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

The hepatitis C guidance describes diagnosis, linkage to care, and treatment for people with HCV infection (AASLD/IDSA, 2017). However, reduced access to treatment is a common challenge due to restrictions on drug reimbursement. This section summarizes the US payer system, explains the concepts of cost, price, cost-effectiveness, value, and affordability, and addresses the cost-effectiveness of HCV treatment access. Although these terms may sound similar, the following discussion seeks to clarify them with regard to HCV therapy. This section aims to be informational. As explained, 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 Patient Protection and Affordable Care Act
AMP Average manufacturer price
AWP Average wholesale pricea
CEA Cost-effectiveness analysis
ICER Incremental cost-effectiveness ratio
PBM Pharmacy benefit manager
QALY Quality-adjusted life-year
WAC Wholesale acquisition costb
a "List price" for wholesale pharmacies to purchase drugs
b Typically, approximately 17% off of AWP


Drug Cost and Reimbursement

Many organizations are involved with hepatitis C drug distribution and each can impact costs as well as decisions about which regimens are reimbursed (US GAO, 2015); (US CBO, 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 (analogous to a sticker price). The company negotiates contracts with other organizations within the pharmaceutical supply chain that allow for rebates or discounts to decrease the actual price paid.
  • Pharmacy benefit managers (PBMs) act as intermediaries between pharmaceutical companies and health insurance companies. They negotiate contracts that may include restrictions on the types of providers or patients who can be reimbursed for treatment. They might also offer exclusivity (restrictions on which medications can be prescribed) in exchange for lower negotiated prices, often provided in the form of WAC discounts.
  • Private insurance companies often have separate pharmacy and medical budgets and use PBMs or directly negotiate drug pricing with pharmaceutical companies. Insurance companies determine formulary placement, which impacts the choice of regimens and out-of-pocket expenses for patients. An insurance company can cover private, managed care Medicaid, and Medicare plans and have different formularies for each line of business.
  • Medicaid is a heterogeneous consortium of insurance plans that includes fee-for-service and managed care options. Most plans negotiate rebates with pharmaceutical manufacturers (through PBMs or individually). For single-source drugs such as all-oral HCV treatments, Medicaid plans receive the lowest price offered to any other payer (outside of certain government agencies), and the minimum Medicaid drug rebate is 23.1% of the average manufacturer price (AMP). Differences in negotiated contracts between plans have led to Medicaid patients in different states having widely varied access to HCV therapy (Barua, 2015); (Canary, 2015); (Lo Re, 2016). 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. As the price of HCV therapies has decreased, some states have loosened their Medicaid treatment restrictions with a growing number providing treatment to all infected persons. Most states, however, continue to restrict access to HCV treatment based on stage of liver fibrosis or history of recent drug use. Proposed rollbacks of Medicaid expansion implemented under the ACA threaten to reduce insurance coverage among HCV-infected people and could lead to new treatment restrictions.
  • 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 program, which sets drug prices for several 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).
  • State prisons and jails are usually excluded from Medicaid-related rebates and often do not have the negotiating leverage of larger organizations and, therefore, may pay 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 and/or management of adverse effects, and outcome 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 offered by 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.

Except for mandated rebates, negotiated drug prices are considered confidential business contracts. 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% less than the WAC in 2015, implying that many payers are paying well below the WAC for HCV medications (Committee on Finance US Senate, 2016).


Cost-effectiveness analysis (CEA) compares the relative costs and outcomes of 2 or more interventions. CEA explicitly recognizes budget limitations for healthcare spending and seeks to maximize public health benefits within those budgetary constraints. The core question that CEA addresses is whether to invest limited healthcare dollars in a new treatment/therapy, or use that money to invest in another healthcare intervention that would provide better outcomes for the same monetary investment. The focus of CEA is, therefore, not simply cost or saving money but health benefits. It assumes that all available resources will be spent and provides a framework for prioritizing among available treatment options by formally assessing the comparative costs and health benefits accrued from a new treatment relative to current treatment.

The cost-effectiveness of a treatment is typically expressed as an incremental cost-effectiveness ratio (ICER).

cost new treatment - cost current treatment
benefit new treatment - benefit current treatment



Estimating and interpreting the ICER requires that we answer three questions:

  1. How much more money will be spent with the new treatment versus the old treatment?
    The additional cost of new treatment includes that of new medications as well as the costs that will be avoided by preventing disease complications. Prevention of long-term complications is especially important when considering the cost-effectiveness of HCV treatments because the costs of the therapy are immediate, while those avoided by preventing advanced liver disease and other complications of chronic infection often accrue years in the future.
  2. How much more benefit will occur with the new versus the old treatment?
    Life expectancy is a valuable measure of benefit, but considering only mortality benefits fails to recognize the value of treatments that improve quality of life. The quality-adjusted life-year (QALY) provides a measure that integrates both longevity and quality of life and is the preferred outcomes for CEA. 
  3. How is the ICER to be interpreted?
    The ideal CEA would list every possible healthcare intervention, its lifetime medical cost, and QALYs lived. Such a list would allow for perfect theoretical prioritization of spending to maximize QALY across the population. In reality, CEA compares the ICER for a specific treatment to a threshold value and rejects treatments with an ICER exceeding a particular threshold as not being cost-effective. The threshold value is referred to as the societal willingness-to-pay threshold. It is not meant to be a valuation of how much society is willing to pay to save a life. Rather, it is meant to reflect the average return in QALY expected if the available budget was not used to provide a new treatment but instead invested into the current healthcare system. In the United States, the willingness-to-pay threshold is typically considered to be $50,000 or $100,000/QALY gained.


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 budgetary 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 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 no impact on spending decisions today because they have little bearing on the solvency of the current budget.
  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 relationship to a payer’s bottom line. Willingness to pay is meant to be an estimate of the opportunity cost of investing in a new therapy. In economics, opportunity cost refers to how else that money could have been spent and the benefits lost from not investing in that alternative. When payers make a decision about coverage, the calculation is more straightforward and relates to the short-term cost of medications and the budgetary impact. Given the rapid development of new technologies and therapies, 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 exceed the limited healthcare budget.

There is no 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 these therapies provide good benefit for the resources invested, and providing such therapy to more people would be a good long-term investment. 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 Direct-Acting Antiviral Regimens for Hepatitis C Treatment

Since the first direct-acting antivirals (DAAs) received US Food and Drug Administration approval in 2011, several cost-effectiveness investigations have compared DAA-based regimens to previous standard-of-care regimens to calculate ICERs. They have also investigated the cost-effectiveness of eliminating HCV treatment restrictions. Compared to interferon-based regimens, the ICER for DAAs has consistently been estimated at <$100,000/QALY for all genotypes and fibrosis stages.

Several studies have compared DAA regimens against one another. In general, when given a choice between recommended HCV DAA regimens, the less costly regimen is preferred as a more efficient use of resources (even if it requires multiple tablet dosing). Because of the similar efficacy of most DAA regimens, cost becomes the critical factor driving cost-effectiveness. Recent studies have also estimated the cost-effectiveness of HCV treatment in special populations, including patients awaiting liver transplantation, HIV/HCV coinfected patients, those with chronic kidney disease, and persons who inject drugs—all with favorable ICERs. At this time, it is reasonable to conclude that DAA regimens provide good value for the resources invested. 

Cost vs Affordability for HCV Treatment

Despite a growing body of evidence that HCV treatment is cost-effective and may even be cost saving over the long term in some cases, many US payers—especially those offering Medicaid insurance products—continue to limit access to HCV treatment. Access has improved as cost has decreased but limitations remain. Proposed reductions in healthcare spending for Medicaid would likely exacerbate the problem as the value of the HCV medications would remain unchanged but the resources available to provide them would shrink.


Several recent studies have demonstrated the economic value of HCV treatment and made it clear that HCV therapy is cost-effective. The high cost of these medications combined with the high prevalence of disease has led to limiting access for some patients. The issue is complex. 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 this much-publicized price. Negotiated pricing and cost structure for pharmaceutical products in the US are not transparent, however. Thus, it is therefore difficult to estimate the true budgetary impact of providing HCV drugs. Competition and negotiated pricing have reduced prices but cost continues to limit the public health impact of new DAA therapies. Insurers, government, and pharmaceutical companies should work together to bring medication prices to the point where all persons in need of treatment are able to afford and readily access it.

Last update: 
September 21, 2017