Overview of Cost, Reimbursement, and Cost-Effectiveness Considerations for Hepatitis C Treatment Regimens

The Hepatitis C Guidance describes how to diagnose, link to care, and treat most groups of patients with HCV. (AASLD-IDSA, 2016) However, a common challenge is reduced access to treatment caused by restrictions on drug reimbursement. This section summarizes the US payer system, explains the concepts of cost, price, cost-effectiveness, value, and affordability, and reviews current evidence of the cost-effectiveness of strategies to improve access to treatment. Although these may sound similar and are often confused, the following discussion will seek to clarify these terms with regard to HCV therapy. To be clear, this section is informational. As explained below, actual costs are rarely known. Accordingly, the HCV Guidance does not utilize cost-effectiveness analysis to guide recommendations at this time.

Table. Abbreviations Specific to Overview of Cost, Reimbursement, and Cost-Effectiveness Considerations for Hepatitis C Treatment Regimens

Abbreviation Expanded Name
ACA Affordable Care Act
AMP Average manufacturer price
AWP Average wholesale pricea
CEA Cost-effectiveness analysis
Cn Cost of new therapy
Co Cost of old therapy
ICER Incremental cost-effectiveness ratio
PBM Pharmacy benefit manager
QALY Quality-adjusted life-year
QALYn Quality-adjusted life-year of new therapy
QALYo Quality-adjusted life-year of old therapy
WAC Wholesale acquisition costb

a “List price” for wholesale pharmacies to purchase drugs.

b Typically, approximately 17% off of AWP.

Drug Cost and Reimbursement

There are many organizations involved with the distribution of hepatitis C drugs and each can impact costs, as well as the decision of which regimens are reimbursed. (US Government Accountability Office, 2015); (Congress of the United States Congressional Budget Office, 2015) The roles these organizations have in determining the actual price paid for drugs and who has access to treatment include the following:

  • Pharmaceutical companies determine the wholesale acquisition cost (WAC) of a drug (like a “sticker price”). The company negotiates contracts with other organizations within the pharmaceutical supply chain that allow for rebates or discounts that decrease the actual price paid.
  • Pharmacy benefit managers (PBMs) often negotiate contracts with pharmaceutical companies on behalf of health insurance companies. Such contracts may include restrictions on who can be reimbursed for treatment and may offer exclusivity (restrictions on which medications can be prescribed) in exchange for lower prices, often provided in the form of WAC discounts.
  • Private insurance companies often have separate pharmacy and medical budgets and use PBMs or negotiate drug pricing directly with pharmaceutical companies. Insurance companies determine formulary placement, which impacts choice of regimens and out-of-pocket expenses for patients. An insurance company can cover private, managed care Medicaid, and Medicare plans and can have different formularies for each line of business.
  • Medicaid is a heterogeneous compilation of insurance plans that includes fee-for-service and managed care options. Most plans negotiate rebates with pharmaceutical manufacturers (through PBMs or individually). Differences in negotiated contracts between plans have led to Medicaid patients in different states having widely varied access to HCV therapy. (Canary, 2015) Disparities may even exist between patients enrolled in different Medicaid plans within the same state. (Barua, 2015) State Medicaid programs have benefited from the Patient Protection and Affordable Care Act (ACA), although such benefits are mitigated in states that have opted out of expanding Medicaid coverage under the ACA. In general, for single-source drugs such as the currently available hepatitis C treatments, Medicaid plans receive the lowest price offered to any other payer (outside certain government agencies), and the minimum Medicaid drug rebate is 23.1% of the average manufacturer price (AMP; another payment benchmark).
  • Medicare covers HCV drugs through Part D benefits and is prohibited by law from directly negotiating drug prices. These drug plans are offered through PBMs or commercial health plans, which may negotiate discounts or rebates with pharmaceutical companies.
  • The Veterans Health Administration receives mandated rebates through the Federal Supply Schedule, which sets drug prices for a number of government agencies, including the Department of Veterans Affairs, federal prisons, and the Department of Defense, and typically receives substantial discounts over average wholesale price (AWP; another payment benchmark).
  • State prisons and jails are usually excluded from Medicaid-related rebates and often do not have the negotiating leverage of larger organizations and may end up paying higher prices than most other organizations.
  • Specialty pharmacies receive dispensing fees and may receive additional payments from contracted insurance companies, PBMs, or pharmaceutical companies to provide services such as adherence support, management of adverse effects, and outcomes measurements such as early discontinuation rates and sustained virologic response rates.
  • Patients incur costs (eg, copayment or coinsurance) determined by their pharmacy plan. Patient assistance programs through pharmaceutical companies or foundations can cover many of these out-of-pocket expenses or provide drugs at no cost to qualified patients who are unable to pay.

With the exception of mandated rebates, negotiations of drug prices are considered confidential business contracts and, therefore, there is almost no transparency regarding the actual prices paid for hepatitis C drugs. (Saag, 2015) However, the average negotiated discount of 22% in 2014 increased to 46% off the WAC in 2015, implying that many payers are paying well below the WAC price for HCV regimens. (Committee on Finance United States Senate, 2016)


Cost-effectiveness analysis (CEA) compares the relative costs and outcomes of two or more interventions. CEA explicitly recognizes budget limitations for healthcare spending and seeks to maximize public health benefits within those budget constraints. CEA is typically expressed as an incremental cost-effectiveness ratio (ICER), the ratio of change in costs between two or more interventions to the change in effects. In short, CEA provides a framework for comparing the healthcare costs and societal benefits of different technologies or therapies.

To make such comparisons, three questions first need to be answered:

  1. How much more will we spend on a new intervention? This is not as simple as determining the cost of a new medication, but also the cost of the intervention over the course of a person’s lifetime and the cost savings from the prevention or attenuation of disease complications. Further, the cost of current standard therapy and the cost of the disease should be considered, so incremental cost-effectiveness requires understanding the incremental cost of new versus old. Given the lack of transparency in healthcare costs in the United States, this is at best an inexact estimate.
  2. How much more benefit accrues from a new intervention? To compare health interventions using a single metric across diseases and interventions and to integrate both duration and quality of life gained, benefit is measured in terms of quality-adjusted life-years (QALYs). CEA asks: “If a new therapy is implemented, how many more QALYs will likely be gained from the new medications?”
  3. How much is society willing to pay to gain one additional QALY? This willingness-to-pay threshold typically varies by country and acknowledges opportunity costs. Spending more money on one disease may mean spending less money on other diseases. Similarly, spending more on health care means less spending for education, defense, or environment. Although it may seem inappropriate to set a monetary value on human life, willingness-to-pay thresholds only acknowledge that budgets are finite and provide a measure of societal value. They are not intended to be a moral valuation.

Once these questions are answered, CEA provides a simple rubric for making normative determinations about whether a new technology provides good value for its cost. First, the ICER of the new therapy is calculated as: (Cn – Co) ÷ (QALYn – QALYo), where Cn is the cost of the new therapy, Co is the cost of the old (comparison) therapy, and QALY is quality-adjusted life-year, shown as new (n) or old (o).

Once the ICER is determined, it is compared with the societal willingness-to-pay threshold (typically considered to be $50,000 to $100,000/QALY gained in the United States). ICERs that are less than the willingness-to-pay threshold represent a good value, and such interventions can be considered cost effective. Interventions with ICERs exceeding the willingness-to-pay threshold would be less efficient uses of limited budget resources.


An intervention that is cost effective is not necessarily affordable. Affordability refers to whether a payer has sufficient resources in its annual budget to pay for a new therapy for all who might need or want it within that year. Several characteristics of CEA limit its ability to speak to the budget impact of interventions being implemented in the real world:

  1. Perspective on cost: CEA seeks to inform decisions about how society should prioritize healthcare spending. As such, it typically assumes a societal perspective on costs and includes all costs from all payers, including out-of-pocket expenses for the patient. When making coverage decisions for therapy, however, an insurer considers only its own revenues and expenses.
  2. Time horizon: CEA uses a lifetime time horizon, meaning that it considers lifetime costs and benefits, including those that occur in the distant future. Business budget planning, however, typically assumes a 1-year to 5-year perspective. Savings that may accrue 30 years from now have very little impact on spending decisions today, because they have little bearing on the solvency of the budget today.
  3. Weak association between willingness to pay and the real-world bottom line: Societal willingness-to-pay thresholds in CEAs are not based on actual budget calculations and have little connection to a payer’s bottom line. Given the rapid development of new technologies, funding all of them, even if they all fell below the societal willingness-to-pay threshold, would likely lead to uncontrolled growth in demand and would likely exceed the limited healthcare budget.

There is no mathematic formula that provides a good means of integrating the concerns of value and affordability. When new therapies for HCV are deemed cost effective, it indicates that such therapies provide excellent benefits for the resources invested in their use and that providing more therapy is a good investment in the long term. Determining the total resources that can be spent on HCV treatment, however, depends on political and economic factors that are not captured by cost-effectiveness determinations.

Cost-effectiveness of Current All-Oral Regimens for Hepatitis C Treatment

Recently published studies compared all-oral, direct-acting antiviral (DAA) regimens to previous standard-of-care regimens (usually IFN based) to calculate ICERs. In general, treating patients with more advanced fibrosis or cirrhosis provided better value (lower ICERs) than treating those with milder disease. Indeed, the ICERs of therapy for treatment-naïve patients who do not have cirrhosis are generally within the range of other widely used medical therapies. Although it is possible to make some general comments about cost-effectiveness for these new HCV drug regimens, it is important to recognize that this task is difficult, owing to the rapid changes in available drugs, the variability in cost (see above), and individual patient characteristics such as fibrosis stage, comorbidities, estimated life expectancy, and HCV genotype.

HCV Genotype 1

There are several cost-effectiveness studies of IFN-free, DAA therapy for HCV genotype 1 infection across various models that use independently derived assumptions about disease progression, costs, and quality of life. Most have shown ICERs within the range of other accepted medical practices. Published ICERs of all-oral regimens for treatment-naïve patients with HCV genotype 1 infection in the United States range from cost saving (less than $0) to $31,452 per QALY gained, depending on the presence or absence of cirrhosis. (Chatwal, 2015); (Najafzadeh, 2015); (Linas, 2015); (Younossi, 2015a); (Tice, 2015); (Chidi, 2016) However, ICERs as high as $84,744 to $178,295 per QALY gained have been reported among the more recalcitrant IFN-experienced patients with fibrosis who are being retreated using an IFN-free regimen. (Chatwal, 2015)

HCV Genotype 2

ICERs of all-oral regimens in HCV genotype 2–infected persons ranged from $35,500 to $238,000 per QALY gained, depending on the presence or absence of cirrhosis. (Chatwal, 2015); (Najafzadeh, 2015); (Linas, 2015) In analyses among treatment-naïve patients without cirrhosis, the AWP of sofosbuvir led to ICERs being higher than US willingness-to-pay thresholds, but with the lower costs negotiated by some payers, the ICERs for all patient groups would fall within accepted pay thresholds for other accepted medical interventions in the United States. (Najafzadeh, 2015); (Linas, 2015)

HCV Genotype 3

The ICERs of IFN-free therapy for HCV genotype 3 infection reflect the clinical reality that IFN-free regimens are less effective for treating patients with this genotype than any other genotype. As a result, ICERs of all-oral regimens ranged from being inferior (costing more with lower effectiveness) to $410,548 per QALY gained, depending on the presence or absence of cirrhosis. (Chatwal, 2015); (Linas, 2015) In one analysis, the preferred therapy for HCV genotype 3 infection from a purely cost-effectiveness–based perspective was PEG-IFN, ribavirin, and sofosbuvir. (Linas, 2015)

HCV Genotype 4

For HCV genotype 4 infection, ICERs of all-oral regimens ranged from $34,349 to $80,793 per QALY gained, depending on the presence or absence of cirrhosis. (Chatwal, 2015) However, these findings are based on treatment efficacy from small studies and must be confirmed once better data on treatment response are available.


These published CEAs considered a variety of all-oral and nonoral regimens, often for different treatment durations, and patient populations and were not always consistent with current treatment recommendations and guidelines. Some regimens recommended in the HCV Guidance have not yet been subjected to economic analyses. Analyses used published WAC prices, which are lower than AWP prices used in older CEAs but higher than the actual prices paid by many payers and reflect an upper threshold of ICER, but most also examined the impact of negotiated price discounts on cost-effectiveness conclusions. Other analyses that are not described here include, for example, the impact of immediate versus delayed treatment (Rein, 2015); (Chahal, 2016); (Martin, 2016) and HCV treatment as prevention. (Harris, 2016); (He, 2016); (Martin, 2016)


Although the wholesale acquisition costs of HCV drugs often make treatment appear unaffordable, the reality is that insurers, PBMs, and government agencies negotiate pricing and few actually pay the much-publicized WAC (retail). However, the negotiated pricing and cost structure for pharmaceutical products in the United States are not transparent, and it is therefore difficult to estimate the true cost and cost-effectiveness of HCV drugs. Whatever the actual current cost of HCV DAAs, competition and negotiated pricing have not improved access to care for many persons with HCV infection and continue to limit the public health impact of these new therapies. Insurers, government, and pharmaceutical companies should work together to bring medication prices to the point where all of those in need of treatment are able to afford and readily access it.


Changes made July 6, 2016.

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