In an unusual funding arrangement, California is paying private health plans hundreds of millions of dollars in supplemental payments to cover the high price of hepatitis C drugs for patients in Medi-Cal managed care plans.

While Medi-Cal is California’s program of health insurance for people who are low income, nearly 80 percent of beneficiaries are in managed care plans run by private health insurance companies. The companies are paid a flat rate per member each month to cover all health care needs.

The funding agreement was reached after health plans raised “alarm” over the high cost of new hepatitis C drugs and plans had to dig into reserves because of the drugs’ cost, says Charles Bacchi, president of the California Association of Health Plans, an industry trade group.

“Dollars that were intended for a wide array of medical services started being gobbled up by just one drug,” Bacchi said.

A spokesperson for the state’s Department of Health Care Services says it’s the first time the state has paid health plans a supplemental money just to cover the high cost of a drug. Specifically, Sovaldi, a hepatitis C drug retailing at $1,000 per pill, has sent treatment prices soaring. The drug is made by Gilead Sciences in Foster City.

Although the members of Bacchi’s trade group directly benefit from the supplemental payments, he says the additional money is not a “sustainable” solution to the underlying problem of high-priced drugs.

Here are some of the details about the supplemental government funding stream to Medi-Cal plans:

  • Health plans invoiced California for $387.5 million for hepatitis C drugs between July 2014 and November 2015, according to the California Department of Health Care Services. The payments come from a mix of federal and state dollars.
  • During that time period, 3,624 Medi-Cal managed care members with hepatitis C were treated.
  • By CALmatters’ calculations, the payments amount to $106,926 per patient. The number reflects other drugs used to treat hepatitis C, and isn’t solely the price of Sovaldi and Harvoni, another new, pricey drug to treat hepatis C.
  • Payments to plans are expected to continue in the next fiscal year. The California Department of Health Care Services has budgeted $303.4 million for health plans for 2016–17.

While California will receive some money back from drugmakers in the form of rebates, the ultimate price the state pays for the drugs is confidential, according to the Department of Health Care Services.

Limiting the cost of pharmaceuticals is the basis of a ballot initiative expected to be before California voters this November. The proposal would limit the amount the state pays for a drug to no more than the lowest price paid for the same drug by the U.S. Department of Veterans Affairs.

The state health care agency says its payments to insurers of Medi-Cal patients for hepatitis C drugs are a “very unique” solution, one that they may use for other high-cost drugs in the future. The state says the current hepatitis C payments may be reassessed in a year or two as it expects the price of the drugs to go down.

“As the prescribing of the drugs levels off, as the population and the overall nature of who’s getting it settles down, we may get to a point where we look at carving that responsibility back into the plans’ … rate,” said Jennifer Kent, director of the California Department of Health Care Services.

But California’s spending on hepatitis C drugs doesn’t end there.

For the rest of the Medi-Cal population — the 2.7 million people who are not in a private managed care plan and whose health care services are directly reimbursed by the state — a U.S. Senate Finance Committee reports the following for the year 2014:

  • California paid almost $22 million to treat 280 hepatitis C patients with Sovaldi.
  • California paid more than $2.8 million for 57 Harvoni prescriptions.

According to the U.S. Senate report, 237,000 people in Medi-Cal are infected with hepatitis C. So, doing the math between the 3,624 managed care patients and the 337 covered directly by the state, means less than 2 percent of those infected have been treated with the new drugs — at a cost of hundreds of millions of dollars already.

“In order for taxpayers of the state of California to afford to provide people the necessary treatments,” says Bacchi, “we have to have drug pricing society can afford to pay.”

At CALmatters, we’re exploring how a drug’s cost affects patient access. If you are a hepatitis C patient, or other chronic disease patient who is having difficulty getting drugs, we’d like to hear from you.

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