price, 

but it should not be the case that the taxpayers, consumers, or patients in this country have to subsidize that affordability. So, I 

think it is important that people get it at a price they can afford 

it, but Americans should get it at a price they can afford as well. 

So, let me conclude by saying that I appreciate the work VA has 

done to move rapidly to provide the most up-to-date treatment for 

veterans with Hepatitis C, but it is deplorable that due to the high 

price tag, VA might not be able to offer this treatment to all who 

qualify. I fear we are going to see significant rationing among the 

VA population. In fact, we are already seeing rationing in the Medicaid population all over this country, because States do not have 

the money to provide this new treatment. And we must address the 

moral issue were. Are we comfortable with a situation in which a 

company is making extraordinary profits while people suffering 

with Hepatitis C cannot access the treatment that they need? 

So, that is the framework of today’s discussion. We have some 

great panelists to help us explore that issue, and with that, let me 

give the microphone over to Senator Burr. 

STATEMENT OF HON. RICHARD BURR, RANKING MEMBER, 

U.S. SENATOR FROM NORTH CAROLINA 

Senator BURR. I thank the Chairman. I will try to be brief, Mr. 

Chairman, and I would encourage our colleagues, to put their opening statements in the record, perhaps rather than give them, so we 

can get right to the witnesses. 

The one take-away that I have so far is that innovation is expensive. We have known that. Every time we innovate a new therapy, 

a new drug, a new device, there is a recovery cost, and many times 

it is government that drives the cost up because we lengthen the 

approval time; therefore, we shorten the patent lifetime, or individuals question exactly what the recovery period is going to be like 

and the cost of the capital they need to make it through the ‘‘valley 

of death.’’ Research and advanced development and slow trials cost 

much more than what the innovator thought to begin with. So, if 

you are going to hold companies responsible, then you have got to 

4 

hold venture capitalists responsible and everybody in the chain of 

financing innovation. 

Yet, I think one thing that we agree on is that we do not want 

to give up innovation. While much of the discussion is focused on 

the cost of these new therapies, particularly Sovaldi, I think it is 

important that we not lose sight of the promise that breakthroughs 

hold for Hepatitis C patients. While I am concerned that veterans 

may not have access to the particular drugs they need and about 

the increases in general spending governmentwide, in this case, I 

believe the attention has been misplaced. 

I believe the price of this specific drug is to be looked at on a 

macro level. We should examine the long-term benefits groundbreaking therapies bring to our veterans as well as the long-term 

savings it could bring to the VA and to taxpayers by replacing the 

need for more risky and costly treatments, such as liver transplants. 

The benefit to the veterans is obvious, however. Since FDA approved Sovaldi only a year ago, it may be too early to truly understand the benefits to VA. This drug is a game changer in treating 

veterans with Hepatitis C and all Americans. For the first time, 

there is a drug on the market with a proven record of curing Hepatitis C in only 12 weeks, without the debilitating side effects of previous treatments. This drug will put veterans on a sounder longterm path and vastly change their quality of life. 

Prior to this drug, Hepatitis C patients faced up to 48 weeks of 

daily pills and weekly injections. The treatment came with severe 

flu-like side effects and a very limited cure rate. When we look at 

the cost of the drug, we need to take into consideration the role the 

drug plays in meeting the needs of the patient and the role they 

have on improving patients’ quality of life. 

On one level, I understand why the Chairman chose this Committee to hold a hearing on the cost of Hepatitis C treatments. Because of the battlefield blood transfusions that took place in Vietnam, Hepatitis C is more prevalent in VA’s population than in the 

general population. In fact, in 2013, 174,000 veterans were estimated with Hepatitis C, or about 3 percent of the VA’s unique patient population, compared to less than 1 percent of the general 

population diagnosed with Hepatitis C. 

But, you cannot make a comparison between what the VA pays 

and what others pay for a prescription drug. Under current law VA 

is mandated a discount on the prescription drug price. The law directs the manufacturers of certain drugs to enter into an agreement with VA under which the price paid by VA for those drugs 

is no more than 76 percent of the average non-Federal manufacturer’s price. 

Now, let me just stop there and say the general population is 

subsidizing everything that we put into the VA population. The 

general population is subsidizing what we take into the VA population. Maybe that is the right thing to do. It is what we have 

adopted. But, it does make it more expensive for the general 

population. 

Because VA is mandated to pay a certain price, it cannot be assumed that government controls on drug prices will yield the best 

medicines in the future. Mandating drug prices would reduce the 

5 

amount of money drug manufacturers invest in research and development and ultimately adversely impact innovation. 

Today’s hearing marks the second hearing in the past month the 

Chairman has convened to look at various drug pricing issues. As 

I have said before, we are not going to do right by the American 

people if all we look at is drug pricing in a vacuum and then proceed to ignore how greater government involvement by this Congress and the Federal Government more broadly adversely impacts 

the very innovation patients waiting for a cure depend on. It is my 

hope that we will look at this in the context of how innovation actually saves the taxpayers long-term money over the long term, but 

most importantly, increases the quality-of-life of our Nation’s veterans immediately. 

I thank the Chair. 

Chairman SANDERS. Thank you, Senator Burr. 

Senator Hirono. 

STATEMENT OF HON. MAZIE K. HIRONO, 

U.S. SENATOR FROM HAWAII 

Senator HIRONO. Thank you, Mr. Chairman, and thank you to 

our witnesses for being here today. 

Earlier this year, Senator Kirk and I introduced the Viral Hepatitis Testing Act of 2014. Our bill would increase surveillance, education, and testing programs for viral hepatitis. Our bill also directs HHS to identify populations considered high risk. I believe 

that our veterans’ population, given the rate of infections at three 

times higher than the general population, is one such population. 

Thirty percent of all VA veterans suffering from hepatitis-related 

liver disease reside in rural areas, so that presents its own set of 

concerns and challenges. 

It is important to increase surveillance within the VA population 

to help prevent the spread of Hepatitis C as well as ensure that 

veterans are getting treatment in a timely manner. Given the impact it has on veterans and the issues surrounding the cost of 

treatment options, this hearing is, of course, timely. 

Many individuals infected with Hepatitis C are unaware that 

they have it, and this is a highly contagious infectious disease. So, 

individuals can live for many years without symptoms and during 

this time may unknowingly transmit the virus to others. 

Previous treatments for Hepatitis C were debilitating for many 

patients, with lots of bad side effects. Fortunately, recent medical 

advances have provided easier treatment options for those infected 

with Hepatitis C. Unfortunately, as has already been stated, the 

treatment options are very expensive—estimates range from 

around $80,000 to $100,000 for a course of treatment—and there 

is still no way to prevent new cases of Hepatitis C. 

These new treatments claim to cure hepatitis in over 90 percent 

of all cases, and to-date for Hawaii, 35 patients at Hawaii VA have 

benefited from this new treatment. The high cure rate combined 

with the ability of patients to tolerate the new treatment make 

these new drugs highly desirable for those with Hepatitis C. So, 

the VA has prioritized those with advanced liver disease for the 

treatment in an effort to control costs. 

6 

Despite the drug discount and the prioritization of patients, it is estimated that the VA will spend $1.3 billion over the next 2 years 

just on this Hepatitis C treatment. It is not sustainable. It will 

strain VA resources at a time when veterans are increasing in 

number and complexity of conditions. 

I look forward to hearing from the panel about the cost of Hepatitis C treatment and how the VA is managing the veterans’ treatment. I am also interested in hearing how the VA proposes to continue providing the treatment while ensuring no loss of service for 

other health care concerns. Thank you. 

Chairman SANDERS. Thank you very much, Senator Hirono. 

OK. Now, let us bring up our first panel, if Mr. Valentino and 

Dr. Ross can join us. We are pleased to have these very knowledgeable folks to discuss this issue with us. 

Michael Valentino is Chief Consultant of VA’s Pharmacy Benefits 

Management Services, and he is accompanied by Dr. David Ross, 

Director of the HIV, Hepatitis C, and Public Health Pathogens Program at the Department of Veterans Affairs. We thank both of you 

very much for joining us for this important discussion. 

Mr. Valentino, please begin. 

STATEMENT OF MICHAEL VALENTINO, R.Ph., MHSA, CHIEF 

CONSULTANT, PHARMACY BENEFITS MANAGEMENT SERVICES, U.S. DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY DAVID ROSS, M.D., Ph.D., MBI, DIRECTOR, HIV, 

HEPATITIS C, AND PUBLIC HEALTH PATHOGENS PROGRAM, 

OFFICE OF PUBLIC HEALTH/CLINICAL PUBLIC HEALTH, 

VETERANS HEALTH ADMINISTRATION 

Mr. VALENTINO. Thank you very much. Good morning, Chairman 

Sanders and Ranking Member Burr. Thank you for the opportunity 

to discuss VA’s commitment and actions to provide Hepatitis C 

virus care for veterans. I am accompanied today by Dr. David Ross, 

Director of VA’s HIV, Hepatitis, and Public Health Pathogens 

Program. 

All veterans, including those with Hepatitis C, have earned and 

deserve health care that is sensitive to their unique service exposures and health risks. Acknowledging this fact, VA added Hepatitis C drugs to its drug formulary and also developed prescribing 

guidance to assist providers to care for the 174,000 veteran patients who are known to have been infected with the Hepatitis C 

virus, also known as HCV. VA is the largest single HCV provider 

in the United States and has had a comprehensive national HCV 

program in place since 2001. 

Historically, like other health care providers, VA has only been 

able to treat a portion of veterans for HCV due to the low efficacy 

and high toxicity of older drug therapies. Fortunately, the recent 

approval of newer drugs is making HCV treatment and cures easier to achieve. 

VA’s primary goal for formulary management has been and remains the provision of safe, high quality drug therapy by a reliance 

on robust evidence to guide medication use. Drug formularies are 

not new components of the health care delivery systems in either 

the public or private sectors. VA was a pioneer in this area, employing drug formularies as early as 1955. 

7 

In VA, the simple drug lists of earlier times have been augmented with clinical protocols designed to assist clinicians in using 

drugs safely, effectively, and efficiently. This is accomplished using 

evidence-based drug reviews, actively managing drug utilization, 

leveraging VA’s purchasing power, streamlining supply chain distribution, and, importantly, by integrating clinical pharmacists into 

the medication-use process. 

In the past 3 years, significant gains have been made in the options available to cure HCV infection, with additional options expected to be approved in the very near future. In late 2003 [sic], 

the U.S. Food and Drug Administration approved two antiviral 

medications for use as part of combination regimens. These drugs 

offer shorter treatment durations, decreased side effects, and increased cure rates over older treatments. Other new agents and 

combinations of agents are expected to receive FDA approval in 

2014 and 2015, making additional treatment regimens available to 

veterans. 

As part of its comprehensive HCV treatment program, when better HCV treatments become available, VA will continue to move aggressively to treat patients, making it possible to cure an ever-increasing number of HCV-infected veterans. VA moved rapidly to 

deploy the new, more effective, less toxic HCV treatments, and consistent with its goal as a steward of taxpayer dollars, negotiated 

significant discounts for these therapies. For example, VA negotiated the $1,000 per dose commercial price of Sofosbuvir down to 

$594 per dose. Similarly, the commercial price of $790 per dose for 

Simeprevir was negotiated down to $413. 

In fiscal year 2014, VA treated over 5,400 veterans with these new treatments and spent approximately $275 million in drug costs 

alone on these treatments. Despite the significant discounts VA negotiated, it will still be a challenge to ensure adequate funding is 

in place to provide these medications in the future. This is the reason then-Acting Secretary Gibson requested an additional $1.3 billion to fund these treatments in fiscal years 2015 and 2016. 

As the largest single provider of care for HCV infection in the 

United States, VA is charged with addressing an epidemic of lifethreatening complications among veterans with HCV infection. 

This challenge is increased by the likelihood that some veterans 

with HCV infection remain undiagnosed while others will not accept treatment or may not be able to undergo treatment because 

of coexisting medical conditions. Introduction of very costly, highly 

effective, less toxic, and easier to administer antiviral therapies 

holds the promise of eradicating this disease in HCV-infected 

veterans. 

Mr. Chairman, VA is committed to helping veterans by providing 

the highest quality of care, including medication therapy. We are 

dedicated to providing evidence-based care to ensure the continual 

improvement of care for veterans with HCV infection. We recognize 

our future work to improve the quality of HCV care will be based 

in large part on understanding and addressing variation in HCV 

care structures, processes, and outcomes, and by doing all we can 

to reduce the cost of these therapies. 

My colleague, Dr. Ross, and I are happy to respond to any questions you and the Committee Members might have. 

8 

[The prepared statement of Mr. Valentino follows:] 

PREPARED STATEMENT OF MICHAEL VALENTINO, VHA CHIEF CONSULTANT FOR

PHARMACY BENEFITS MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS (VA) 

Thank you for the opportunity to discuss VA’s commitment and efforts in providing timely access to high-quality Hepatitis C Virus (HCV) care for Veterans, including their pharmaceutical treatment. I am accompanied today by David Ross, 

M.D., Ph.D. Director of VA’s HIV, Hepatitis, and Public Health Pathogens Program. 

VA has approximately 174,000 Veterans in care with HCV, making it the largest 

single HCV provider in the U.S. VA has had a comprehensive national HCV program since 2001. Like the rest of the country, VA has treated only a portion of Veterans for HCV because treatment and cures have been difficult to achieve due to 

low efficacy and high toxicity of standard drug therapies. 

OVERVIEW

Chronic infection with hepatitis C virus (HCV) is the most common blood-borne 

infection in the world and is a major public health problem facing not only the Veterans Health Administration (VHA) but the United States in general. Complications 

that may result from untreated HCV infection include progressive liver damage 

leading to cirrhosis (also known as Advanced Liver Disease, ALD), hepatocellular 

carcinoma (HCC), and other life-threatening conditions. Although many of these 

complications are treatable or even preventable, they may occur because only half 

of the individuals with HCV infection in the U.S. are aware they are infected. The 

epidemic of HCV in the U.S. has also affected VA, and we are capitalizing on the 

availability of new therapies to improve access to and quality of HCV care. 

VHA is a leader in the U.S. in HCV infection care, including screening, treatment, 

and prevention. Between 2002 and 2013, the percentage of Veterans in VHA care 

with at least one outpatient visit who had ever received screening for HCV infection 

more than doubled from 26.9 percent to 56.0 percent. Individuals born between 1945 

and 1965 are at higher risk for HCV infection due to exposure to the virus; as of 

2013, almost two-thirds of Veterans in VHA care born between these years have 

been screened for HCV infection. VHA is also developing an electronic clinical reminder to improve screening rates among Veterans in the 1945–1965 birth cohort 

and others with risk factors. Similar improvements were seen in confirmatory testing after an initial positive screening result, which increased to 96 percent across 

the system by 2013. VHA’s HCV care is implemented at VA medical facilities across 

the country and uses a comprehensive approach that includes: 

• Universal assessment for risk of hepatitis C infection 

• Testing and counseling for those at risk, particularly those in the 1945–1965 

birth cohort 

• Education for patients and their families 

• Giving providers access to the best available information about hepatitis C 

• Excellence in clinical care 

• Support for research to improve clinical care 

• Ongoing quality improvement 

SCREENING FOR HCV

Increased screening for HCV is a critical component of early identification and 

linkage to care. Under VHA Handbook 1120.05, Coordination and Development of 

Clinical Preventive Services, screening is defined as an examination or testing of a 

person with no symptoms of the target condition to detect disease at an early stage 

when treatment may be more effective, or to detect risk factors for disease or injury. 

The current VA HCV screening policy recommends offering HCV testing to any Veteran born between 1945–1965, to any Veteran who has a risk factor for HCV infection such as Vietnam-era service (defined by dates of service in 1964–1975,) or a 

blood transfusion or organ transplantation prior to 1992, or to any Veteran wishing 

to be tested. This policy closely follows the 2013 US Preventive Services Task Force 

recommendation for screening for HCV in persons at high risk for infection and also 

offering one-time screening for HCV infection to adults born between 1945 and 1965 

(B recommendation). 

As most Veterans with HCV infection were infected decades ago and fewer than 

22,000 new HCV infections in the U.S. occur annually, the increase in the number 

of HCV-infected Veterans in VHA care largely represents expanded screening and 

identification of individuals with pre-existing HCV infection rather than new infections. Entry of previously diagnosed patients into VHA care may also have contributed to this increase. It is important to remember that the cohort of HCV-infected 

9 

Veterans in VHA care changes from year to year due to new diagnoses, deaths, and 

Veterans with HCV infection moving into or out of VHA care. 

TREATMENT FOR HCV

In the past three years, significant gains have been made in the therapeutic options available to cure HCV infection, with further gains expected in the very near 

future. In 2013, the U.S. Food and Drug Administration (FDA) approved two 

antiviral medications for use as part of combination regimens which offer shorter 

treatment durations and decreased side effects in addition to increased cure rates. 

Several other new agents and combinations of agents are expected to receive FDA 

approval in 2014–15, making additional treatment regimens available for patients. 

The evolution of management and treatment of HCV infection will make it possible 

to cure an increasing proportion of HCV-infected Veterans with fewer side effects. 

VHA has moved rapidly to deploy new, more effective, less toxic HCV treatments 

and has been able to negotiate significant discounts for these newer therapies. For 

example, VA has negotiated a price of $594 per dose for Sofosbuvir (the commercial 

price is $1000 per dose) and $413 per dose for Simeprevir (the commercial price is 

$790 per dose). When the VA Pharmaceutical Prime Vendor negative distribution 

fee of 9.15% is factored in, VA’s net price for Sofosbuvir is $539 per dose and is $375 

per dose for Simeprevir. In FY 2014, VHA treated over 5,400 Veterans with HCV 

with these new treatments. VA spent over $370 million in drug costs alone on these 

new treatments in FY 2014. VA is actively planning for the deployment of more effective HCV treatments becoming available in later this year and we plan to move 

aggressively to treat patients with these drugs, based on clinical need. 

Veterans infected with HCV in VHA care receive primary care through their local 

VHA medical center or VHA community-based outpatient clinic. However, some Veterans may need to travel to another VHA facility to receive the full spectrum of specialized HCV care. Increasingly, telemedicine platforms, such as telehealth and Specialty Care Access Network-Extension for Community Outcomes (SCAN-ECHO), are 

being used to deliver care to Veterans in remote areas or to Veterans with conditions that limit mobility. 

CURRENT CHALLENGES AND FUTURE DIRECTIONS

As the largest single provider of care for HCV infection in the U.S., VHA is 

charged with addressing an epidemic of life-threatening complications among Veterans with HCV infection. The challenge is increased by the likelihood that some 

Veterans with HCV infection remain undiagnosed, while others do not accept treatment or may not be treatment candidates because of co-existing medical conditions. 

The introduction of very costly, highly effective and less toxic anti-viral therapies, 

which are easier to administer than older treatments, holds the promise of eradicating this disease in infected Veterans. VA redirected funding for the increased cost 

of the newer medications for Fiscal Year 2014 and is doing so in 2015. For future 

budget submissions, VA will incorporate the cost of these new therapies into the Enrollee Health Care Projection Model (EHCPM) estimates. However, addressing the 

cost of these agents remains a major challenge. In addition, the synthesis of a population health approach to HCV infection with system redesign will improve access 

to high-quality HCV care for Veterans. System redesign refers to analysis of barriers that may affect patients’ access to care, followed by design and execution of 

changes to overcome such barriers. VHA is currently developing a VISN-centered 

system redesign approach that will coordinate care of HCV and its complications 

across a wide area. The application of system redesign principles to HCV diagnoses, 

treatment, and care promises to substantially improve access to, quality of, and efficiency of care. Finally, the experience, expertise, and dedication of VHA providers 

and pharmacists will allow VA to deliver the excellent care that Veterans with HCV 

deserve. 

CONCLUSION

VHA is committed to providing evidence-based care to ensure the continual improvement of VHA care for Veterans with HCV infection. We recognize that our future work to improve the quality of HCV care will be based in large part on understanding and addressing variation in HCV care structures, processes, and outcomes. 

We are happy to respond to any questions you may have. 

Chairman SANDERS. Thank you very much. 

So, how many veterans do you estimate are suffering with Hepatitis C? 

10 

Mr. VALENTINO. Right now, it is 174,000, approximately, who are 

known to have been infected. 

Chairman SANDERS. And, of that 174,000, I know that not every 

one of them can necessarily be treated by this drug, but what is 

your guess, if we could snap our finger and have that drug and 

treatment available, how many of those veterans could be helped 

by this drug? 

Mr. VALENTINO. Well, let me first say to any veterans or loved 

ones who are listening who are affected by this, it is our goal that 

you come into VA, talk with your provider, and together decide 

when the time is right to be treated. 

Chairman SANDERS. I am just trying to get an overview here. 

How many—— 

Mr. VALENTINO. Right. 

Chairman SANDERS. If we did all—and I know you guys do a 

pretty good job, probably better than anyone else in screening—— 

Mr. VALENTINO. Yes, sir. 

Chairman SANDERS [continuing]. And that is a very positive 

thing, but if we could snap our fingers today, how many folks are 

out there who could be treated with this new drug, if you would 

guess? 

Mr. VALENTINO. I would defer to Dr. Ross to answer that 

question. 

Chairman SANDERS. Dr. Ross, what is the answer? 

Dr. ROSS. Sure. Thank you for that question, Mr. Chairman. Although we are talking about large numbers, I am going to give you 

a specific answer. I think it is important to remember, it ultimately 

comes down to a discussion between patient and physician. 

Chairman SANDERS. Right. 

Dr. ROSS. Certainly, that was true with the older, more toxic—— 

Chairman SANDERS. All I am asking for is your guess. 

Dr. ROSS. OK. I would say there are patients who have simultaneous medical conditions that need to be dealt with first, and that 

could be anywhere from one-half to two-thirds of patients where we 

need to work on those first, either for a short period of time or a 

longer period of time. 

Chairman SANDERS. One-half or two-thirds of the 174,000? 

Dr. ROSS. Yes, and that is an off-the-top-of-my-head number. 

Chairman SANDERS. Yes, I understand. So, that is about 75,000 

or 100,000 people. How many people right now—when the Secretary asked for $1.3 billion, how many—if he had that check in 

his hand right now, how many patients would he be treating? 

Mr. VALENTINO. It is a very dynamic process with the pricing, 

but I can give you an answer based on what we know now. 

Chairman SANDERS. OK. 

Mr. VALENTINO. I would estimate that to be somewhere in the 

neighborhood of 25,000 to 30,000 patients. 

Chairman SANDERS. So, Dr. Ross is suggesting—and, I understand, these are rough estimates—that maybe we need to be treating 100,000, and this $1.3 billion would treat 25,000? 

Mr. VALENTINO. Twenty-five to 30,000. 

Chairman SANDERS. OK. So, these numbers suggest to me that 

if we continue the current pricing, and if you guys do a good job 

11 

in outreach, that $1.3 billion may go up by two to three times. Is 

that a fair piece of arithmetic, or—— 

Mr. VALENTINO. As I—yes, although there are some changes in 

the marketplace that could impact—— 

Chairman SANDERS. All right. I want to get to that—— 

Mr. VALENTINO. OK. 

Chairman SANDERS [continuing]. In a second. 

Mr. VALENTINO. Yes, sir. 

Chairman SANDERS. Explain to us, because I have known about 

VA negotiating prices. You do this with all drugs. 

Mr. VALENTINO. Yes, sir. 

Chairman SANDERS. And, you are one of the few government entities who can do this. Medicare, for example, does not negotiate 

prices by law, but you do, and you have got lower prices because 

of those negotiations. Am I correct that you are paying $540 a pill 

for Sovaldi? 

Mr. VALENTINO. After all discounts, yes. 

Chairman SANDERS. OK, $540. How come it is not $386 or $240? 

How did you come up to $540? 

Mr. VALENTINO. Well, as was mentioned earlier, there is a statutory discount, and that is really where we start. It was just the result of intensive negotiations with the manufacturer. 

Chairman SANDERS. All right. Let me ask you this. Very interestingly, and maybe we can explore that more in the second panel, 

Gilead is making this drug available to countries like Egypt, which 

have very, very serious problems with Hepatitis C. My understanding is that they are selling the product in Egypt for just a few 

dollars a pill. Is that correct? Do you know anything about that? 

Mr. VALENTINO. I personally do not. Dr. Ross—— 

Chairman SANDERS. Dr. Ross, are you aware what they are? 

Dr. ROSS. I am aware that—— 

Chairman SANDERS. My understanding is it is $10 a pill. 

Dr. ROSS. I could not speak to the specifics of—— 

Chairman SANDERS. OK. We will get more into that in the second panel, perhaps. Why do you think it is the case that they are 

selling it to a general American consumer who walks in with Hepatitis C for $1,000, they are selling it to a huge Federal agency, the 

VA, which treats more Hepatitis C patients than anybody else in 

the country at $540, but they are selling it in Egypt for $10? How 

does that happen? How come they negotiated a better price than 

you did? 

Mr. VALENTINO. I cannot answer that question. I do not know 

what Gilead’s business model is. I do not know how that was able 

to be achieved. You know, those—a lot of other countries have different regulatory processes—— 

Chairman SANDERS. They sure do, which results in the United 

States paying, by far, the highest prices in the world for prescription drugs. 

And, this may be outside of your portfolio in a sense, but if the VA is going to spend billions of dollars—$1.3 billion now and 

maybe more later—to treat one illness, is it fair to suggest that will 

mean we have less money available to take care of veterans’ needs 

in other areas? Is that a fair supposition? 

Mr. VALENTINO. Well, we did ask for more money—— 

12 

Chairman SANDERS. Right—— 

Mr. VALENTINO [continuing]. And, so, you know, VA is undergoing a lot of changes now with—— 

Chairman SANDERS. I am a strong supporter of VA and would 

like to put more money into the system, but there is a limit to what 

can be done. All that I am saying, if you are spending billions of 

dollars in one area, common sense suggests that you may not be 

able to spend in other areas. Is that maybe a fair supposition? 

Mr. VALENTINO. I would not disagree with that. 

Chairman SANDERS. OK. 

Senator Burr. 

Senator BURR. Mr. Valentino, I am going to direct my questions 

to Dr. Ross—— 

Mr. VALENTINO. Yes, sir. 

Senator BURR. If, for some reason, you want to chime in, feel 

free. I am going to give you another chance to answer Senator 

Sanders’ first question, which is with an unlimited pot of money, 

of 174,000 people infected with Hepatitis C, how many would you 

give Sovaldi to? 

Dr. ROSS. Let me just ask you to clarify, and I appreciate the 

chance to address this question in more detail. We are talking 

about at this instance, or over—— 

Senator BURR. Say you have all the money that would buy all 

the Sovaldi you want. 

Dr. ROSS. So—— 

Senator BURR. You have got 174,000 people who are infected and 

all 174,000 people have been consulted and they would like to take 

the drug. 

Dr. ROSS. OK. 

Senator BURR. Could you give it to all of them? 

Dr. ROSS. At this—on this date, no, because it is not clinically 

indicated for a number of patients. That but, let me—— 

Senator BURR. And, the clinical indication would be the treatment consideration report found on the Web site, which says VA 

providers are directed to use the new drug therapy on those veterans with advanced liver disease, such as cirrhosis, liver cancer, 

and those waiting for a liver transplant. The report also recommends that veterans with less serious conditions wait to receive 

the treatment. Is that—— 

Dr. ROSS. Yes, and I actually—my office authored that report, so 

let me—— 

Senator BURR. So, what do you say to the ones that you say, 

well, you have got Hepatitis C and eventually you will have cirrhosis, eventually you could have liver cancer, but you have to 

wait—— 

Dr. ROSS. No—— 

Senator BURR [continuing]. Because we are not going to give you 

the drug now. 

Dr. ROSS. No, Senator—— 

Senator BURR. Are they going to get cured another way? 

Dr. ROSS. No. If I may clarify—— 

Senator BURR. Sure. 

Dr. ROSS. The reason for that was not because we were saying, 

you have to wait. If somebody said, ‘‘I want to be treated now,’’ and 

13 

I have patients in my clinic where we have had that discussion, we 

would treat them now. But, these therapies that were approved by 

the FDA in 2013 still required, in many instances, the use of these 

toxic drugs that the Chairman referred to. So, what we have done 

is we have said—— 

Senator BURR. Do you have a conditional approval? 

Dr. ROSS. I am sorry? 

Senator BURR. The approval for Sovaldi was conditional upon 

having gone through other therapies first? 

Dr. ROSS. No. No, sir, that patients getting Sovaldi—the FDA approved it in combination with Interferon and Ribavirin or Ribavirin 

by itself. Both of these are toxic drugs. So, the choice for patients, 

whether they have advanced liver disease or not, is yes, you can 

start now, or we feel very, very confident that in some months, new 

drugs that do not require Interferon or Ribavirin are going to be 

available and you may want to wait for those less toxic and, according to clinical trials, more effective drugs. It is not a question of 

you have to wait. 

Senator BURR. It is promising. Do you think any of those drugs 

are going to be cheaper? 

Dr. ROSS. I look at are they more effective and are they safer. 

Senator BURR. OK. So, let me ask you this, and since Sovaldi is 

the only product that we have got right now, what are the longterm savings to VA in dollars for curing Hepatitis C? Mr. 

Valentino, have you done that study? 

Mr. VALENTINO. I have not done that study. 

Senator BURR. I would specifically ask, on behalf of the Committee, that the VA do that study. What is the long-term savings 

if we cure Hepatitis C, and I will not limit it to Sovaldi. I will leave 

it open for other therapies that are going to come along. But, what 

do we save in the long-term care of that veteran? We are shoving 

quality of care for the veteran aside. We are purely looking at how 

much we would spend as taxpayers to take care of that person with 

the toxic treatment that is today versus a cure that happens in a 

matter of weeks. 

Mr. VALENTINO. I think that is an excellent suggestion and it is 

something that we would love to look into. I think the issue is, how 

long would it take for us to have sufficient data to really answer 

that question? Right now, it is clearly too soon. I do not know at 

what point we would have sufficient numbers, sufficient information, because, as you know, this is a disease that progresses over 

decades so—— 

Senator BURR. Mr. Valentino—— 

Mr. VALENTINO. Yes, sir. 

Senator BURR [continuing]. I would be satisfied if you would look 

at it and you make your calculation based upon here is what it 

costs us over the lifespan of a veteran who has Hepatitis C to treat 

them under what was the conventional treatment. Now, all of a 

sudden, we have got Sovaldi and it costs us X; and if we treat it 

and cure, we do not have this continued cost. What do the two look 

like? So, I realize there may be something in between, but I am 

looking at either/or, and I think it is important that we look at the 

dollars and ask ourselves—because once we get there, then we can 

14 

put a value on what the quality-of-life is that we are providing to 

veterans. 

We cannot do that today. Therefore, we dumb ourselves down to 

only being focused on how much Sovaldi costs, and you have to ask 

yourself, if we were paying $10, would you have a staple of new 

therapies that might be coming out that do not require additional 

toxic products to go with? The answer is, probably, we would not, 

because a market has to have the capital to do research and development. It has to have the marketplace. 

And, as you and we know, the marketplace on Hepatitis C is 

rather defined. It probably would be considered an orphan product, 

almost, because of the size of the population. Is that about right, 

Dr. Ross? Maybe a little bit over the orphan drug designation? 

Dr. ROSS. I am not familiar with the specific definition of an orphan drug, but it is a smaller population than—it is a large population in terms of chronic bloodborne effects. It is the largest population with bloodborne effects in the country. It is smaller than, obviously, other conditions, such as high blood pressure. 

Senator BURR. My time has run out. The Chairman has been patient and I thank both of you. 

Chairman SANDERS. Senator Burr raised some really interesting 

questions that I hope we will explore later on. 

Senator Hirono. 

Senator HIRONO. Thank you. 

I found the Chairman’s information regarding the varied costs of 

this particular drug to the general public, to the VA patient, and 

in places such as Egypt really fascinating. I am all for innovation 

and not stifling innovation, but on the other hand, if the general 

non-VA Hepatitis C patient is charged $1,000 for this pill, clearly, 

that person is not, I do not think, paying for it. It is insurance, that 

person’s medical insurance that is paying for this drug. Is that generally the case? 

Mr. VALENTINO. I would think so, yes. 

Senator HIRONO. So, if that is the case—either one of you can answer—what would be the incentive for the drug companies who are 

getting reimbursed by insurance for these $1,000 pills to be innovative and come up with less costly, effective drugs? 

Mr. VALENTINO. I am not sure I totally understand the question, 

but I can say this. We do our best to lower the cost of these drugs 

when there is sufficient competition, when there are clinically acceptable alternatives, and I think the incentive for other companies 

to enter the market is to gain a portion of that market share. 

Senator HIRONO. Well, we are probably already talking about a 

relatively small market share for people with, albeit hundreds of 

thousands of people, but maybe in the scheme of things, this is a 

relatively small market. So, why would a company enter a market 

where there is already a company there who can charge a lot of 

money and get reimbursed by health plans? 

Mr. VALENTINO. I cannot tell you why, but I can tell you that 

there are companies doing just that. We expect another drug is 

going to be approved later this month and others are going to be 

approved in 2015. So—— 

15 

Senator HIRONO. That is good to know, and these companies that 

are coming up with alternative treatments, is their testing being 

supported through tax credits and other incentives? 

Mr. VALENTINO. I cannot—— 

Senator HIRONO. Do you know? 

Mr. VALENTINO [continuing]. Comment on that, Senator. I do 

know that a lot of the basic work that leads to some of these discoveries is, in fact, initially funded that way, but I certainly cannot 

comment on to what extent. 

Dr. ROSS. Senator—— 

Senator HIRONO. Yes. 

Dr. ROSS. If I could just add on to Mr. Valentino’s points, I think 

part of it is also what proportion of patients might switch over to 

a newer therapy. For example, to go back to Senator Burr’s question about the treatment considerations document, we gave physicians and providers the choice of deferring therapy with Sovaldi because we knew that for genotype 1 patients, one of the major 

strains, the most common strain. But, later on in that document, 

we said, if you have genotype 2 or 3 infection, we know that there 

are not better drugs likely to be approved soon for those particular 

strains and, therefore, we said, there is no reason to wait. 

So, the question is, is something better coming along, and while 

I cannot speak from the pharmaceutical companies’ perspective, as 

a provider, I am going to say, is this drug going to work better and 

be less toxic for my patient, the one that is coming along, so I 

might wait. If not, then I am going to say, well, it is more important to start treatment now. 

Senator HIRONO. I think my series of questions has to do with 

whether the marketplace really can—is operating in a way that 

there is more competition for different kinds of treatments that are 

effective and much less costly. So, is there a way to prevent Hepatitis C, because once one is infected, there is a progression to the 

disease. So, what are we doing on the prevention side? 

Mr. VALENTINO. Do you want to address that? 

Dr. ROSS. OK. Briefly, there is no vaccine for Hepatitis C. Transmission for most people occurred decades ago. There are about 

20,000 or so new infections every year. The number is actually 

going up, almost entirely because of sharing of needles among injection drug users. 

So, things that we are doing within VA are focusing—and this 

is done as part of Hepatitis C care—is to help treat people with 

substance use disorders. We also are doing things—and, again, this 

is integrated with their medical care—to try and reduce exposures 

that could also damage the liver, particularly thinking of alcohol 

use, and an integrated care approach is much more effective about 

getting people ready for treatment. 

One brief anecdote. I have a patient who I saw yesterday who— 

we started him on methadone maintenance about 6 months ago 

and he is now ready for treatment. In other words, he will be able 

to reliably undergo treatment. 

Senator HIRONO. So, do these prevention methods that you are 

utilizing, do they—are they working? I realize it is not that easy 

to determine whether something you are doing is actually preventing—— 

16 

Dr. ROSS. It is a matter of keeping people from getting it in the 

first place, but it is also a question of getting people ready for 

treatment. Work done in VA has shown that if you take people who 

have these barriers to treatment because of other diseases, frequently substance abuse or alcohol use, and you give them integrated psycho-social care in the same clinic—this was work that 

was done at Minneapolis VA, and, I should mention, this is the 

model that is being used at the Matsunaga VA in Honolulu—— 

Senator HIRONO. Oh, right. 

Dr. ROSS [continuing]. They are more likely to complete therapy 

and be cured than people who do not have those problems in the 

first place but do not get that kind of supportive care. 

Senator HIRONO. Thank you. Thank you, Mr. Chairman. 

Chairman SANDERS. Just in the nick of time. Senator Moran, it 

is your turn. 

STATEMENT OF HON. JERRY MORAN, 

U.S. SENATOR FROM KANSAS 

Senator MORAN. Mr. Chairman, thank you. I am happy to be 

here in the nick of time. 

Let me ask a question somewhat unrelated to the topic today, 

but it is my opportunity to again send a message to the Department of Veterans Affairs. On November 13, a large group of Senators requested information from the VA. That letter has not been 

responded to. It is related to the Reform Act. It is our continual 

question about implementation, particularly related to the 40 miles 

for a VA facility. I have a number of questions. We asked for the 

Secretary and officials from the Department of Veterans Affairs to 

meet with us. And, I would just ask if you, on your return, would 

raise this topic with those who might be able to facilitate this 

meeting. 

The topic, from my perspective, is, so, you have a facility within 

40 miles, but it does not provide the service that you, as the veteran, need. Does that count as a facility within 40 miles? I have 

great interest in trying to get community mental health centers involved in providing services and the question of whether or not 

they would be able to provide services has been unanswered. And, 

finally—although not finally—finally in this list, the issue of is 

there going to be required advance approval, prior approval by the 

VA, before you go see an outside provider, and if that is required, 

is that going to be required every time you make a visit such that 

we are back to having a bureaucracy again that you have got to 

go through before you get to go see the outside provider. 

I apologize. I know you are here on a different topic. It is an important topic. But, these are awfully important issues in all aspects 

of veteran health care, and thank you for the nod of your head, 

which suggests to me that you will—you are going to do what I 

have asked. 

Mr. VALENTINO. Yes, sir. 

Senator MORAN. Thank you very much. 

Mr. VALENTINO. Absolutely. 

Senator MORAN. Mr. Chairman, thank you. 

Chairman SANDERS. Thank you very much. 

Senator Burr, do you have any other questions? 

17 

Senator BURR. No. 

Chairman SANDERS. OK. Thank you very much. 

RESPONSE TO POSTHEARING QUESTIONS SUBMITTED BY HON. MAZI HIRONO TO MICHAEL VALENTINO, VHA CHIEF CONSULTANT FOR PHARMACY BENEFITS MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS


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Chairman SANDERS. The next panel, please. [Pause.] 

It is my pleasure to introduce John Rother, who is President and 

Chief Executive Officer of the National Coalition on Health Care 

and the leader of the Campaign for Sustainable Prescription Drug 

Pricing. 

Second, we will hear from Robert Weissman, who is President of 

Public Citizen. 

Gilead has chosen not to be here today. 

Mr. Rother. 

STATEMENT OF JOHN ROTHER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL COALITION ON HEALTH CARE 

AND THE LEADER OF THE CAMPAIGN FOR SUSTAINABLE 

PRESCRIPTION DRUG PRICING 

Mr. ROTHER. Mr. Chairman, Ranking Member Burr, thank you 

for the opportunity to be here. I am John Rother. I am the President and CEO of the National Coalition on Health Care, and the 

Coalition is the sponsor of something called the Campaign for Sustainable Rx Pricing, which has been active now for over 6 months, 

has focused particularly on the issue of Sovaldi, but is actually concerned with a broad category of specialty drugs and their affordability. 

You have my full statement. I would ask that it be put in the 

record. I would like to just make, really, three points in the time 

before we get to the questions. 

I do think that we have a huge fiscal challenge ahead of us, not 

just in the VA, in health care generally, and it is driven in large 

part by the price of new specialty drugs. Sovaldi is really just the 

canary in the coal mine that indicates the kind of challenge ahead 


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of us. So, I do not think we can talk just about Sovaldi without 

looking at what is coming at us, which are going to be even more 

expensive drugs, raising more difficult fiscal challenges in the VA, 

in Medicaid, in Federal health programs in general, and in the private sector. 

Our coalition is made up of purchasers, providers, consumer 

groups, uniformly deeply concerned about this, and uniformly believe that the path we are on in terms of pricing here is unsustainable, that we need a new approach, certainly one that supports innovation, but not one that is going to result in people not being 

able to afford the very cures that innovation produces. So, my first point is that this is not just a matter of $1,000 a pill. 

This is a matter, primarily, of a drug that is potentially beneficial 

to three to five million people. So, it is not an orphan drug at all. 

It is a drug that would be appropriate for a large number of Americans. The problem is the total cost of treatment, not so much the 

individual pill price. 

Inevitably, as your question earlier suggested, this kind of cost 

is going to force tradeoffs with other necessary treatment within 

the VA, within Medicaid, within prisons, within private health insurance. We are seeing this every day today and it is a deep concern, because in many cases, the services not delivered are the very 

preventative type of services that have the greatest return on investment, and if we neglect those, then we are just making the 

problem more difficult down the road. 

So, the first point is, this is the canary in the coal mine and it 

is a matter not only of price, but of the number of people. 

The second point is that there are many new specialty drugs in 

the FDA pipeline. They could soon overwhelm our health financing 

system generally. Therefore, I do think we need new approaches to 

rewarding innovation, to making sure that we have drugs that are 

not only effective, but also affordable. There are several ways in 

which we could ensure that we continue to have the innovation we 

need, but at more affordable prices, and in my testimony, I indicate 

several. 

My third point is that there are several first steps that I think 

would be constructive that are consistent with what we are doing 

in health care generally, moving toward transparency, moving toward a value basis for reimbursement. Those same ideas could be 

applied to pharmaceuticals. There are several ways in which we 

could ask companies to be more transparent about how they arrived at prices, about what their value calculation is, and about 

how they believe that value could be enhanced for the largest number of Americans, not just for the individual. 

I regret that Dr. Martin is not here. I have had several conversations with him. He has made some statements in public. I think 

we have a very clear idea of how they came to the pricing, which, 

frankly, had nothing to do with value. It had everything to do with 

the prior cost of treatment to a much smaller number of people. I 

call that escalator pricing and I think that we need to change the 

escalator. 

We need a better way of doing this and I applaud the Committee 

for having this hearing. I think this is a very difficult, complicated 

subject, and I do think it is urgent, not, again, just because of HepVerDate Mar 15 2010 17:31 Dec 14, 2015 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 Z:\ACTIVE\120314.TXT PAULIN
25 

1 CMS National Health Expenditure Data, September 2014. http://www.cms.gov/ResearchStatistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/ 

NationalHealthAccountsProjected.html 

atitis C, not just because of Sovaldi, but because of the large number of very expensive specialty drugs that are likely to be in front 

of us in the very near future. 

Thank you. 

[The prepared statement of Mr. Rother follows:] 

PREPARED STATEMENT OF JOHN ROTHER, PRESIDENT AND CEO, NATIONAL COALITION

ON HEALTH CARE ON BEHALF OF THE CAMPAIGN FOR SUSTAINABLE RX PRICING

HOW VETERANS ARE AFFECTED BY THE HIGH COST OF SPECIALTY DRUGS

I. INTRODUCTION

Chairman Sanders, Ranking Member Burr, and Members of the Committee, I am 

John Rother, President and CEO of the National Coalition on Health Care (NCHC). 

I appreciate this opportunity to testify on behalf of the Campaign for Sustainable 

Rx Pricing regarding the high cost of specialty drugs and how our Nation’s veterans 

are affected by this growing problem. 

The NCHC launched the Campaign for Sustainable Rx Pricing in May 2014 to call 

attention to high-priced prescription drugs—most notably, specialty drugs—and the 

impact these prices are having on consumers, employers, and taxpayers. The Campaign is supported by the more than 90 stakeholder members of the NCHC. Our 

member organizations include medical societies, businesses, unions, health care providers, faith-based associations, pension and health funds, insurers, and groups representing consumers, patients, women, minorities, and persons with disabilities. 

Collectively, our organizations represent more than 100 million Americans. 

The goal of the Campaign for Sustainable Rx Pricing is to foster a national dialog 

on the pricing of high-cost biopharmaceutical therapies, some of which are now 

priced at $1,000 or more per dose with total treatment costs of $100,000 or more. 

Prices at that level threaten access to care and result in much higher out-of-pocket 

costs, higher premiums, and higher taxes. We believe there needs to be a better approach to pricing that recognizes value and balances the interests of innovator drug 

companies with the interests of society and our health care system. We are calling 

on the leaders of the biopharmaceutical industry to engage with us in a dialog about 

market-based solutions for ensuring that the U.S. health care system can 

sustainably pay for the innovation that is so vital to our health and well-being. 

My testimony for today’s hearing focuses on three broad topics: (1) the challenges 

caused by rising health care prices; (2) the role of specialty drug prices as a major 

component of the health care cost problem; and (3) market-based solutions, including a stronger commitment to transparency, that are needed to address this growing 

problem. 

II. RISING HEALTH CARE COSTS ARE A CHALLENGE FOR ALL STAKEHOLDERS

The high cost of health care is a significant and ongoing challenge for consumers, 

businesses, and government programs, including the Department of Veterans Affairs (VA) health care system. 

According to the most recent data 1 from the Centers for Medicare & Medicaid 

Services (CMS), national health expenditures in 2014 are projected to total $3.057 

trillion (a 5.6 percent increase over 2013), with $290.7 billion spent on prescription 

drugs (a 6.8 percent increase). Total national health spending in 2014 accounts for 

17.6 percent of the Nation’s gross domestic product (GDP) and translates into per 

capita spending of $9,596. CMS further projects that national health spending will 

increase at an average annual rate of 5.7 percent over the 2013–2023 time period, 

with per capita spending reaching a level of $14,944 by 2023. 

Rising health care costs are presenting challenges on multiple fronts. Working 

families and seniors face difficult choices when their budgets are pressured by medical expenses. Many businesses, both large and small, find that health care costs 

are undermining their ability to hire new employees, expand their operations, and 

compete in the global economy. Federal, state, and local governments—facing budget constraints driven by continually increasing health care costs—are forced to limit 

the resources they devote to other priorities such as infrastructure, education, and 

public safety. 

26 

2 U.S. Department of Veterans Affairs, President’s Budget Request for Fiscal Year 2015. http:// 

www.va.gov/budget/products.asp 3 CVS Caremark, 2013 Insights, Specialty Trend Management. http://www.cvshealth.com/sites/ 

default/files/Insights%202013.pdf 4 CVS Caremark, 2014 Insights, 7 Sure Things. http://investors.cvshealth.com/∼/media/Files/C/ 

CVS-IR/reports/2014-cvs-caremark-insights-report.pdf 5 Express Scripts, Industry Updates, April 8, 2014. http://lab.express-scripts.com/insights/ 

industry-updates/report-specialty-drug-spending-at-lowest-rate-since-2007 6PwC’s Health Research Institute, Medical Cost Trend: Behind the Numbers 2015, June 2014. 

http://www.pwc.com/en_US/us/health-industries/behind-the-numbers/assets/hri-behind-thenumbers-2014-chart-pack.pdf 7 ‘‘Specialty Drug Approvals in 2013.’’ Express Scripts Insights. March 26, 2014. http:// 

lab.express-scripts.com/insights/drug-options/specialty-drug-approvals-in-2013 8Wall Street Journal, Hepatitis C Pill Rockets Gilead Into Big Leagues, July 24, 2014. 

The VA health care system—which serves nearly 9 million enrollees, with an annual budget approaching almost $60 billion 2—also is impacted by rising health care 

costs. Because the VA serves patients whose medical needs tend to be greater than 

those of the broader U.S. population, its budget is disproportionately impacted by 

high health care costs, including new specialty drugs with extremely high price tags. 

III. SPECIALTY DRUG PRICES ARE A LARGE COMPONENT OF THE PROBLEM

Spending on specialty drugs represents a growing share of overall prescription 

drug spending and is increasing at a rapid and unsustainable rate. Addressing these 

cost trends is critically important to ensuring a sustainable health care system and 

achieving affordability for businesses and consumers. 

Specialty drugs generally are defined as drugs that are structurally complex and 

often require special handling or delivery mechanisms. While these drugs have been 

ground-breaking in the treatment of cancer, rheumatoid arthritis, multiple sclerosis, 

and other chronic conditions, the cost of treating a patient with specialty drugs can 

exceed $100,000 annually. Their high costs and extended use are placing a significant strain on our health care system. 

While only 4 percent of Americans take a specialty drug, the spending associated 

with these drugs represents a quarter of all drug spending in the United States, 

according to a 2013 report 3 by CVS Caremark. In a separate 2014 report,4 CVS 

Caremark concluded that spending on specialty drugs increased by 15.6 percent in 

2013, compared with only a 0.8 percent increase in spending on traditional medications. A similar trend was reported 5 by Express Scripts, which has projected that 

spending on specialty drugs will increase 63 percent between 2014 and 2016. Additional research 6 by the PricewaterhouseCoopers Health Research Institute projects 

that specialty drug spending will increase from $87 billion in 2012 to $402 billion 

in 2020—a 361 percent increase in eight years. 

The role of specialty drugs as a major driver of drug spending is a direct result 

of their growing presence in the pharmaceutical market. In 2010, specialty drug approvals by the Food and Drug Administration (FDA) exceeded traditional drug approvals for the first time, a trend that has continued each year since. In 2013, 19 

of the 28 drugs approved by the FDA—more than two-thirds—were specialty drugs.7

Examples: Sovaldi and Harvoni 

Within the past year, two new specialty drugs for treating patients with the Hepatitis C virus—Sovaldi and Harvoni—have entered the marketplace. These drugs 

provide important and effective breakthrough therapies for the treatment of Hepatitis C patients. But the manufacturer, Gilead Sciences, is demanding unaffordable 

prices that pose a serious threat to the pocketbooks of consumers, employers, government programs (including the VA health care system), and taxpayers. 

Sovaldi, approved by the FDA in December 2013, is priced at $1,000 per pill and 

costs $84,000 for a 12-week course of treatment. Because Sovaldi is often prescribed 

in concert with other drugs, the total treatment cost sometimes approaches $150,000 

for a single patient. 

Harvoni, which received FDA approval in October 2014, is priced at $1,125 per 

pill and costs $94,500 for a 12-week course of treatment. This drug also is combined 

with other treatments for many patients. 

Sovaldi is on pace to become the highest grossing drug in history, having generated sales of $2.27 billion in the first quarter of 2014 and $3.48 billion 8 in the 

second quarter. If this sales trend continues, Gilead essentially will recover its total 

investment in Sovaldi in the first year. Pharmasset, the company that carried out 

the research and development on Sovaldi, intended to price the drug at 43 percent 

27 

9The Fiscal Times, The $1,000 Pill That Could Cripple the VA’s Budget, by Erik Pianin, October 8, 2014, http://finance.yahoo.com/news/1-000-pill-could-cripple-104500188.html 10 CRS Report for Congress, The ‘‘Hatch-Waxman’’ Act: Selected Patent-Related Issues, 

April 1, 2002. http://congressionalresearch.com/RL31379/document.php?study=The+HatchWaxman+Act+Selected+Patent-Related+Issues 11Kaiser Health News, Who Should Get Pricey Hepatitis C Drugs, May 5, 2014. http:// 

kaiserhealthnews.org/news/sovaldi-who-should-get-pricey-drug/ 

of what Gilead is now charging.9 Did Gilead purchase the company knowing it could 

more than double the price and pay for its investment in one year? Has an incentive 

for innovation been abused at the expense of taxpayers and patients? 

We are concerned that the exorbitant price tag assigned to this drug reflects an 

abuse of the market power that is granted to pharmaceutical manufacturers under 

Federal law. Under the Hatch-Waxman Act,10 manufacturers receive the exclusive 

right to manufacture and sell their products for a period of time so that they can 

be rewarded for their innovation and recover the costs associated with developing 

important new therapies. This system generally has worked well, producing effective treatments for many illnesses that were once untreatable. However, when a 

new medicine is considered more effective than previous therapies, the high demand 

for that product, combined with the market exclusivity, allows the manufacturer a 

great deal of market power in setting the price. In the case of Sovaldi, we believe 

that market power has been abused. 

Implications for Veterans 

The Committee has indicated that the VA currently provides health care services 

to more than 170,000 veterans who have the Hepatitis C virus, and that tens of 

thousands of additional veterans are estimated to have Hepatitis C but have not 

been tested. 

Recognizing that the VA serves a large number of veterans who may benefit from 

either Sovaldi or Harvoni, we are seriously concerned about the impact the unreasonable prices for these drugs will have on access to care for our Nation’s veterans. 

At a time when almost all government programs are facing tight budget constraints 

and operating with limited resources, it is critically important to ensure that the 

essential health care services we owe to the men and women who have served in 

uniform are not underfunded because the VA is forced to pay excessive prices for 

new specialty drugs. 

Looking at the overall impact of the costs associated with Sovaldi and Harvoni, 

we have serious concerns that new specialty drugs with unusually high prices may 

place an unsustainable burden on the VA health care system, result in many patients not receiving needed treatments and therapies due to budget constraints, and 

create the potential for even greater dysfunction down the road if they establish a 

pattern for future pricing strategies. 

The Sovaldi and Harvoni Price Tags Are Not Sustainable 

Innovative new drugs are not sustainable if the health care system cannot afford 

them. 

The IMS Institute for Healthcare Informatics has estimated that the total cost of 

purchasing Sovaldi for all 3.2 million Americans who are infected with Hepatitis C 

would approach $300 billion. This figure is roughly equal to the total amount spent 

in 2013 on all other brand name prescription drugs combined. Kaiser Health News 11

describes the problem with this explanation: ‘‘If all 3 million people estimated to be 

infected with the virus in America are treated at an average cost of $100,000 each, 

the amount the U.S. spends on prescription drugs would double, from about $300 

billion in one year to more than $600 billion.’’ 

The increase in the number of exceptionally high-priced drugs threatens the sustainability of our health care system. This is particularly true for public programs, 

including the VA health care system, which serve disproportionately sicker populations who are more likely to need these new medications and are already straining 

under the cost of existing high-priced new medications currently on the market. 

With additional specialty drugs prepared to come down the pipeline, and without 

pressure on pharmaceutical companies to change their behavior, the health care system will not be able to withstand the coming onslaught of six-figure therapies. 

IV. MARKET-BASED SOLUTIONS ARE NEEDED TO MAKE SPECIALTY

DRUGS MORE AFFORDABLE

The Campaign for Sustainable Rx Pricing is advocating market-based solutions 

for making specialty drugs more affordable. New approaches to rewarding innovaVerDate Mar 15 2010 17:31 Dec 14, 2015 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 Z:\ACTIVE\120314.TXT PAULIN
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tion and pricing drugs based on their value—along with a strong emphasis on transparency—are important first steps toward achieving this goal. 

One solution is to encourage alternative payment and incentive structures for rewarding innovation in the development of new drugs and technologies. These types 

of payment strategies can improve access to new drugs while at the same time generating additional evidence on the value to patients of these new medications. As 

part of a broader value-based purchasing strategy, these alternative arrangements— 

such as outcomes-based contracting or reimbursing providers a flat fee for obtaining 

drugs, rather than a percentage of the drug’s total cost—provide enhanced financial 

incentives for manufacturers of new drugs that are linked to standards for quality 

care, performance, and health outcomes. Greater use and availability of comparative 

effectiveness data is a key element in the future growth of these innovative payment 

arrangements. 

On another front, we support enhanced flexibility for the VA to conduct pilot programs to explore new ways of assessing and pricing drugs based on their value. For 

example, the VA should be authorized to use the findings of comparative effective 

research to provide information to patients and providers about which drug regimens and treatments deliver the most value and which are less effective. Such information is highly beneficial to both patients and providers. Additionally, the use 

of value-based insurance design can help promote better outcomes and quality of 

care, while discouraging low-value, high-cost care through the use of financial incentives. By building on best practices in the private sector, the VA can improve access 

to high-quality and cost-effective treatments based on the best available medical evidence and clinical guidelines. 

Promoting greater transparency in the pharmaceutical industry is another strategy that offers significant promise for improving the affordability of specialty drugs. 

Recognizing that a competitive market is the best place to create value and determine price, we believe that the drug manufacturing industry should commit to the 

following common sense principles for health care sustainability which would benefit 

patients and the entire health care system: 

1. Drug Manufacturers Claiming a Value Proposition for Their Products Should 

Provide Documentation of Such Claims. Manufacturers should provide a clear basis 

for claims they make that drugs reduce costs elsewhere in the health care system. 

Such reporting should include the net effect of any savings relative to the cost of 

the drug. If the manufacturer is claiming system-wide savings relative to existing 

alternative treatments, for example, it should clearly define the populations and 

treatment alternatives for which they are claiming savings and provide substantiating data that can be independently validated. Studies by independent researchers also are needed to provide a more comprehensive assessment of the value of new 

products. 

2. Drug Manufacturers Should Make Price Increases More Predictable to Benefit 

Patients and the Health System as a Whole. Price inflation of existing drugs has 

become a serious problem, with manufacturers routinely demanding double-digit 

price increases year after year and throughout a plan year. A robust discussion of 

drug price predictability needs to take place, with a particular focus on the impact 

to consumers. 

3. Drug Manufacturers Attempting to Launch New Products Should Disclose 

Likely Populations Served, Launch Price, and Any Value Proposition, in as Timely 

a Manner as Possible. Manufacturers currently withhold this information until 

nearly the minute the drug hits the market, which unnecessarily impedes the ability of patients and the health care system to react to a drug’s indications, value, 

and pricing. Providing this information earlier will allow the market to function 

more efficiently. 

4. Drug Manufacturers, Working with FDA, Should Make Available All Clinical 

Data to Help Third-party Researchers Examine Comparative Effectiveness and 

Value. Various organizations, including the American Medical Association, have 

called on drug manufacturers to work with the FDA to make this information available. Facilitating another government agency (such as the Patient-Centered Outcomes Research Institute), or other responsible third party, to assess the impact a 

newly introduced drug would have on public and commercial costs in relation to the 

drug’s ability to improve patient health would be beneficial for patients without resorting to distortionary government intervention into price setting. Rather, adding 

a non-binding ‘‘cost effectiveness’’ component to a government agency’s or other organization’s mission would provide a credible assessment of a drug’s overall value. 

5. Drug Manufacturer Participation in Organizations that Influence Coverage Decisions Should Be Transparent and Free from Conflict of Interest. Many organizations play a role in influencing coverage, such as the drug compendia entities and 

United States Pharmacopeia (USP). To the extent that drug manufacturers and othVerDate Mar 15 2010 17:31 Dec 14, 2015 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 Z:\ACTIVE\120314.TXT PAULIN
29 

ers influence data availability, selection of indications, and interpretation of evidence in drug compendia, they are also setting the standards for drug use and coverage. Critical, independent reviews should be required of the information submitted 

by drug manufacturers and any potential conflicts of interest should be disclosed to 

the public and resolved in advance of the review process. 

V. CONCLUSION

Thank you again for the opportunity to testify on this important issue. As we continue to work with stakeholders in the private sector, the Coalition looks forward 

to continuing a dialog with the Committee about market-based strategies for ensuring that veterans—along with the broader U.S. population—have access to affordable specialty drugs. 

Chairman SANDERS. Thank you, Mr. Rother. 

Mr. Weissman. 

STATEMENT OF ROBERT WEISSMAN, PRESIDENT, 

PUBLIC CITIZEN 

Mr. WEISSMAN. Thank you very much, Mr. Chairman, Mr. Burr. Unfortunately, $84,000 treatments are not atypical any more in 

our medical system, and they are not sustainable. What is unusual 

about Sovaldi is the patient population that it is intended to treat, 

which is a large patient population, at least 3.2 million people in 

the United States. If you combine that level of price with that size 

of population, we know what we are going to get, because we are 

already getting it, which is rationing. Now, from my point of view— 

and I think it should be the point of view of all Americans—that 

is unacceptable, particularly in the circumstances where we are 

talking about a life-saving drug and the rationing is entirely 

avoidable. 

I want to make three points to elaborate on that general commentary. The first point is that this level of pricing is already, with 

the modest sales of Sovaldi and related products, severely taxing 

private and public payers; we are, in fact, having rationing right 

now. Medicaid systems across the country right now are rationing 

the product. Private insurers are not making the product available 

to people for whom it is clinically indicated, and they are not going 

to be able to. 

The math is extraordinary. Now, the pricing is going to evolve 

over time, but if you just look at Sovaldi, $84,000 for a course of 

treatment, 3.2 million people in America with the disease, we are 

talking about $268 billion—$268 billion for one pharmaceutical 

treatment. 

Now, in the course of the debate over the Affordable Care Act, 

there was a lot of discussion about the ethics of rationing of care. 

This is a case where we are not talking about theoretical rationing. 

It is happening now, and it is a certainty that it will continue in 

a worse way with this level of pricing. 

Now, it is one thing to have rationing where there is an objective 

basis for costs. Hospitals cost money. Doctors cost money. Nurses 

cost money. Sophisticated medical technology costs money. There is 

nothing about the manufacturing cost of Sovaldi that costs anything like $84,000. So, this is a choice we are making. It is not determined by any objective reason, and to me, I think that is just 

unacceptable. Our country can do better and it must do better. 

Now, some have held out hope that new treatments will lead to 

price competition, or that hard bargaining by payers, of which the 

30 

VA is the best, will be able to yield sufficient price reductions, and 

I think that is misguided. Based on prior experience, new drugs do 

not necessarily come in at a lower price. In fact, they often come 

in at a higher price. In general, brand name competitors try not to 

compete on price. And, when you have a starting point price of 

$84,000, even if we have substantial reductions in price due to negotiations, we are still going to be stuck with a super-high price, 

just because the starting point was so high. 

However, we do have solutions available to us, and really fundamental solutions. Now, we should say, I think it is correct—I agree 

with many of the things you said, Senator Burr, about both the importance of innovation and looking at government policy. The reason for this price level, as both of you have asked, is a single thing, 

which is Gilead has a monopoly. Gilead does not have a market 

created monopoly, they have got a government granted monopoly, 

a patent monopoly, a monopoly that comes from their exclusivities. 

If we choose to address that monopoly through government policy, since we, the people, gave the monopoly in the first place, we 

can bring the price down. We know we can bring it down to less 

than 1 percent, at least at the manufacturing level, leaving aside 

whatever fair compensation we need to pay to Gilead, because of 

the price reductions that already exist in developing countries, as 

you referenced, Senator Sanders. 

Two methodologies we might pursue to reduce price. One, we 

might have just government use of the product, government use of 

the patent and other related technologies and know-how. In that 

case, we could source the product from generic competitors and pay 

Gilead a royalty. If we pay Gilead a royalty of $5,000 per patient, 

we would actually still have cut the price overall by 90 percent. We 

have got existing statutory authority to do that under 28 U.S.C. 

Section 1498. 

A different approach might be to look to buy out Gilead’s patent 

altogether. We could do that in one way, which would be to say, 

we are just going to give Gilead as much money as we anticipate 

the company will make by the virtue of its patent monopoly. Why 

would we do that? Well, we would do that because we are already 

going to pay them that much money, but we could then provide 

treatment to everyone, whereas under the current system, we are 

going to pay all that money and have rationing. 

I would not advocate doing that. I think we could adjust down 

significantly what we pay for a patent buy-out. But, it is another 

method we might consider to provide treatment for all, which really 

ought to be our objective, providing treatment for all at some reasonable price and with a reasonable compensation for Gilead. 

As a concluding note, and to agree with Mr. Rother, this is a 

unique story in some cases because of the high price, the large patient population, and the unique value of this drug, but it is typical 

in terms of what we have already on the marketplace and, really, 

what else is going to come. We are going to have these kinds of 

high prices, and they are unsustainable. So, we need not seek a solution just for Sovaldi, but, really, systemic solutions. I think that 

involves looking at new forms of compensation for innovation, overcoming monopolies, and looking also at return on the government 

investment and R&D. Senator Sanders, you have introduced legisVerDate Mar 15 2010 17:31 Dec 14, 2015 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 Z:\ACTIVE\120314.TXT PAULIN
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1To be sure, with more than 150 million people infected with Hepatitis C virus globally (see 

HK Mohd, J Groeger, AD Flaxman, ST Wiersma, ‘‘Global epidemiology of hepatitis C virus infection: new estimates of age-specific antibody to HCV seroprevalence,’’ Hepatology. 2013 

Apr;57(4):1333–4), the problem is worldwide. Here, too, the key to lowering price is to enable 

generic competition, and Gilead has agreed to license generic manufacturers, at least to sell in 

91 countries. (Gilead, ‘‘Gilead Announces Generic Licensing Agreements to Increase Access to 

Continued 

lation in this regard. I think there are many other important ideas 

and it is time for a debate on these new approaches. 

[The prepared statement of Mr. Weissman follows:] 

PREPARED STATEMENT OF ROBERT WEISSMAN, PRESIDENT, PUBLIC CITIZEN

Mr. Chairman and Members of the Committee, Thank you for the opportunity to 

testify today on issues related to Hepatitis C among veterans. I am Robert 

Weissman, president of Public Citizen. Public Citizen is a national consumer advocacy public interest organization with 350,000 members and supporters. For more 

than 40 years, we have advocated with some considerable success to advance public 

health, to ensure access to safe and affordable medicines, and to protect taxpayers 

against corporate plunder of the public treasury. 

Hepatitis C is a serious liver disease that is widely prevalent, and takes about 

15,000 lives annually in the United States. Infection rates with the Hepatitis C 

virus are far higher among veterans than the general public—as much as five times 

higher—making Hepatitis C treatment a priority matter for the Department of Veterans Affairs (VA). 

The good news is that new drug treatments for Hepatitis C have become available 

over the past year, and more seem set to become available in the near future. It 

is important to be cautious about claims of the efficacy of these new treatments, because they have been subjected only to minimal clinical testing and there has been 

only a short period of use in the general public. But with that cautionary note in 

mind, these new drugs appear to offer much higher cure rates—up to 95 percent— 

than previously existing therapies, with much less severe side effects. 

But these new drugs, which include Gilead’s sofosbuvir (brand name Sovaldi), 

Gilead’s drug combining sofosbuvir with ledipasvir (brand name Harvoni), Johnson 

& Johnson’s simeprevir (brand name Olysio) and likely a new drug from Abbvie, are 

extraordinarily expensive. By way of example, Gilead is charging $1,000 a pill for 

sofosbuvir, or $84,000 for a 12-week course of treatment. 

These prices are intolerably high and imposing unsustainable costs on consumers, 

insurers and taxpayers. 

As a result, public and private payers are moving to rationing. 

This would be unfortunate but somewhat unavoidable if the drugs were extraordinarily expensive to manufacture, or if research-and-development costs had been 

unusually high. But neither is the case. The prices are so high because Gilead and 

other manufacturers have monopoly pricing power, and are choosing to use that 

power to price gouge. 

The government is not helpless to respond, but even price negotiations will fail 

to bring prices down sufficiently. The VA obtains Sovaldi and Harvoni for a roughly 

44 percent discount, but this still leaves treatment at sky-high rates. 

A sustainable solution to the pricing of the new Hepatitis C drugs must involve 

a government-mandated license or acquisition of rights to make the drugs, so that 

generic suppliers can enter the market, with a determination of what constitutes 

fair compensation to Gilead or other brand-name suppliers for the mandated license. 

With generic production, prices will fall by more than two orders of magnitude, so 

that drug costs will be less than 1 percent of what Gilead and other manufacturers 

are charging (potentially excluding royalty payments). 

While ensuring fair compensation for Gilead and other brand-name manufacturers, the priority goal of government policy in this area should be to ensure that 

treatment is made available to all for whom it is clinically indicated. This principle 

should be overriding: Patients should not be subjected to avoidable rationing of a 

critically important medicine. 

Because of prevalence rates among veterans, it is reasonable to analyze the Hepatitis C drug pricing problem as a VA problem. It might reasonably be considered 

a particular problem of the multiple Federal agencies that provide health insurance 

coverage or direct treatment of patients. Ultimately, however, it is a societal problem, and the best solutions will cover all Americans. In this testimony, I highlight 

VA-specific issues and opportunities, but in the main I address the drug pricing 

problem as a national issue.1

32 

Hepatitis C Treatments in Developing Countries,’’ September 15, 2014, available at: http:// 

www.gilead.com/news/press-releases/2014/9/gilead-announces-generic-licensing-agreements-toincrease-access-to-hepatitis-c-treatments-in-developing-countries.) Establishing a fair global licensing system poses unique issues that I do not discuss in this testimony. 2 Centers for Disease Control and Prevention, ‘‘Hepatitis C FAQs for Health Professionals,’’ 

available at: http://www.cdc.gov/hepatitis/HCV/HCVfaq.htm#. 3 Centers for Disease Control and Prevention, ‘‘Hepatitis C FAQs for Health Professionals,’’ 

available at: http://www.cdc.gov/hepatitis/HCV/HCVfaq.htm#. 4 E Chak, AH Talal, KE Sherman, ER Schiff, S Saab, ‘‘Hepatitis C virus infection in USA: 

an estimate of true prevalence,’’ Liver Int. 2011 Sep;31(8):1090–101. 5 ‘‘The increasing burden of mortality from viral hepatitis in the United States between 1999 

and 2007.’’ K. Ly, et al. Annals of Internal Medicine, 2012. 156(4): p. 271–278. 6 JA Dominitz, et. al. ‘‘Elevated prevalence of hepatitis C infection in users of United States 

veterans medical centers,’’ Hepatology. 2005 Jan;41(1):88–96; Lisa I. Backus, Pamela S. 

Belperio, Timothy P. Loomis, Troy Shahoumian, Larry A. Mole, ‘‘Hepatitis C Virus Screening 

and Prevalence Among Veterans in Department of Veterans Affair Care in 2012,’’ November 3, 

2013, available at: http://www.publichealth.va.gov/docs/populationhealth/hepatitis/AASLD-2013- 

HCV-screen-oral-11-03-2013.pdf#. 7Lisa I. Backus, Pamela S. Belperio, Timothy P. Loomis, Troy Shahoumian, Larry A. Mole, 

‘‘Hepatitis C Virus Screening and Prevalence Among Veterans in Department of Veterans Affair 

Care in 2012,’’ Epidemiology of viral hepatitis. Hepatology, 2013. 58: 216A–219A. 8Lisa I. Backus, Pamela S. Belperio, Timothy P. Loomis, Gale H. Yip, Larry A. Mole, ‘‘Hepatitis C Virus Screening and Prevalence Among US Veterans in Department of Veterans Affairs 

Care,’’ JAMA Intern. Med. 2013;173(16):1549-1552. 9 Centers for Disease Control and Prevention, ‘‘Correctional Facilities and Viral Hepatitis,’’ 

available at: http://www.cdc.gov/hepatitis/Settings/Corrections.htm. 10 Centers for Disease Control and Prevention, ‘‘Hepatitis C FAQs for Health Professionals,’’ 

available at: http://www.cdc.gov/hepatitis/HCV/HCVfaq.htm#; HCV Advocate, ‘‘A Brief History of 

The first section of this testimony provides a brief overview of Hepatitis C incidence, treatment, and treatment cost. The second section underscores that rationing 

at current prices is both inevitable and already occurring. The third section notes 

that research and development expenses cannot possibly justify the price for sofosbuvir. The fourth section considers whether competition among brand-name products may lead to sufficient price reductions for Hepatitis C treatment, and concludes 

it will not. The fifth section makes the case for non-voluntary licensing of the new 

Hepatitis C drugs, or for a mandated government buyout of the key patent and related rights. The testimony concludes by noting that the problems posed by the new 

Hepatitis C drugs are endemic to the pharmaceutical sector, and urges consideration of new approaches for paying for drugs and incentivizing pharmaceutical research and development. 

I. HEPATITIS C: INCIDENCE, TREATMENT, COST

Hepatitis C is a liver disease that results from infection with the Hepatitis C 

virus (HCV). Persons newly infected with HCV are usually asymptomatic, so acute 

Hepatitis C is rarely identified or reported. 

Approximately 75–85 percent of people infected with HCV develop chronic Hepatitis C, according to the Centers for Disease Control and Prevention (CDC). Sixty 

to 70 percent of those infected will develop chronic liver disease; 5–20 percent will 

develop cirrhosis over a period of 20–30 years. One to five percent will die from 

chronic infection, due to liver cancer or cirrhosis.2

The CDC estimates that the number of HCV-infected people in the United States 

is 3.2 million,3 though some believe the figure may be more on the order of 5.2 million.4 Approximately 15,000 people die annually in the United States from HCV-related conditions.5 Although injection drug use is presently the primary means of 

HCV transmission, infection rates are highest among those born between 1945 and 

1965. 

HCV infection rates are far higher among veterans than the general population, 

perhaps five times the rate among non-veterans. Researchers have estimated infection rates among veterans in the 5.4 to 6.1 percent range, as compared to a national 

estimated incidence rate of 1.2 percent.6 Among veterans born between 1945 and 

1965, the infection rate is on the order of 10 percent.7 In 2011, 5.4 million veterans 

had outpatient visits. More than 2.8 million were screened for HCV infection. More 

than 170,000 of those vets were found to be HCV infected.8

There are other subpopulations with elevated rates of HCV infections, notably 

prisoners. As many as one in three prisoners are infected with HCV.9

Not long ago, treatment options for HCV were relatively poor, but this situation 

has changed dramatically in recent years. In the late 1990s, the development of 

interferon plus antiviral therapy and then pegylated interferon-based therapy—a 

difficult to tolerate and expensive treatment, with a 50–80 percent cure rate— 

marked a major step forward.10 Within the last year, however, a new and apparVerDate Mar 15 2010 17:31 Dec 14, 2015 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 Z:\ACTIVE\120314.TXT PAULIN
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Hepatitis C,’’ available at: http://hcvadvocate.org/hepatitis/factsheets_pdf/Brief_History_HCV.pdf; 

and U.S. Department of Veterans Affairs, ‘‘Interferon and Ribavirin Side Effects,’’ available at: 

http://www.hepatitis.va.gov/provider/reviews/treatment-side-effects.asp. 11 Centers for Disease Control and Prevention, ‘‘Hepatitis C FAQs for Health Professionals,’’ 

available at: http://www.cdc.gov/hepatitis/HCV/HCVfaq.htm#. 12Food and Drug Administration, ‘‘FDA Approves First Combination Pill to Treat Hepatitis 

C,’’ October 10, 2014, available at: http://www.fda.gov/NewsEvents/Newsroom/PressAnnounce 

ments/ucm418365.htm. 13 Andrew Pollack, ‘‘Harvoni, a Hepatitis C Drug From Gilead, Wins F.D.A. Approval,’’ New 

York Times, October 10, 2014, available at: http://www.nytimes.com/2014/10/11/business/ 

harvoni-a-hepatitis-c-drug-from-gilead-wins-fda-approval.html?_r=0. 14Gretchen A. Jacobson, Sidath Viranga Panangala, and Jean Hearne, ‘‘Pharmaceutical Costs: 

A Comparison of Department of Veterans Affairs (VA), Medicaid, and Medicare Policies,’’ A Congressional Research Service Report for Congress, January 19, 2007, available at: https:// 

www.hsdl.org/?view&did=713133. 15 National Committee to Preserve Social Security and Medicare, ‘‘Price Negotiation for the 

Medicare Drug Program: It is Time to Lower Costs for Seniors,’’ October 2009, available at: 

http://www.ncpssm.org/pdf/price_negotiation_part_d.pdf; Austin Frakt, Steven D. Pizer, Roger 

Feldman, ‘‘Should Medicare Adopt the Veterans Health Administration Formulary?’’ Health Economics, April 2011, available at SSRN: http://ssrn.com/abstract=1809665. 16 U.S. Department of Veterans Affairs, ‘‘Pharmacy Benefits Management Services,’’ available 

at: http://www.pbm.va.gov/PBM/PharmaceuticalPrices.asp. 17Peter Loftus, ‘‘New Hepatitis Drugs Vex Prisons,’’ Wall Street Journal, April 24, 2014, available at: http://online.wsj.com/articles/SB10001424052702304311204579510054146055222. 

ently far superior treatment has emerged. The drug manufacturer Gilead obtained 

Food and Drug Administration (FDA) approval to market the oral antiviral sofosbuvir (brand name Sovaldi), which evidence suggests offers an 80–95 percent cure rate 

in most patients after 12–24 weeks of treatment.11

Treatment options for Hepatitis C appear to be fast evolving. In October of this 

year, the FDA approved a new drug combining sofosbuvir with ledipasvir, sold by 

Gilead under the brand name Harvoni. The combination product is approved for 

treatment of Hepatitis C in people with HCV genotype I, the most common type in 

the United States, and is the first treatment for people with this genotype that does 

not also require interferon or the antiviral ribavirin.12 Other products and other 

combination products are likely to come on the market soon. 

Along with apparently exceptional cure rates and low side effects, the other exceptional feature of Sovaldi and Harvoni is the exceptionally high prices that Gilead 

is charging. The company is charging $1,000 for each sofosbuvir pill, meaning the 

cost of a 12-week course of treatment is $84,000. Gilead’s price for Harvoni is $1,125 

a pill, or $94,500 for a 12-week course of treatment.13 Individuals may be prescribed 

different courses of treatment, so costs may be lower ($63,000 for a shorter course 

of Harvoni); and in many cases may be much higher either because of a longer duration of treatment or combination with certain other medications ($150,000 for sofosbuvir in combination with Johnson & Johnson’s simeprevir (brand name Olysio)). 

The Veterans Administration is, of course, the best Federal Governmental model 

of pharmaceutical procurement. Thanks to a multi-pronged procurement system 

that includes statutorily mandated price reductions and the ability of the agency to 

negotiate with suppliers and to adjust its formulary,14 the VA is commonly able to 

obtain drugs at a price that is 40 percent or more below published wholesale 

prices.15

The VA has negotiated an arrangement with Gilead to obtain sofosbuvir at a more 

than 40 percent price discount—a significant cut, but still leaving the drug costing 

$594 per pill. The price for Harvoni is $829 per pill.16 The Federal Bureau of Prisons is able to obtain the same discounts as the VA; state prisons, which house a 

majority of the incarcerated in the United States, are not.17

Prices in the range of $84,000 for a course of pharmaceutical treatment are, unfortunately, becoming increasingly common, especially for cancer drugs and biologics. 

In most cases, however, drug makers charge such extraordinary prices for products 

that serve limited patient populations. 

Hepatitis C is a different case altogether. There is a very large patient population—at least 3.2 million, and perhaps many more. 

Neither private nor public payers—nor the health care system overall—can afford 

to provide an $84,000 per patient treatment to every person with HCV. 

The math is quite startling: 

3.2 million patients x $84,000/patient = $268.8 billion. 

For the VA alone, assuming a price of $50,000 per patient, the cost just to treat 

those currently under VA care and diagnosed with Hepatitis C would be $8.5 billion 

(170,000 patients x $50,000/patient). Assuming 1 million veterans with HCV (a low 

34 

18 Andrew Pollack, ‘‘Harvoni, a Hepatitis C Drug From Gilead, Wins F.D.A. Approval,’’ New 

York Times, October 10, 2014, available at: http://www.nytimes.com/2014/10/11/business/ 

harvoni-a-hepatitis-c-drug-from-gilead-wins-fda-approval.html?_r=0. 19 National Association of Medicaid Directors, ‘‘Evidence-Based Reporting Critical to Decisions 

on Sofosbuvir and Health Care Innovations,’’ May 20, 2014, available at: http://Medicaid 

directors.org/sites/Medicaiddirectors.org/files/public/namd_statement_med_project_report_ 140520_3.pdf. 20 Illinois Department of Healthcare and Family Services, ‘‘Prior Authorization of Sovaldi and 

Other Medications for the Treatment of Chronic Hepatitis C,’’ August 8, 2014, available at: 

http://www.hfs.illinois.gov/assets/080814n2.pdf. 21 Idaho Department of Health and Welfare, ‘‘Idaho Medicaid—Prior Authorization Therapeutic Criteria for Sofosbuvir (Sovaldi),’’ May 23, 2014, available at: http://www.healthand welfare.idaho.gov/Portals/0/Medical/PrescriptionDrugs/HepatitisCAgentsGuidelines.pdf. 22 Caroline Humer and Deena Beasley, ‘‘Insurers Scrutinize Drug Costs After $84,000 Sovaldi 

Surprise,’’ Reuters, May 29, 2014, available at: http://www.reuters.com/article/2014/05/28/usahealthcare-hepatitisc-insight-graphi-idUSL1N0OD1F820140528. See also Julie Appleby, ‘‘There’s 

a Life-Saving Hepatitis C Drug. But You May Not Be Able to Afford It,’’ Kaiser Health News, 

March 3, 2014, available at: http://kaiserhealthnews.org/news/insurers-debate-who-should-getcostly-hepatitis-c-drug/; Drew Armstrong, ‘‘Hepatitis C Drug Price Limiting State Medicaid Approvals,’’ Bloomberg, March 5, 2014, available at: http://www.bloomberg.com/news/2014-03-05/ 

hepatitis-c-drug-price-limiting-state-Medicaid-approvals.html ; Jonathan D. Rockoff, ‘‘Sales Soar 

estimate of 4 percent prevalence among approximately 25 million veterans), the cost 

to provide treatment to all of them would be $50 billion. 

These are rough numbers, of course, because of the uncertainty over the exact size 

of the patient population and varying possible per patient costs. But the rough numbers are sufficient to show how Gilead’s pricing precludes universal treatment. 

Now, it is important to emphasize that sofosbuvir treatment for HCV infection is 

still in its early days, so it is too soon to have complete confidence that the drug 

is as efficacious as early results seem to suggest, and too soon to suggest that everyone with HCV should receive the treatment, irrespective of genotype and how their 

condition has progressed. 

Yet there is some reason to believe that treatment should be universal and immediate, and Gilead itself is making this claim. ‘‘Gilead and some doctors make the 

case that even if liver damage is not serious, people with a chronic virus infection 

can have various other health problems, including an increased risk of heart attack. 

Treating the disease early is better, they argue, because it avoids liver damage to 

begin with.’’ 18

Without making any claims here about the validity of this view, it is important 

to analyze its implications and appropriate policy options. 

II. RATIONING IS HERE

The price of sofosbuvir and the size of the patient population guarantees one 

thing: The treatment will be rationed. 

Insurers and physicians will try to ration the drug on a priority basis, making 

it available only to the sickest patients, but there is absolutely no doubt that it will 

be rationed. 

Indeed, rationing is already underway. Although some formulary and prescribing 

decisions are being made against the backdrop of the remaining uncertainty over 

the efficacy of sofosbuvir, prescribing restrictions are explicitly informed by the unmanageable cost of the drug. 

Explained the National Association of Medicaid Directors in a recent statement: 

‘‘The potential for eliminating hepatitis C is an exciting one. However, the high cost 

of sofosbuvir (branded Sovaldi), at $1,000 a pill, requires careful consideration of 

how to responsibly decide how to best use this new treatment option, especially in 

light of the three million people currently diagnosed with hepatitis C in the United 

States.*** However exciting these new treatments are, the unprecedented nexus 

of cost and widespread demand threaten to disrupt the health care landscape in the 

near term.’’ 19 The statement was released in conjunction with a report reviewing 

and raising questions about the published studies on sofosbuvir. 

States are limiting access to the drug, with cost considerations narrowing availability beyond the criteria suggested by treatment guidelines. In Illinois, Medicaid 

will provide sofosbuvir only to patients meeting 25 separate criteria, including that 

they have advanced Hepatitis C and no evidence of recent substance abuse or treatment.20 In Idaho, Medicaid treatment guidelines require patients to have advanced 

liver disease and no indication of substance abuse within the last six months.21

Summarizes Reuters in a news account describing the national scene: ‘‘Some insurers have already put conditions on who can get the drug, and states including 

California and Texas have slowed or put treatment on hold while they study what 

to do.’’ 22

35 

for Pricey Hepatitis Drug Sovaldi,’’ Wall Street Journal, March 31, 2014, available at: http://online.wsj.com/articles/SB10001424052702303978304579473273033614530; Troyen Brennan and 

William Shrank, ‘‘New Expensive Treatments for Hepatitis C Infection,’’ JAMA 2014;312(6):593- 

594. 23Tufts Center for the Study of Drug Development, ‘‘Cost to Develop and Win Marketing Ap- proval for a New Drug Is $2.6 Billion,’’ November 18, 2014, available at: http://csdd.tufts.edu/ 

news/complete_story/pr_tufts_csdd_2014_cost_study. 24Gilead, ‘‘Gilead Sciences Announces First Quarter Results,’’ April 22, 2014, available at: 

http://investors.gilead.com/phoenix.zhtml?c=69964&p=irol-newsArticle&ID=1920785. 25Gilead, ‘‘Gilead Sciences to Acquire Pharmasset, Inc. for $11 Billion,’’ November 21, 2011, 

available at: http://investors.gilead.com/phoenix.zhtml?c=69964&p=irol-newsArticle&ID=1632335 

&highlight=. 26Pharmasset, Inc. Form 10-K, November 14, 2011, available at: http://www.sec.gov/Archives/ 

edgar/data/1301081/000119312511311300/d225717d10k.htm. 

When the Congress debated the Affordable Care Act, there was a heated national 

discussion about rationing of health care. Well, rationing is already upon us, and 

it has nothing to do with the Affordable Care Act. It does have a great deal to do 

with government policy, however. Gilead is able to impose outrageous prices because 

it possesses a government-granted monopoly, through the grant of patents and other 

exclusivities. The government has in its power the ability to overcome these monopoly barriers, and it should. I discuss mechanisms to do so below. 

It is worth noting the specific nature of the rationing of sofosbuvir that is now 

occurring and will continue as long as prices remain in the current range. This is 

not rationing because of the real and unavoidable cost of providing care—of paying 

for doctors and nurses, maintaining hospitals, operating sophisticated medical 

equipment, or even the expense of developing new drugs. It is rationing imposed because of artificial monopolies—something far more objectionable, and much more 

easily addressed. 

III. RESEARCH AND DEVELOPMENT: NO JUSTIFICATION FOR SOVALDI PRICING

Big Pharma typically justifies the high price of medicines by referencing research 

and development (R&D) costs. Pharmaceutical R&D is costly, risky and characterized by delayed payouts, the argument goes, so prices must be high to incentivize 

investment and reward success. But the income stream from Sovaldi is so extraordinary that the R&D rationalization holds no water. 

A new study by the industry-funded Tufts Center for the Study of Drug Develop- ment pegs the cost of developing a new molecular entity at $2.6 billion.23 This figure, which relies on secret industry data, has been widely ridiculed for being too 

high; but it is important to note that it is risk adjusted and takes into account the 

cost of capital—in other words, that figure is intended to represent the cost not just 

of successfully developing a drug, but of the failures incurred along the way, as well 

as time costs. Gilead practically covered this cost in just the first quarter of revenues from Sovaldi! 24

We know something as well about Gilead’s actual costs. The company acquired the patents to sofosbuvir through its acquisition of the firm Pharmasset for $11 billion in 2011. Gilead will cover that expense with roughly a year’s revenue from 

Sovaldi. 

Pharmasset’s key assets were its rights to the product that became sofosbuvir. 

The product was amidst Phase II tests and just beginning Phase III tests for some 

genotypes at the time Gilead acquired Pharmasset.25 Gilead was willing to pay so 

much for the firm because it saw the potential for the drug candidate that became 

sofosbuvir. The $11 billion purchase price had nothing to do with Pharmasset’s R&D 

investment in what became sofosbuvir. That investment in the three years prior to 

Gilead’s acquisition, as detailed in Pharmasset’s 10-K filings, was a very modest 

$62.4 million ($6.891 million in 2009, $16.431 million in 2010 and $38.332 million 

in 2011; total does not include lesser expenses not attributed to any particular 

project).26 By way of comparison, Gilead is earning roughly $200 million every week 

from sales of Sovaldi. 

Gilead has not tried to justify its pricing for Sovaldi through the tried-and-true 

reference to R&D costs, because even under Big Pharma’s trumped up claims about 

R&D costs, Sovaldi revenue far exceeds any potential claim to reasonable return on 

investment. 

The company has instead chosen to rely primarily on the claim that sofosbuvir offers value for money, in the sense that an $84,000 course of treatment is cheaper 

than the cost of a liver transplant or other late-stage interventions necessary for 

some people with Hepatitis C. This is a creative rationale for an industry that typically disdains such cost-benefit analyses, insisting that patients should be entitled 

to treatment without regard to any financial cost-benefit analyses. 

36 

27 Bill Berkrot, ‘‘Merck Four-Week Hep C Regimen with Gilead’s Sovaldi Comes Up Short,’’ 

Reuters, November 9, 2014, available at: http://www.reuters.com/article/2014/11/10/us-merck-cohepatitis-idUSKCN0IU00K20141110. 28 Abbvie, ‘‘AbbVie Submits New Drug Application to U.S. FDA for its Investigational All Oral 

Interferon Free Therapy for the Treatment of Hepatitis C,’’ April 22, 2014, available at: http:// 

abbvie.mediaroom.com/2014-04-22-AbbVie-Submits-New-Drug-Application-to-U-S-FDA-for-its-Investigational-All-Oral-Interferon-Free-Therapy-for-the-Treatment-of-Hepatitis-C. 29See James Love and Thiru Balasubramamian, ‘‘Price Evolution of Antiretroviral Drugs 1996 

to 2002 Maryland Reimbursements for Medicaid Program,’’ August 28, 2003, available at: http:// 

keionline.org/sites/default/files/ER_James_Love_Thiru_Balasubramaniam_Maryland_Medicaid_ 

ARV_prices_20030828.pdf. 30 Congressional Budget Office, ‘‘How Increased Competition from Generic Drugs Has Affected 

Prices and Returns in the Pharmaceutical Industry,’’ July 1998, available at: http://www.cbo.gov/ 

sites/default/files/pharm.pdf (see p. 20). Price rises for brand-name drugs after they are first 

placed on the market are commonplace and can be extraordinary, a reminder that—absent policy interventions—the price for sofosbuvir may well rise considerably in the years ahead. See 

General Accounting Office, ‘‘Brand-Name Prescription Drug Pricing: Lack of Therapeutically 

Equivalent Drugs and Limited Competition May Contribute to Extraordinary Price Increases,’’ 

December 2009, available at: http://www.gao.gov/new.items/d10201.pdf; and Robert Langreth, 

‘‘Big Pharma’s Favorite Prescription: Higher Prices,’’ Bloomberg BusinessWeek, May 8, 2014, 

available at: http://www.businessweek.com/articles/2014-05-08/why-prescription-drug-priceskeep-rising-higher#p2. 31 Congressional Budget Office, ‘‘How Increased Competition from Generic Drugs Has Affected 

Prices and Returns in the Pharmaceutical Industry,’’ July 1998, available at: http://www.cbo.gov/ 

sites/default/files/pharm.pdf. (The rising prices of generics in the United States over the last 

year and the diminished benefit of generic competition is surely due in considerable part to the 

reduction in number of generic manufacturers, and the growing interconnections between generic and brand-name companies, including through pay-to-delay and other licensing arrangements, as well as the outright brand-name company acquisition of generic firms.) 32 Ed Silverman, ‘‘If Abbvie Discounts Its Hep C Drug, Would Pricing Reach a Tipping Point,’’ 

Wall Street Journal, October 14, 2014, available at: http://blogs.wsj.com/pharmalot/2014/10/14/ifabbvie-discounts-its-hep-c-drug-would-pricing-reach-a-tipping-point. 

In any case, the ultimate refutation of this claim is simple: The price is just too 

much. The system can’t, and won’t, pay—at least not for everyone who potentially 

needs treatment. 

IV. BRAND-NAME COMPETITION OFFERS NO CURE

What then is to be done? Some have held out hope that competition from new 

Hepatitis C products will lower prices, either through direct price competition or by 

enabling payers to negotiate prices down. But there is very little chance that competition from new products will lower prices anywhere near enough. 

A new combination regimen from Merck and including sofosbuvir has recently 

failed to show good results.27

However, Abbvie is seeking approval for a new product that may show greater 

promise and constitute a legitimate alternative to sofosbuvir for patients with HCV 

genotype 1, the most common type in the United States.28 But even assuming 

Abbvie’s product, and perhaps others in the pipeline, do gain marketing approval 

and offer comparable benefits to sofosbuvir for certain patients, they are unlikely 

to bring steep drops in price. 

Brand-name companies do not generally engage in robust competition over price 

while their products remain on patent, instead behaving more as oligopolists. New 

entrants into a class not infrequently peg their prices above those of existing sellers. 

This has been notably true in the instance of HIV/AIDS drugs, where new drugs 

in class typically sell at prices comparable to, or, not infrequently, more than earlier 

entrants; new classes of antiretrovirals are commonly priced above prior ones; and 

prices tend to increase annually throughout the entire market.29 The Congressional 

Budget Office (CBO) has found these trends to be generally true: In four out of five 

therapeutic classes examined by the CBO, the breakthrough product price continued 

to rise even after the introduction of me-too, brand-name competitors.30

By contrast, generic competition does lower price, but—in keeping with the experience with limited competition among brand-name suppliers—prices tend to fall 

only modestly with one or a few competitors. The steep price reductions from generic competition are realized only with large numbers of competitors in the 

market.31

Indeed, although there has been considerable talk about a potentially lower price 

from Abbvie for its competitor product, there is little reason to expect dramatic price 

reductions. Investment analysts are now speculating that the company may price 

its drug 10–20 percent below Gilead.32 For a product as expensive as Sovaldi, this 

would represent a non-trivial savings on the order of $15,000 per patient. But such 

37 

33Troyen Brennan and William Shrank, ‘‘New Expensive Treatments for Hepatitis C Infection,’’ JAMA 2014;312(6):593–594. (From the chief medical officer and chief scientific officer for 

CVS Caremark: ‘‘The ultimate approach to cost will be lower prices, which will occur as more 

products create competition. However, it will likely entail narrower formularies, in which the 

physician choice of a particular medication is limited by the deals negotiated by insurers and 

pharmacy benefit managers. Even then, the costs could still be very high—restrictive 

formularies have led to discounts of 30% to 40% for branded medications, not the greater than 

95% discounts that occur when drug patents expire and generic competitors enter.’’) 34Gilead, ‘‘Gilead Announces Generic Licensing Agreements to Increase Access to Hepatitis 

C Treatments in Developing Countries,’’ September 15, 2014, available at: http://www. 

gilead.com/news/press-releases/2014/9/gilead-announces-generic-licensing-agreements-toincrease-access-to-hepatitis-c-treatments-in-developing-countries. Gilead’s licensing deal for developing countries has been subject to considerable criticism (see Ketaki Gokhale, ‘‘Gilead Licenses Hepatitis Therapy in India Amid Price Criticism,’’ Reuters, available at http:// 

www.bloomberg.com/news/2014-09-15/gilead-licenses-sovaldi-to-mylan-others-for-developing-markets.html), not without reason, but the company should be given credit for putting forward a 

legitimate licensing scheme that will likely make sofosbuvir available in poor countries for a 

price 1 percent or less of what is charged in the United States. 35 ‘‘Whenever an invention described in and covered by a patent of the United States is used 

or manufactured by or for the United States without license of the owner thereof or lawful right 

to use or manufacture the same, the owner’s remedy shall be by action against the United 

States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.’’ 36 In 2001, in the midst of the anthrax scare, Secretary of Health and Human Services Tommy 

Thompson, at the urging of Senator Charles Schumer, began discussion of exercising Sec. 1498 

authority to ensure the government was able to build emergency reserves of ciprofloxacin to prepare for the possibility of a bioterrorist attack. (Matt Fleischer-Black, ‘‘The Cipro Dilemma— 

In the Anthrax Crisis, Tommy Thompson Distorted Patent Law to Save Public Health. Good 

Move?’’ The American Lawyer. January 2002, available at: http://www.cptech.org/ip/health/cl/ 

cipro/americanlawyer012002.html.) 

Sen. Schumer argued, ‘‘[f]irst, Bayer can only produce so much Cipro, and we should not put 

our best response to anthrax in the hands of just one manufacturer. Second, buying Cipro only 

from Bayer—who charges a lot more than generic manufacturers would—means we spend a lot 

Continued 

a price reduction would not be nearly enough to reduce pressure on payers, or to 

avoid rationing. 

If the Abbvie product turns out to be a close substitute of sofosbuvir for patients 

with HCV genotype 1 and of comparable efficacy, and if Abbvie does evidence an 

interest in competing on price, then perhaps the VA and other payers willing and 

able to engage in hard bargaining will be able to reduce prices further. Even so, 

the extraordinary high starting point established by Gilead makes it almost impossible for negotiations to succeed at lowering price to a tolerable level.33

V. THE IMPERATIVE OF PUBLIC USE OR ACQUISITION

Ultimately addressing the sofosbuvir pricing problem—and avoiding both unjustified drain on the pocketbooks and treasuries of consumers and private and government insurers, and needless rationing of this apparently important medicine—will 

require a government licensing or acquisition arrangement. There is no doubt that 

generic producers can make and profitably sell sofosbuvir at prices that are two orders of magnitude cheaper than the Gilead price. With marginal pricing, the drug 

can be made available to everyone who is clinically indicated to receive it, while 

Gilead can be provided some fair compensation. Gilead has never claimed that its $84,000 price reflects manufacturing costs. To 

its credit, the company has announced a discount and licensing arrangement for developing countries. Gilead will make sofosbuvir available in India for $1,800 for a 

course of treatment. It has voluntarily licensed seven Indian firms to product the 

drug, and there is every reason to expect their price to be far below the $1,800 level 

set by Gilead.34

In the United States, there is a well-established method for the government to 

use patented inventions without permission of the patent owner, via 28 U.S.C. 

1498(a).35 Sec. 1498 establishes an absolute right for the government and its contractors to use patented inventions, with the only limitation being that reasonable 

compensation must be paid. 

Sec. 1498 is most commonly used by contractors, notably defense contractors, but 

its reach extends far beyond the defense sector. Following the spread of anthrax by 

postal mail in 2001, the use of Sec. 1498 was contemplated to build a stockpile of 

ciprofloxacin against potential bioterrorist threats. Although Sec. 1498 was not employed, it was against the backdrop of a government use license threat that Bayer, 

the manufacturer of then-patent protected ciprofloxacin, lowered its price 

significantly.36

38 

more and receive a lot less. Hopefully, we won’t even need to use the Cipro we already have 

on hand, but if we make arrangements to purchase it from multiple generic drug manufacturers, 

we’ll have it if we need it.’’ (Randall Willis, ‘‘Infringement for the public good?’’ Modern Drug 

Discovery, May 2005, available at: http://pubs.acs.org/subscribe/archive/mdd/v05/i05/html/ 

05pap.html) HHS had previously negotiated a price of $1.77 per tablet for Cipro. On October 22, HHS an- nounced a newly negotiated price of $0.95 per tablet for a purchase of 100 million tablets. Purchasing 100 million tablets at the new price saved the government and taxpayers $82 million. 

Furthermore, the negotiated agreement provided the government with the option of making a 

subsequent purchase of 100 million tablets at $0.85 per tablet as well as the option of a third 

100 million tablets purchase at $0.75 per tablet. (HHS Press Office, ‘‘HHS. Bayer, Agree to 

Cipro Purchase,’’ October 24, 2001, available at http://archive.hhs.gov/news/press/2001pres/ 

20011024.html.) It took less than one week from the first public murmurings of government use 

for the government to obtain a nearly 50 percent discount. 

Also worth noting: In the 1960s, the VA used Sec. 1498 to procure a generic version of the 

tranquilizer meprobamate at a more than 95 percent discount. (Donald McNeil, ‘‘U.S. Weighs 

the Hidden Cost of its Pharmacy Bill,’’ October 17, 2001, available at: http://www. 

freerepublic.com/focus/news/549769/posts.) 37 Health Resources and Services Administration, ‘‘About the Ryan White HIV/AIDS Program,’’ available at: http://hab.hrsa.gov/abouthab/aboutprogram.html. 

It is also worth noting other contexts in which the government issues non-voluntary licenses on pharmaceutical inventions, particularly in the context of efforts 

to overcome anti-competitive practices. Licenses have been issued to overcome collusive deals between brand-name and generic firms to delay generic competition (payto-delay cases) and to mitigate the anti-competitive impact of mergers. 

What would a government use license look like for sofosbuvir and related 

products? 

Under a traditional government use license approach, the Federal Government 

would authorize generic manufacturers to make and sell the product for its use— 

in this case, for distribution to patients under its care. 

The scope of the license could vary considerably. The license could be to treat patients served only by a particular agency—the Department of Veterans Affairs, for 

example, or the Federal Bureau of Prisons. It could cover all government programs, 

including Medicaid and Medicare. It could also be designed to cover all Hepatitis 

C patients in the United States, if the U.S. Government were to create a program 

to provide pharmaceutical treatment for all Hepatitis C patients for whom treatment is clinically indicated. The Ryan White HIV/AIDS program is an example of 

a disease-specific Federal insurance and treatment program, though it is a meanstested program.37

With the ability to negotiate scaled-up purchases from generic makers anywhere 

in the world that satisfy quality considerations, the government could likely obtain 

a course of a treatment at a cost of several hundred dollars per patient. 

On top of the cost of purchase, reasonable compensation would need to be provided to Gilead. There is a fairly rich case law in determining fair compensation 

under Sec. 1498, which looks to a wide range of factors, including licensing practices 

within the industry. Within the pharmaceutical sector, licenses are common, and aggregate around 5 percent, though rates often rise considerably higher. In this instance, Gilead would have a good claim for a much higher royalty. A royalty rate 

of 100 percent would double the price of the product, but likely still keep costs well 

below $1,000. Even if Gilead were paid a royalty of $1,000 per patient, costs might 

be as little as $1,200 per patient. Even with a per patient royalty of $5,000, the calculus of providing treatment would be revolutionized. 

It’s worth underscoring just how revolutionary would be such a price reduction. 

At $1,200 per patient, the cost to treat 3.2 million patients would be $3.84 billion— 

as compared to $268 billion at the $84,000 price. For the VA, the price to treat 

170,000 patients would be $204 million—as compared to $8.5 billion at the current 

discount price. For a veteran patient population of 1 million, the cost would be $1.2 

billion—as compared to $50 billion. 

With a $5,000 per patient royalty, the costs would be $16.6 billion for the entire 

U.S. population, $884 million for 170,000 vets and $5.2 billion for a veteran population of 1 million. 

Apart from the political will to pursue such an approach, there would be significant issues to address. These include: 

• Establishing a fair and reasonable royalty that satisfies a reviewing court if 

challenged by Gilead. Courts tend to look at a wide range of factors, including royalty rates for comparable licenses, the licensor’s policy to maintain its patent monopoly, the advantage of the patented invention over alternatives, and the outcome 

39 

38Fifteen frequently referenced ‘‘Georgia Pacific factors’’ were elaborated in Georgia-Pacific 

Corp. v. United States Plywood Corp., 318 FSupp 1116, 6 USPQ 235 (SD NY 1970). 39See U.S. Department of Justice, ‘‘History of the Federal Use of Eminent Domain,’’ available 

at: http://www.justice.gov/enrd/History_of_the_Federal_Use_of_Eminent_Domain.html as well as 

discussion at Kirby Forest Industries, Inc. v. United States, 467 US 1 at 4–5. If the government 

were to use its eminent domain powers to obtain a license to rely on Gilead’s data, it would 

be required to pay ‘‘just compensation,’’ pursuant to the Fifth Amendment. There would be a 

strong argument that just compensation should be zero, since Gilead would already be paid compensation for a license to use a product otherwise given monopoly protection. An alternative 

compensation approach would look to the cost of the clinical trials undertaken by Gilead to obtain FDA approval for sofosbuvir, and for the Federal Government to pay a fair share for the 

cost of those trials. This approach is currently followed for use of pesticide testing data under 

the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). See Robert Weissman, ‘‘Public 

Health Friendly Options for Protecting Pharmaceutical Registration Data,’’ International Journal of Intellectual Property Management, vol. 1, no. 1/2, 2006, available at: http:// 

www.essentialaction.org/access/uploads/IJIPM1101Weissman–5.pdf. Since clinical testing costs 

for sofosbuvir were in the$100 million range, paying for a portion of these costs would not significantly add to the amount the government would pay Gilead. 40 James Love, ‘‘Non-voluntary Use of Patents for Drugs to Treat the Hepatitis C Virus in the 

United States: Mechanisms Available to the Federal Government, State Governments and Private Actors,’’ July 18, 2014, available at: http://keionline.org/sites/default/files/Non-voluntary_ use_HCV_patents_USA.pdf. 41 Andrew Pollack, ‘‘Gilead’s Hepatitis C Drug, Sovaldi, Is On Pace to Become a Blockbuster,’’ 

New York Times, July 23, 2014, available at: http://www.nytimes.com/2014/07/24/business/salesof-hepatitis-c-drug-sovaldi-soar.html?_r=0. 

of a hypothetical arms-length negotiation, but there is considerable variation in the 

standard for reasonableness imposed by courts.38

• Overcoming the ‘‘data exclusivity’’ rights that Gilead obtains as the party to 

have obtained marketing approval for sofosbuvir. These rights prevent generic firms 

from relying on Gilead’s clinical trials in order to obtain FDA marketing approval, 

for a period of five years. Government use of the sofosbuvir patents pursuant to Sec. 

1498 would not include a right to rely on Gilead’s testing data. The government 

might solve this problem by using its broad eminent domain authority to acquire 

a license to rely on the test data.39 It might gain Gilead’s agreement to rely on the 

test data as part of a negotiation over the price of compensation for the patent license. Or, it could, in theory, if it chose, repeat the clinical trials needed to obtain 

FDA approval. 

A second approach to non-voluntary acquisition of a right to use Gilead’s patents, 

conceptualized by James Love of Knowledge Ecology International, would be a patent buyout.40 Under this approach, the Federal Government would simply purchase 

from Gilead the entire rights to the sofosbuvir patents, exclusivities and know-how. 

In practical terms, the primary difference between this approach and a government 

use license would be that a judgment would be made on the overall compensation 

to be paid to Gilead for use of its patents and associated rights, rather than making 

royalty payments on a per pill or per patient basis. But underlying the idea is a 

different theoretical approach. 

See also James Love and Robert Weissman, ‘‘A Patent Buy-Out of Hepatitis C 

Treatments, the Case of the United States,’’ KEI Policy Note, forthcoming. 

At its core, the idea would be to assess how much Gilead is likely to earn from 

the American market for sales of sofosbuvir, make some modifications as mentioned 

below, and then pay the company the entirety of that revenue stream. Why would 

the government do this? Because for almost exactly the same amount of money as 

Americans are going to pay Gilead for provision of sofosbuvir to a limited pool of 

patients, the government could provide the drug to everyone for whom it is clinically 

indicated. 

In the first half of 2014, Gilead racked up more than $5 billion in sales in the 

United States alone, with sofosbuvir provided to just 70,000 patients.41 Imagine that this trajectory continues: Sovaldi becomes a $10 billion seller in the United States, 

and 150,000 people are treated annually. The drug’s key patents expire in 2025 and 

2029. Let’s assume 10 years of monopoly protection for the product. Gilead will earn 

$100 billion—just from within the United States—while treatment is rationed. Here’s how the patent buyout approach might work: Gilead is paid $100 billion 

right now. Treatment is made available to everyone who needs it, as soon as suppliers can ramp up. With a marginal cost of production of say, $200, the cost of providing medicine to each of 3 million patients is only an additional $600 million. Now, $100 billion is an extraordinary sum of money. But the point is, Americans 

are set to pay this much to Gilead anyway. With Gilead’s current monopoly, we pay 

that astronomical sum and get rationing; the patent buyout alternative would at 

least enable us to provide near-immediate treatment for everyone in need, with no 

rationing. 

40 

42See Peter B. Bach, ‘‘Could High Drug Prices Be Bad for Innovation,’’ Forbes, October 23, 

2014, available at: http://www.forbes.com/sites/matthewherper/2014/10/23/could-high-drug-pricesbe-bad-for-innovation; Alicia Caramenico, ‘‘Unaffordable Lifesaving Drugs—The List is Growing,’’ AHIP (America’sHealth Insurance Plans) Coverage blog, September 29, 2014, available at: 

http://www.ahipcoverage.com/2014/09/29/unaffordable-lifesaving-drugs-the-list-is-growing. 

Of course, there could be substantial modifications to the $100 billion figure. In 

light of the prospect of a competing treatment, we could imagine that Gilead’s revenues will diminish over time and that an effective buyer could negotiate lower 

prices. We might decide that Gilead’s current price is simply too high, and impose 

a fair-pricing reduction. Perhaps these adjustments cut the payment to Gilead in 

half, perhaps more. 

The buyout of Gilead’s U.S. patent and related rights could proceed through voluntary negotiation, against the backdrop of a potential use of the government’s Sec. 

1498 and/or eminent domain authority. If Gilead refused to agree, the government 

could proceed to exercise those authorities. 

The government might choose to shoulder the burden of paying for the buyout on 

its own, or it might impose a fee on other payers—health insurers and self-insuring 

employers—to share costs. One can imagine many different ways to allocate costs. 

As with the issuance of a government use license, the patent buyout approach 

plainly presents a series of challenges. Negotiating or determining compensation 

would be contentious. Apportioning costs to nongovernmental payers would be complicated and likely require legislation. As with issuance of a government use license, 

the government might choose to create a special program for Hepatitis C coverage, 

but this would be less necessary because one benefit of the patent buyout approach 

is that it would make available generic versions of sofosbuvir for the private as well 

as public sector. 

But all of these challenges can be addressed. 

And the potential complications and contentiousness of either non-voluntary approach to making sofosbuvir available at marginal cost to all who need it should 

not obscure more important realities: 

1. The present approach whereby we are at the mercy of Gilead’s monopoly control over sofosbuvir—a government-granted monopoly, at that—is morally unacceptable, because it requires the needless rationing of an important medical therapy. 

The same holds for other new Hepatitis C treatments. 

2. The deference to Gilead’s monopoly pricing for sofosbuvir is fiscally unsustainable. Sky-high prices for medicines with smaller patient populations are unacceptable, but the health care system can more easily absorb them. Gilead’s pricing 

for a product needed by a large patient population is already imposing serious 

strains on both public and private payers. 

3. Market and voluntary approaches to addressing the excessive and intolerable 

pricing of sofosbuvir are almost certain to fail. There is no reason to believe either 

brand-name competition or bulk purchasing negotiations by public or private insurers will reduce the price of sofosbuvir or competing medicines to acceptable levels. 

4. The Federal Government has the legal tools and the capacity to address these 

problems through non-voluntary licensing or patent acquisition. 

VI. THE BROADER PHARMACEUTICAL POLICY LANDSCAPE

The Hepatitis C story is unusual in that an apparently very effective drug has 

become available to treat a large patient population. 

But the pricing of sofosbuvir and other Hepatitis C treatments is no longer unusual, as high five figure and even six figure drugs become increasingly common.42

The future of pharmaceutical pricing for new drugs is coming into sharper focus: 

astoundingly high prices that drain public treasuries, impose unmanageable costs 

on private insurers and stress consumers paying out of pocket beyond their breaking 

point. This is a future of price gouging, unsustainable health care costs, and routinized rationing. 

It’s not a future we should welcome, and it’s not one that we should tolerate. 

We need to find different ways to reward innovators for research and development 

other than with patent monopolies and marketing exclusivities. Research and development does have real costs, and it is important that it be both supported and 

incentivized. But monopolies have proven an enormously inefficient way to do so, 

and now are increasingly being deployed in an unsustainable fashion. 

Real solutions are not going to come from the margins, because the pricing system 

is fundamentally broken. It’s past time for a very serious debate about how we leverage the very substantial public investment in medical R&D to ensure more acVerDate Mar 15 2010 17:31 Dec 14, 2015 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 Z:\ACTIVE\120314.TXT PAULIN
41 

43See Robert Weissman, ‘‘The Role of federally-Funded University Research in the Patent System,’’ testimony before the U.S. Senate Committee on the Judiciary, October 24, 2007, available 

at: http://www.judiciary.senate.gov/imo/media/doc/07-10-24WeissmanTestimony.pdf. 44See, for example, S. 627, the Medical Innovation Prize Fund Act, introduced by Senator Bernie Sanders, which would eliminate patent and other exclusive rights to market pharmaceuticals, and instead pay innovators from a medical innovation prize fund. 

cess to treatment.43 And it’s time also to talk about a new reward system for innovation, which pays drug developers directly for the public health benefits they confer—for their innovative contribution, and the risks taken—but permits immediate, 

marginal pricing of new drugs.44

It’s a great thing that our public and private medical research system is able to 

develop important new drug treatments. For patients, however, those treatments 

are useful only if they are accessible, and we’ve now reached a point where treatments will increasingly be restricted and rationed because brand-name drug companies have used monopolies to price them out of reach. We have to do better, and 

we can. 

Chairman SANDERS. Thank you. 

Senator BURR. Mr. Chairman, if I could apologize to the witnesses, I have got a meeting that I cannot miss. I would very much 

like to be here to ask some questions. I will leave you in sufficient 

hands. 

Chairman SANDERS. Thank you, Senator Burr. 

Let me start off by throwing out some information that I believe 

is accurate, but correct me if you think it is not. My understanding 

is that Sovaldi was developed by Pharmasset, that Pharmasset was 

purchased by Gilead for about $11 billion, is that correct? 

Mr. WEISSMAN. Yes. 

Chairman SANDERS. My understanding is that in the first year 

that the product, Sovaldi, is on the market Gilead will make about 

$11 billion and get a 100 percent return on their investment for 

purchasing Pharmasset. Is that your understanding? 

Mr. WEISSMAN. Yes. 

Chairman SANDERS. Obviously, no one can predict what happens 

in the future, but there are some estimates that Gilead can make 

as much as $200 billion on this one product alone, having bought 

the company that developed it for $11 billion. Does that sound 

roughly accurate? 

Mr. WEISSMAN. It could be more. 

Chairman SANDERS. It could be more. OK. Both of you raised the 

moral issue of a company making a huge profit, charging unbelievably high prices which results in a whole lot of people: (A) unable 

to afford the product; and (B) in the case of government agencies, 

whether it is VA or Medicaid, spending significant sums of money 

to buy that product, meaning that they have less money available 

for other needs. 

What is the moral implication of it? Are we comfortable as a nation with a product being available which can save human lives, 

but either individuals or government agencies are not able to afford 

that product the company is making unbelievably high profits? Is 

that a good way to do health care in America? 

Mr. Rother. 

Mr. ROTHER. Senator, we could have a very interesting moral 

discussion. I believe there are many moral issues raised by not only 

this situation, but health care in general. I do think that in this 

country, we have decided that for-profit institutions have a role, 

42 

particularly in the pharmaceutical arena, and we have to live with 

that. 

For me, the moral issue is not so much the profit as it is are people who need and could benefit from this therapy receiving it or 

likely to? And if we do not have a system that can assure that, I 

think that raises a very serious moral question, and we clearly do 

not in this situation because of the price. Again, I would say profits 

are part of our system, but at this point, we have to question 

whether or not we have an ability to serve a real human need. 

Chairman SANDERS. Let me ask the same question of Mr. 

Weissman. Researchers at the University of Liverpool have estimated Gilead’s production costs, or Pharmasset’s production costs 

for a full course of treatment is approximately $150 to $250 per 

person. That is less than 3⁄10 of 1 percent of the price the company 

is actually charging, which is $84,000. We also know that, based 

on the SEC filings from Pharmasset, the original developers of the 

drug now known as Sovaldi, they had intended to charge $36,000, 

not $84,000. So, how do we get to $84,000 when the developer of 

the drug wanted to charge $36,000 especially when the full course 

of treatment—the production cost—is $150 to $250? How does this 

$84,000 magically appear? 

Mr. WEISSMAN. Well, maybe one other number to throw in the 

mix before answering is the actual R&D expenditure on this product, so—— 

Chairman SANDERS. It must have been many billions of dollars, 

was it not? 

Mr. WEISSMAN. It was not. 

Chairman SANDERS. Oh. 

Mr. WEISSMAN. It was probably around $100 million. We know 

from Pharmasset’s 10(k) filings they spent about $68 million in the 

3 years prior to Gilead’s acquisition on their clinical trials. 

Chairman SANDERS. Let us repeat that. They spent $68 million 

for the research and development to develop the drug, and they are 

going to make $11 billion the first year the drug is out and perhaps 

$200 billion over the course of the life of the drug? 

Mr. WEISSMAN. That is correct. So, I think we are a long way 

from worrying about fair return on R&D investments. We are 

untethered from the R&D consideration, and I think—where did 

the $84,000 figure come from? Because they can. They did not want 

to go to six figures, because they thought that was a bad idea. It 

might look more—give them more trouble than they wanted to 

take. The nature of a patent monopoly is the monopoly seller chooses the price. 

Chairman SANDERS. So, you have a monopoly situation where 

the person who has a pill that is desperately needed by people all 

over this country and all over the world can charge anything they 

want for it? 

Mr. WEISSMAN. Right, and it is not like $36,000 is a fair price. 

That is just a different price. 

Chairman SANDERS. It is not $94,000, right. 

Mr. Rother, did you want to comment. 

Mr. ROTHER. Senator, if I could, I do think that the traditional 

justification for high prices in pharmaceuticals is obsolete, and 

Gilead, to their credit, has not tried to justify price on the basis of 

43 

R&D, because they cannot. And, that is probably true for many of 

the new specialty drugs. The price is divorced from the cost of 

development. 

In earlier public statements, the CEO of the company has clearly 

stated that they took the existing price, the standard of care preexisting, and bumped it up and set their price at maybe 20 percent 

higher. That did not take into account the vast increase in the population that would be appropriate for this. So, they really did not 

even think about the public consequences or the consequences to 

health payers, governments, insurers, individual businesses. They 

just did what I think has become common practice in the industry, 

which is that escalator pricing—taking the current price and, for 

a new product, bumping it up regardless of R&D costs. 

Chairman SANDERS. I certainly believe that when you have a 

product that saves lives and eases suffering, you want to get it out 

as widely as possible. In fact, in Egypt, where Hepatitis C is a 

very, very serious problem, Gilead is going to sell this product 

there for $10 a pill rather than the $1,000 a pill they are charging 

in the United States. How does that happen? Should the VA go to 

Egypt and buy a whole lot of product there? 

Mr. ROTHER. There are quite serious considerations among some 

of my members about sending their infected patients to Egypt. 

Chairman SANDERS. Is that something that some of your—— 

Mr. ROTHER. Absolutely. It is called medical tourism, and—— 

Chairman SANDERS. Right. 

Mr. ROTHER [continuing]. You can save quite a bit of money. 

Chairman SANDERS. So that we are clear on this: somebody in 

the United States who is not in the VA, not in Medicaid, has Hepatitis C. 

Mr. ROTHER. Right. 

Chairman SANDERS. Today, they have to pay $1,000 a pill here, or $84,000 for the treatment. Some of the people you work with are 

now suggesting that folks go to Egypt to buy that treatment for $10 

a pill. Is that what I am hearing from you? 

Mr. ROTHER. Medical tourism has actually been a phenomenon 

for a while, but this is an extreme situation—— 

Chairman SANDERS. This is extreme, yes. 

Mr. ROTHER [continuing]. Where the differential in the cost is so 

dramatic that it is hard not to think about this as a serious strategy for health insurers, or public programs, for that matter, who 

otherwise simply cannot afford this. 

Chairman SANDERS. Will—my guess is that they make money on 

selling it at $10 a pill in Egypt. Do we think they do? 

Mr. WEISSMAN. I am sure they do. I mean, they are doing some 

interesting things in terms of the licensing in developing countries 

so that—they are enabling seven Indian manufacturers, also, to 

sell in 91 countries. They will undercut the Gilead price in Egypt. 

They will undercut the Gilead price in India, as well. So, yes, at 

$800, they will make a profit, or $900, but they are not trying to 

make real profits there. 

Chairman SANDERS. Yes. 

Mr. WEISSMAN. I think what all this speaks to, and even more 

than guessing what the marginal cost is, we have a system that is 

not functioning properly. The purpose of granting a monopoly is to 

44 

incentivize R&D, and now, as Mr. Rother says—it is correct—we 

are now incentivizing something else. It is doing something else entirely. And, if we have a rational approach to thinking about this, 

the idea should be making important medical treatments available 

to everybody, really, at marginal cost. So, $200 is the cost of getting it; that is a real cost. That is the cost it should be. We have 

to incentivize and pay some kind of compensation to create some 

kind of incentive for R&D—— 

Chairman SANDERS. Right. 

Mr. WEISSMAN [continuing]. But, we should not do it by charging 

patients super-high prices. We should not do it by making health 

insurers unable to pay. 

Chairman SANDERS. This is a huge issue, which obviously, as I 

think you indicated, Mr. Rother, goes well beyond Sovaldi. And, the 

issue here is that, as you both indicated, we have got to come up 

with an approach which encourages innovation, which rewards 

innovators, which lets them make good profits, but at the same 

time, once we have that product which saves lives, we get it out 

as widely and as cost-effectively as possible throughout this country and throughout the world. Is that essentially the goal of what 

we are talking about? 

And, you indicated, Mr. Weissman, we can offer up with the idea 

of a prize. In other words, the government says, look, these are the 

challenges that we face, the illnesses we want to deal with and you 

are going to come up with a product and make a lot of money, but 

then it is ours and we are going to distribute it in a cost-effective 

way. Is that an approach that makes sense? 

Mr. ROTHER. I think it is an option that we ought to really consider, but we also need other options that maybe, I believe, are perhaps more attainable in the short term, because I think that is a 

dramatic—— 

Chairman SANDERS. You do not think the pharmaceutical industry will be supportive of—— 

Mr. ROTHER. Somehow, I just doubt that. 

Chairman SANDERS. Yes—— 

Mr. ROTHER. So, anyway, I think that demanding greater transparency, moving them toward value-based pricing would be a big 

advance. It might not have a huge impact at first, but at least we 

would have a more informed debate. At least we would be able, 

then, to have a serious discussion about alternatives and we would 

have the information that we need, which now is not available. 

Chairman SANDERS. Well, in this case, we do have. I think, Mr. 

Weissman, you indicated that R&D for this product was, what, several hundred million? 

Mr. WEISSMAN. One-hundred million. 

Chairman SANDERS. One hundred—— 

Mr. WEISSMAN. This is an unusual case. Yes, we actually have 

information. 

Chairman SANDERS. All right. So, we do know that their profit 

margin is going to be extraordinary based on R&D. But, your 

thought is transparency would be helpful throughout the process? 

Mr. WEISSMAN. Well, if I can comment, I think there is no question about that. There is this recent study from Tufts where the 

$2.6 billion estimate for the cost of developing a new pharmaVerDate Mar 15 2010 17:31 Dec 14, 2015 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6601 Z:\ACTIVE\120314.TXT PAULIN
45 

ceutical based on secret industry data is not being made available, 

and I think, you know, I agree with all the points that Mr. Rother 

made in the testimony. 

Chairman SANDERS. So, in other words, we have no reason to believe that that is necessarily accurate? 

Mr. WEISSMAN. I would say we have many reasons to believe 

that is not necessarily accurate. But, as to the point of whether the 

industry would oppose this, I am sure the industry would oppose 

your bill at first, Mr. Sanders, but the fact is that the current system is not just leading to immoral outcomes, it is ineffective at 

incentivizing R&D—both in terms of the irrational outcomes, and 

we are just not getting very much back. You could—and what actually is incentivizing quite a bit is intensive marketing and expenditures on capitalizing on the monopolies, not actually on the R&D 

side. 

So, I believe, as your legislation proposes, we would have similar 

amounts or perhaps even larger amounts available for actual R&D 

than currently is available, and to reward actual results from R&D 

than is currently done. You just would not take the hide out of consumers to pay for all the marketing of the monopolistically-protected product. 

Chairman SANDERS. I recall speaking to physicians on this issue 

who talk about the absurdity of them writing out prescriptions that 

are not filled by people who simply cannot afford to fill them, and 

think about the enormous waste in that, of people who do not get 

the medicine that they should because they cannot afford it, then 

end up in a hospital a lot sicker than they should be. 

Mr. Rother, did you want to—— 

Mr. ROTHER. Yes. I was actually going to make a point about 

physicians. We have been talking to many of the leading physicians 

in the field about this issue and they are deeply troubled. And, I 

believe we will shortly be able to hold a press conference with them 

and give voice from the clinical perspective to what they see as an 

unjustifiable—— 

Chairman SANDERS. In the sense that there is a product out 

there that their patients need—— 

Mr. ROTHER. Right. 

Chairman SANDERS [continuing]. But cannot afford, is that 

the—— 

Mr. ROTHER. Absolutely. They understand, as well, the kinds of 

tradeoffs that that kind of a price forces health systems to make 

because they are the ones then confronted with it. So, I think you 

will find a very strong clinical voice. Now, of course, there are 

many physicians who receive money from the pharmaceutical industry, so we have to acknowledge that. But, these people are the 

acknowledged leaders in the field and I think we will find they believe that the current system is not sustainable and does not work 

and we need to think about new ways of rewarding—— 

Chairman SANDERS. So, their frustration is they have patients 

who can be treated, but they are unable—— 

Mr. ROTHER. Yes. 

Chairman SANDERS [continuing]. To treat them because of the 

cost of the product. 

Mr. ROTHER. That is correct. 

46 

Chairman SANDERS. All right. What questions am I not asking? 

Mr. ROTHER. Well, I wanted to make a point—I am sorry that 

Senator Burr is not here—about cost effectiveness, because he was 

saying we could assume here that if everyone was treated, we 

would save all this money. In fact, that is not the case. The most 

authoritative body that studies the cost effectiveness of pharmaceuticals, ICER, has done a study on Sovaldi and they have concluded that the drug is not cost effective given to everyone. It could 

be cost effective if it is very focused on those people who are the 

most seriously ill, but that leaves then untreated many people who 

really are at risk. 

So, this group will be meeting once again in just a couple of 

weeks—I am going to be part of that—to look at the next generation, Harvoni, and will also bring the best independent analysis to 

whether the drug is worth it at its current cost. Of course, I do not 

know what the conclusion will be, but I just wanted to put on the 

record the fact that there has been very careful analysis of cost effectiveness and the conclusions do not support the current pricing 

of Sovaldi. 

Chairman SANDERS. Mr. Weissman, any last thoughts? 

Mr. WEISSMAN. Well, I want to thank you for holding the hearing. Again, I think that Sovaldi is a flash point issue, and we 

should say one reason is because it is such a good drug, or at least 

appears to be, based on the early results we have, whereas most 

new medicines are not. But, it is a harbinger of what is to come 

and even of what we already have. But, because this one has the 

profile it has, the high price, the large population, and apparent 

high efficacy, we really need to focus on it and, I think, really push 

for legislative approaches that deal with this particular problem as 

a way to get to a bigger discussion, but also for administrative actions. I think the administration has opportunities here to do some 

things on its own to take care of at least the current patients in 

various Federal systems, which is the bulk of the population. 

Chairman SANDERS. Well, let me conclude by thanking both of 

you for your excellent testimony. The truth is, this hearing could 

be held in any number of committees, because it goes well beyond 

Sovaldi and the fact that veterans have a disproportionately high 

percentage of Hepatitis C than the general population. The issue 

here for the Veterans Committee is that with the limited budget, 

we want to make sure all of our veterans get the health care they 

need, the quality care they need. But, there is no question in my 

mind that if we end up spending billions of dollars on this one particular drug, it is going to make it difficult for the VA to provide 

care in other areas where veterans need it. It is an issue for VA. 

It is an issue for Medicaid and it is an issue for Medicare. It is 

really an issue for the entire country. 

So, we thank you both very much for being here and look forward to continuing working with you. 

This hearing is adjourned. 

[Whereupon, at 12:51 p.m., the Committee was adjourned.] 

Æ