[Ip-health] NEJM: Universal Medicine Access — Australia’s Approach to Hepatitis C

Suerie Moon suerie.moon at graduateinstitute.ch
Fri Feb 15 02:36:42 PST 2019

Dear Ip-health readers,

Some of you may be interested in the findings of our analysis, published in
this week's New England Journal of Medicine, on how Australia has managed
to offer universal access to direct-acting antivirals for Hepatitis C
without breaking the public budget. In brief, the government implemented a
"delinkage" approach, offering lump-sum remuneration to patent-holding
suppliers in exchange for an unlimited volume of drugs. In other words,
zero to low marginal cost for each additional person treated, as there is
not a per-patient price on the medicines. It is arguably the largest
real-world experiment with delinkage at $766 million over five years (we're
just now approaching the end of year 3), with impressive evidence now
emerging on the results -- effective per-patient prices are about 1/7th
what they would have been under traditional pricing and the government
saves about US$5 billion, according to our estimates. The US states of
Louisiana and Washington are now pursuing a similar approach, and New
Zealand reportedly has followed Australia's lead.

Below are excerpts of the article. Feel free to contact us by email for
further info,

Suerie Moon

Graduate Institute of International and Development Studies


Universal Medicine Access through Lump-Sum Remuneration — Australia’s
Approach to Hepatitis C

Suerie Moon, M.P.A., Ph.D., and Elise Erickson, M.A.

N Engl J Med 2019; 380:607-610
DOI: 10.1056/NEJMp1813728



Australia’s approach to providing direct-acting antivirals (DAAs) for
patients with hepatitis C virus (HCV) suggests that, under certain
conditions, innovative approaches to payment can remove price as a barrier
to access.


In 2015, the authorities negotiated an agreement to spend approximately 1
billion Australian dollars (U.S.$766 million) over 5 years in exchange for
an unlimited volume of DAAs for

HCV from suppliers. This approach has been called the “subscription” or
“Netflix” model, and

the state of Louisiana announced in January 2019 that it was pursuing a
similar approach for

HCV. The Australian agreement is confidential, though the basic information
above has been publicly reported.1


We compiled data on government spending per drug (excluding rebates) for 24
months from March 2016, when implementation began. We estimated the number
of patients treated by dividing the total expenditure by published list
price per treatment course, taking into account that some drugs are
prescribed jointly with others. We assumed a standard treatment

course of 12 weeks, recognizing that a small proportion of patients require
8 or 16 weeks. On

the basis of patient-uptake trends, we projected the total number of
patients over 5 years to calculate the effective per-patient price under
lump-sum remuneration. We also estimated savings over traditional per-pack
pricing, assuming that traditional prices would have been 23% lower than
published list prices after confidential rebates (following the methods of
Iyengar et al.2).


If utilization rates remained at year-2 levels, a total of 104,223 patients
would be treated over 5 years, yielding a per-patient drug price of
AU$9,595 (U.S.$7,352). Initially, the government had estimated that only
61,500 of the 230,000 people living with HCV in Australia would be treated
during the term of the agreement, for a price per patient of AU$16,260
(U.S.$12,460).4 Both the government’s initial estimate and our updated
prices fall far below those paid in other countries with a per capita gross
national income similar to Australia’s — or example, U.S.$72,765
(AU$94,958) in the United States and U.S.$55,284 (AU$72,146) in Iceland for
ledipasvir– sofosbuvir.2

With traditional per-pack pricing, in contrast, the government would have
to spend AU$6.42

billion (U.S.$4.92 billion) more to treat the same number of people; or it
could treat 93,400 fewer patients with a fixed budget of AU$1 billion
(U.S.$766 million). Put another way, a minimum of 14,038 people would need
to be treated to achieve equivalence between

lump-sum and traditional pricing at an expenditure level of AU$1 billion;
this number of patients was exceeded in the first 6 months of the program.


The lower per-patient prices are a central benefit of the Australian
approach, but they are not

the only ones. Payers benefit because Australia can offer universal access
to DAAs with certainty about the cost to the public purse. The cost of
treating each additional patient is zero to marginal. Suppliers benefit as
well: the arrangement was economically feasible because the manufacturing
costs of DAAs are small relative to their price. For example, production
costs for a 12-week course of sofosbuvir have been estimated at U.S.$68 to
U.S.$136 (AU$89 to AU$177).5 Companies receive a considerable financial
reward for innovation and face reduced risk thanks to guaranteed revenue
over 5 years.


The benefit to patients and the public is that all who need the medicines
can receive them.

Australia has avoided the rationing (e.g., according to severity of
disease) that other countries have adopted for DAAs. The government also
has the incentive to encourage at-risk persons to present for treatment
earlier: each additional person treated reduces the

per-patient drug price and the number who will be left to receive treatment
after the agreement ends. Curing patients may reduce HCV transmission in
the population as well.

The arrangement is arguably the largest real-world implementation of
“delinkage,” in which

pharmaceutical innovation is rewarded separately from drug prices, a
principle that has been

widely endorsed as a way to support both innovation and access.


Can this approach be extended to other medicines? Three key conditions are
required. The payer must be able to reasonably predict volumes in order to
identify a lump sum that will yield adequate benefits over the traditional
approach. The manufacturing cost must be a relatively small proportion of
the price. And suppliers must be willing to take this nontraditional
approach and able to meet growing volumes of demand. Such agreements

may therefore be less suitable, for example, for low-priced biologics when

costs represent a large proportion of the price, or for rare-disease
products for which volumes and production capacities are limited.


The key idea to be retained — the core principle of delinkage — is that
each additional

patient does not represent a high cost to the payer, so the payer need not
unduly restrict

access. Overall, when production costs represent a small proportion of a
medicine’s price — as is the case for most patented small molecule drugs
and high-priced biologics — lump-sum remuneration for innovation may be an
effective, underused strategy for achieving universal access.

Full article available: https://www.nejm.org/doi/full/10.1056/NEJMp1813728

Suerie Moon, MPA, PhD
Director of Research, Global Health Centre and Visiting Lecturer, Graduate
Institute of Geneva
Adjunct Lecturer, Dept. of Global Health and Population, Harvard T.H. Chan
School of Public Health
Bureau P2-712, Maison de la Paix, Chemin Eugène-Rigot 2, CP 1672, 1211
Geneva, Switzerland
Tel: +41-22-908-5845       Mobile: +41-76-823-2830           Skype ID:

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