Tim Mullaney: How Gilead ‘broke’ Obamacare

The news that Aetna, UnitedHealthcare and Humana are pulling back on commitments to sell insurance on Healthcare.gov was greeted with utterly predictable reactions: Republicans yelling that they told us Obamacare wouldn’t work, while Democrats say the GOP has cried wolf about the Affordable Care Act for years.

But no one is listening to what Aetna AET, +0.27%   and United UNH, -0.56%  actually said: The problem’s not really Obamacare. Their biggest challenge in individual insurance is the cost of super-expensive new drugs, especially to fight hepatitis C and HIV — both markets dominated by erstwhile Wall Street darling Gilead Sciences GILD, +0.63%  .

The fight over the exchanges is everything wrong with Washington in a nutshell, because it’s clear that a large percentage of the problem is something specific and fixable, but no one is listening because the answer doesn’t fit ideological preconceptions.

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The two biggest insurers leaving the exchanges say the No. 1 problem is specialty-drug costs. That problem is fairly narrow and already beginning to go away. And the comprehensive solution Obamacare needs can begin when Washington reads five whole earnings reports for insurers, including Anthem ANTM, -0.30%  and Cigna CGN, -10.83%  , who aren’t cutting their exchange sales.

Which Washington, collectively, won’t do.

Let’s run numbers first. UnitedHealthcare Aetna and Humana HUM, +0.23%  will lose $1.5 billion to $2 billion on federal and state insurance exchanges this year — a pittance next to the $3 trillion health-care system, or even the companies’ nearly $300 billion in yearly revenue. Those three companies beat second-quarter profit estimates by an average of seven cents a share. Threatened they’re not.

Here’s what they say about why they’re losing money. Cause, outside D.C., facts matter.

“The severity of chronic conditions inside the population actually increased year-over-year,” UnitedHealthcare Chief Operating Officer Daniel Schumacher said. “If you look at the prevalence of chronic disease, things like HIV and hepatitis C, diabetes, [chronic obstructive pulmonary disease], those are things that the prevalence was high to begin with in 2015, and that has increased into 2016.”

Aetna said its losses were driven by “specialty pharmacy,’’ a segment revolutionized by the arrival of super-expensive HCV drugs (up to $94,500 per patient) beginning in 2013. Its fix is far from ditching insurance for the roughly 25 million people Obamacare now covers: It just wants the feds to include drug expenses in ACA formulas letting insurers share risks of the highest-cost patients, as they share hospital costs now. Cost-sharing makes the law’s ban on discrimination against sick people possible.

“There is no way to fix this unless we include pharmacy… and we find a way to cover these individuals,” Aetna CEO Mark Bertolini said. “These people need this care, and it’s appropriate that they get it.’’

This is where we get to Gilead, the world’s largest maker of both HIV and hep C drugs. (About two-thirds of Gilead’s sales come from hep C drugs, and its HIV medicines aren’t cheap either). And to where official Washington might learn something from watching the markets.

The market is suppressing Gilead’s stock because the surge of hep C drug sales will be temporary, not the “death spiral” cable-news pundits see. As Gilead’s chart shows, shares surged after 2011, when it bought a startup that developed its HCV portfolio. But then Gilead crested and turned down, for a few reasons.

Gilead Science shares have drooped.

First, competing drugs arrived, pressuring Gilead’s prices. (Gilead spokesman Mark Snyder says “most payers receive substantial discounts,” with the biggest for Medicaid and the Veterans Administration). Second, because Gilead, Merck MRK, +0.12%  and AbbVie ABBV, -0.06%   are rapidly curing the estimated 2.4 million to 3.5 million HCV carriers — most of whom don’t know they have it — which causes 20,000 annual U.S. deaths. About 650,000 Americans have been cured since modern treatments arrived.

And only 30,000 new cases occur each year, according to the Centers for Disease Control — because blood-donor screenings have eliminated the main cause of transmission. Most of those people got HCV from pre-1992 transfusions. I was one. So demand is already shrinking outside the exchanges.

Indeed, weekly prescriptions for Gilead’s HCV drugs are down 30% in the last year, according to Barclays. Overall sales of $12.4 billion last year, and $8.5 billion this year, will drop to $3.3 billion by 2020, analyst Geoff Meacham says. Similarly, new U.S. HIV infections are down 19% in the last decade.

This is why Washington shouldn’t panic — not about HCV, and not about Obamacare. It’s why headlines like “Obamacare’s Economic Assumptions Collapse” are as silly as claims that inflation is skyrocketing and America is heading for a Greek-style fiscal crisis. That these claims are made by the same people is no coincidence. And it’s why “broke” is in quotes in the headline.

There’s a reason insurers don’t want Obamacare ended. They want cost-cutting mergers like Aetna’s proposed Humana deal, which regulators are blocking, and drug-cost sharing. (Congress will also have to add money to lower subsidized premiums and add moderate-income young people to the risk pool).

The law’s Medicaid expansion helped United’s $30 billion Medicaid-insurance business grow 15% in the second quarter — almost five times United’s losses on Healthcare.gov. They can handle growing pains.

Fixing Obamacare isn’t that hard. It just begins with the hardest Washington task of all: Shutting up, for one minute, to listen.

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