One tiny pill, one big bill. Photographer: Bob Ecker/MCT via Getty Images
One tiny pill, one big bill. Photographer: Bob Ecker/MCT via Getty Images

All over the country, state governments are grappling with the same question: “What do we do about Sovaldi?” The drug seems to be far more effective than alternatives at treating hepatitis C, a disease that, left untreated, frequently progresses to liver disease and then death. It also costs $84,000 for a course of treatment.

State governments, horrified by the cost, are reacting by slapping restrictions on how -- and in one case whether -- it can be prescribed. Many are limiting it to only the worst cases, those who already have cirrhosis. But this strategy may not work, as Governing magazine points out: Patients can sue, and they probably will.

It strikes me that we are going about this in entirely the wrong way. Instead of complaining about how much Sovaldi costs and trying to tamp down its use, why not use the drug to stage a war on hepatitis C? Why not try to get the drug into as many bodies as possible, as fast as possible, with the hope of knocking this horrible disease back down to much lower infection rates? While Sovaldi doesn’t cure every case of hepatitis C, it cures most of them. And because the disease is actually very hard to acquire, draining much of the disease’s current “reservoir” of victims might help to reduce the rate of new infections to negligible levels.

There are problems with this idea, of course. Many people who have hepatitis C don’t know it, and the disease is rare enough (about 1 in 100 people) that broad screening would probably produce more false positives than true positives, though we could certainly make a lot of progress with just screening known risk groups, such as intravenous drug users and their partners.

And then there’s the problem everyone’s already worried about: the price. Giving Sovaldi to everyone known to be infected, and actively trying to recruit more people who don’t know that they’re infected, would be really expensive. On net, it might save money by reducing transmissions and eliminating the need for even more expensive treatment of late-stage hepatitis C cases (which can involve ultra-expensive procedures such as liver transplants). But those costs are far in the future, and the cost of Sovaldi is right here and now. In a time of strapped state budgets, this is a tough sell.

On the other hand, Sovaldi doesn’t have to cost $84,000; it just does. Like most pharmaceuticals, Sovaldi production has a high fixed cost (the initial research investment) but a low marginal cost (the amount companies pay to actually manufacture the stuff). Gilead Sciences Inc., which developed the drug, has priced it not just to cover the relatively small cost of manufacturing, but also to recover its enormous research-and-development cost and the cost of trying to develop other drugs that didn’t pan out, as well as, of course, some healthy profit for its shareholders. This outrages the many people who think that all life-saving drugs should be sold at manufacturing cost plus 5 percent. But from a public-health perspective, this is great news; it means there’s a win-win opportunity here to treat more people at a lower cost.

The great thing about a high-fixed/low-marginal-cost business model is that volume can drive profits just as well as price. That is, a company that’s happy to sell 100 units at $10,000 apiece should be even happier to sell 10,000 units at $105 apiece.

What if the federal government established a hepatitis C fund and said, “We will push Sovaldi out into the whole patient population covered by government insurance, with aggressive screening for at least high-risk groups, at a price of, say, $25,000 a treatment course? We’ll guarantee that you make, say, whatever you’re making now plus 30 percent for the next three years. All we need from you is a lower price"?

Obviously I’m pulling numbers out of my hat here, because careful analysis, plus negotiation with Gilead, would be required to set a price everyone could live with. The point is, we should be able to come to a deal where we treat more patients, knock down the new infection rate, and give Gilead a nice, fat profit for developing a great drug that saves lives.

But Megan, liberals will say, I thought you were opposed to government using its monopsony power to negotiate drug prices! That’s true -- but this isn’t monopsony power. It’s a voluntary market negotiation that allows, even praises, Gilead’s desire to make a nice profit for its shareholders and to fund and incentivize future research. It is free to walk away at any time -- which is not how most single-payer advocates envision the government “negotiating” drug prices.

But Megan, conservatives will ask, why should the taxpayers foot the bill for this incredibly expensive drug? The answer is that preventing infectious-disease transmission is a true public-health good, unlike lowering obesity and many of the other causes that are currently grouped under the “public health” rubric. Ridding the world of infectious disease, or at least making it much less common, makes every one of us better off. That’s exactly the sort of health care that the government should be funding, just as it funded sewers and water-treatment plants a century ago.

This strikes me as the sort of proposal that everyone should be able to compromise on, without insisting on some ideological priority -- like shafting drug companies to teach them a lesson or leaving intravenous drug users to the disastrous consequences of their decisions. There are precious few of those around these days, so why not adopt this one?

To contact the writer of this article: Megan McArdle at mmcardle3@bloomberg.net.

To contact the editor responsible for this article: Brooke Sample at bsample1@bloomberg.net.