We’re keeping a close eye on the ingenious “Netflix model” two states are launching to pay for hepatitis C drugs. It certainly has some implications for how a Smart Health Market might approach rising drug spend.

Earlier this year, Louisiana and Washington announced requests for pharma bids on fixed-cost contracts that allow the states unrestricted access to hep C drugs. That’s right: For one price, it’s pretty much all-you-can-script.

What’s fascinating is that the drug manufacturers responded with enthusiasm. We’ve confirmed that each state walked away with three bids, and Louisiana has already chosen Gilead as its supplier under a five-year contract.

There are a number of benefits to the Netflix model:

  • Because drug manufacturers are bidding for these substantial contracts, competition drives down prices.
  • With the unlimited supply of hep C drugs, unit costs become less of a drag, and more patients can access treatment.
  • With fixed costs over a year or more, spending is predictable for the state.

But it’s not entirely a free-for-all.

Keep in mind Louisiana is contracting with Gilead’s new generic subsidiary to treat about 10,000 people in prison and Medicaid populations. Washington is offering an exclusive contract to treat targeted populations totaling as many as 30,000 people (Fierce Pharma).

If the Netflix model proves out, we anticipate these states will add other populations to the mix in the next round of contract negotiations.

Also with experience, states could potentially expand to other innovative drug treatments, such as the new infusion for post-partum depression, estimated to cost $34,000 per patient (Associated Press). Another candidate might be naloxone, a nasal spray used multiple times a day by first responders to revive people experiencing opioid overdose.

And now, the tricky part

Certainly other payers will find the Netflix contracting model attractive, but here’s where it gets tricky.

Each payer has its own nuances in how it funds and delivers care. Each payer also has distinct population needs, budget priorities and a host of complex regulations to follow. Therefore, each Netflix contract will have some limitations.

Let’s do the arithmetic. The CDC estimates 2.4 million Americans have hepatitis C (CDC Overview & Statistics), and a course of treatment with the modern class of antiviral drugs starts at $24,000 (Gilead Sciences). Even if wide-scale contracting drives the price way down, to say $18,000 per patient, we’re still looking at $43.2 billion just to treat the current cases.

Without treatment, hep C can escalate into liver failure, which means liver transplant surgeries, significant recovery and lifelong health risks. The cost-and-benefit analysis also must figure in quality of life. So the arithmetic is not so easy.

Is the Netflix model a trend to watch? Absolutely. Is it going to be the only way to negotiate deals on high-priced drug products? Certainly not.

What we can say about Netflix for hep C, however, is that it’s a sure sign of the attractiveness of alternative payment models to drive population health. And that makes good sense.