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(Bloomberg) – Medicaid plan managers are balking at the idea of paying $84,000 per patient for a new hepatitis C treatment.

Studies show that the drug, Solvadi, works better than other hepatitis C drugs and causes fewer side effects.

The manufacturer, Gilead Sciences Inc., says Solvadi will pay for itself by preventing expensive hepatitis C complications, such as liver cancer and organ failure.

“Older therapies were not sufficiently effective or tolerable to continue to be used as the standard of care,” said Gregg Alton, an executive vice president at Gilead. “We will continue to work with payers to help them understand the scientific and medical evidence.”

But Medicaid program officials say $84,000 is a lot of money.

Because the cost of the drug is so high, many state Medicaid program managers are making the drug available only to the sickest patients, according to health officials and the private insurers that administer the Medicaid plans.

Pennsylvania, for example, covers about 100,000 patients through the state’s Medicaid program.

The state had received two applications for Sovaldi as of last month, neither of which were approved by the state, said Terri Cathers, director of pharmacy for Pennsylvania’s Office of Medical Assistance Programs.

“I’m not going to deny we were in sticker shock,” Cathers said by telephone. “If the drugs are going to give our patients the best therapy and get them to cure, we want to get them. But we want to be prudent about that. ‘I think that on a federal level, drug pricing needs to be addressed.”

WellPoint Inc. (NYSE:WLP) manages claims for 4.4 million Medicaid patients in 19 states. It won’t approve a combination treatment of Sovaldi and another new drug — Johnson & Johnson’s Olysio — for anyone but patients with more advanced disease.

Sovaldi “is more costly but offers improved outcomes, particularly coupled with Olysio,” said Kristin Binns, a WellPoint spokeswoman. WellPoint plans to limit use of the two drugs together — the most expensive therapy combination — to just those with evidence of liver damage, Binns said.

State officials at Medicaid programs in Louisiana, California, Michigan and Florida said in interviews that they will only approve the use of Gilead’s Sovaldi on a case-by-case basis while they study how best to address the drug’s cost going forward.

In Colorado, officials advised doctors in a Feb. 19 letter that “new therapies for hepatitis C will not be approved” until the state finishes its review.

“Given the demand for the medication, the generally slow progression of the disease, and the rapidly changing landscape of the treatments available for hepatitis C, the department needs to do further evaluation and review to determine the the appropriate coverage criteria for Sovaldi,” officials wrote.

About 2.7 million U.S. residents carry the blood-borne virus that causes Hepatitis C. The virus can lurk quietly in the patient’s body for decades, then damage the liver in ways that lead to cancer or, in some cases, organ failure.

Patients with the disease are less likely to have a high school diploma than the average American and more likely to have an average annual income of less than $23,000, according to the U.S. Centers for Disease Control and Prevention (CDC).

Many of the patients qualify for Medicaid.

“You’ve got socioeconomic class issues here that we don’t have with cancer,” said J. Mario Molina, chief executive officer of Molina Healthcare Inc. (NYSE:MOH), which helps 11 states manage pharmacy benefits for 2.1 million Medicaid patients.

“If you’ve got a patient who is advanced and has liver disease and is about to get a liver transplant, it makes sense to give treatment,” said Molina, whose company now only approves the Gilead drug in urgent cases. The question is “what do we do about everybody else?” he said.

Treating every U.S. hepatitis C patient with Sovaldi at its list price would cost $227 billion. The country now spends a total of about $260 billion per year on all types of drugs.

Most other approved therapies for hepatitis C involve long courses of injections that boost the immune system, carry lower cure rates and produce side effects that can include nausea, anemia, insomnia and flu-like symptoms. That’s created a dilemma for states trying to balance rising health-care costs and the desire to get the best treatments to citizens.

While Victrelis, an older drug from Merck & Co., isn’t as effective, according to research, it’s priced at about $36,500 for 24 weeks of treatment, less than half the $84,000 listed cost of Sovaldi, according to Catamaran Corp., a pharmacy benefits manager.

The Centers for Medicare & Medicaid Services (CMS), which oversees Medicaid for the federal government, said it’s committed to working with states to make sure they have the best tools to get affordable drug prices.

Gilead charges different prices for drugs in different countries. It says it may sell Solvadi in India for $2,000 for the 12-week regimen. ‘Gilead’s global pricing model is based on a country’s ability to pay,” Alton said.

What doctors say

Doctors are also caught up in the debate over costs. Jonathan Fenkel, the director of Jefferson University Hospitals’ hepatitis C center in Philadelphia, has about 1,000 hepatitis C patients in his practice.

“I used to have an easy argument that treating hepatitis C was cheaper than paying for a liver transplant or liver cancer,” he said in a telephone interview. “But it’s getting a little closer.”

Some state policies may change over time.

In Pennsylvania, for example, the state’s pharmacy and therapeutics committee will meet in May to decide on a treatment policy for Sovaldi. Right now, the state pays a discounted price of about $70,000 for a course of Sovaldi and two other drugs given in combination, compared with $40,000 for an older regimen.

Cathers, the Pennsylvania Medicaid official, said she’s concerned that the high price of a drug like Sovaldi will have an effect that carries through in future years with other hepatitis C medicines.

“What are we going to have in the future when these new all-oral therapies come to market, are we going to see these escalate to $120,000?” Cathers said.

–Editors: Reg Gale, Andrew Pollack.

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