I wrote this analysis as part of a Health Economics course in my Health and the Public Interest master’s program. The assignment required me to analyze a health policy and propose how to apply it in a community setting. I grew up in Louisiana, so I have been following the state’s plan to use a “Netflix model” to purchase hepatitis C drugs with interest. For the analysis I identified additional indications that might be suitable for a Netflix model payment plan. NOTE: This paper was written before the COVID-19 pandemic and does not reflect shifting spending priorities
Prescription drug pricing is a growing burden on patients and payers in the United States. Drug prices are rising faster than other healthcare costs, and prescription drug spending is estimated to have grown 2.5% to $370 billion in 2019 (1). Mechanisms driving high drug prices are under increasing scrutiny at a national level. Recent drug pricing hearings have examined how patent loopholes extend product monopolies and how import restrictions stifle competition (2). Hearings have also explored how lack of price transparency among pharmacy benefit managers reduces payer negotiating power. Congress introduced several proposed bills in 2019 addressing topics ranging from Medicare’s right to negotiate prices to relaxing regulations on pharmaceutical imports from Canada and Mexico (3). Although high drug prices are a multi-faceted problem, there is bipartisan political momentum to craft solutions.
National debates about pricing reform may eventually lead to cost savings, but they are unlikely to deliver immediate solutions at the state level. In the absence of federal reforms, state Medicaid programs have delivered some of the most creative solutions to high U.S. drug pricing to date (4, 5). Medicaid programs have significant purchasing power and are exempt from many of the restrictions against negotiating placed on Medicare. This flexibility enables them to pilot trials of new funding and care models. Additionally, CMS actively encourages the use of experimental models within Medicaid programs (6). One model that attracted attention in 2019 was the implementation of Louisiana’s subscription drug model, popularly referred to as the “Netflix Model.” The Netflix Model was created as solution to budget constraints Louisiana faced in acquiring Hepatitis C medications. This policy brief explores options and feasibility of expanding drug subscription models for Louisiana’s Medicaid and incarcerated populations coverage. There are several promising options, but the policy team recommends HIV/AIDS treatments as the most cost-effective target for expanding the subscription model.
Benefits of a subscription model
The Netflix model refers to a subscription model of drug purchasing in which the purchasing agency pays a fixed price for unlimited access to the drug during an agreed time period. The model was first theoretically proposed as a “drug licenses model” in a 2008 academic paper (7). It aims to “delink” drug profitability from volume of sales, a principle that has been widely endorsed as a way to expand access to medications (8). In the right circumstances, the model can provide a win-win for both payers and manufacturers. Payers can treat additional patients without increasing marginal costs, and drug developers are guaranteed fixed revenues for the duration of the contract.
Australia was the first government health program to implement the Netflix model (9). In 2015, the Australian health ministry signed a five year deal with four pharmaceutical companies that agreed to provide unlimited access to Hepatitis C Virus (HCV) treatment for one upfront lump sum. The government now offers universal access to curative treatment and lowered the cost of treatment from $55,000 per person to $7,352 per person. Following Australia’s success, both Louisiana and the Washington state issued a call for manufacturer proposals to create an HCV treatment subscription plan in January 2019. Louisiana announced a deal with Gilead Sciences in March and was the first state to implement the Netflix model in the U.S. (10).
HCV is the most popular condition targeted by the Netflix model in these experimental stages. The price of HCV drugs has risen rapidly since the introduction of Sovaldi and Olysio, two highly effective biologics, in 2013 (11). High costs and demand for these new formulations stretched the Louisiana Medicaid budget beyond capacity. To conserve funds, the state rationed HCV treatments among Medicaid and incarcerated populations. Only patients with advanced liver damage were initiated on treatment (12). The Netflix model provides the state with an alternative way to expand access to HIV treatment without raising costs. The state’s contract with Gilead promises a fixed price of $35 million per year for the next five years of HCV treatment in exchange for unlimited access to the drug. The program is only a few months old, but the state aims to treat 30,000 people over the course of 5 years, a great improvement over the 1,170 people treated in 2018 (13).
There is much interest in expanding the model to other high-cost treatments. Washington state announced an HCV contract with AbbVie, and CMS is encouraging more states to try this strategy. The UK’s National Health Service recently announced a subscription-style strategy to fund antibiotic research, and Sanofi is offering uninsured patients insulin at a flat $99/month rate (14, 15). However, not all treatments are suited for this model, and there is much debate in the literature about whether or not the same strategy could be used for other high-priced drugs (16). Louisiana is well-placed to build on the political momentum of the Gilead contract by targeting other treatments that generate high spending within Medicaid. The remainder of this brief will identify the best candidates for expanding the Netflix model in the state.
Policy Problem: Prescription Drug Prices for Medicaid and Incarcerated Populations
Louisiana has one of the nation’s highest poverty rates, with 20% of citizens living at the Federal Poverty Level. In spite of years of economic growth in the U.S., the state has a declining population and one of the worst ranked economies in the country (17). These economic conditions put pressure on most areas of state government spending, including Medicaid and state-run medical services. Medicaid covers approximately 40% of Louisiana’s population (18). It is one of the largest state programs, with $11.6 billion in expenditures in FY 2018. State spending per enrollee increased 4.6% between 2017 and 2018, and funding limitations contributed to restrictions on access to pharmaceuticals (18). The state’s subscription deal with Gilead will help to control costs for one of its most expensive pharmaceutical spending categories. Other high spending categories may also be good targets for reducing overall Medicaid expenditure costs through a Netflix model. Figure 1 illustrates drug classes which accounted for the largest share of Medicaid spending in 2019 (19). Antidiabetic therapies (~$40 million), HIV therapies (~$72 million), medications for psychiatric disorders (~$52 million), and TNF alpha inhibitors (~$28 million) were the four largest pharmaceutical spending categories.
Figure 1. Louisiana Medicaid Spending by Drug Class
It has been proposed that diseases appropriate to target with the subscription model will share some characteristics. Experts have suggested that the elements below are necessary for the Netflix model to be successful (16).
Proven substitutable product class: essential
The model works best when there is an expert consensus on what the best therapies are for a given condition. All of the best clinically proven therapies must be included in the bidding process, and competing therapies must be clinically interchangeable cures without sacrificing outcomes. Without clear clinical criteria defining effective treatments, cheaper drugs may crowd out more appropriate treatments in the bidding process. Additionally, patients with the condition must be clearly diagnosable so that payers can estimate the size of the population to be treated in a universal access model. HCV met these criteria in that three manufacturers make substitutable products, patients are diagnosable with a blood test, and the number of patients was estimable through Medicaid data.
Urgent, inadequate product access: essential
The Netflix model works best in cases where targeting undertreatment is agreed to be a clear public health imperative. Public health agencies must also agree that pricing is a key factor contributing to undertreatment, rather than geographical or informational access barriers. HCV access in Louisiana fit these criteria because state officials were in agreement that expanded treatment was necessary to combat the spread of the epidemic. They were also eager to avoid the legal and political fallout associated with denying treatment to impoverished and incarcerated citizens.
Budget surety: essential
For both manufacturers and payers, the selling point of the Netflix model is financial predictability in the face of variable costs. For public health agencies, this surety improves budget planning processes and public health outreach efforts. For pharmaceutical companies, surety is valuable to investors and financial planners. Both parties must be seeking this certainty for negotiations to be fairly balanced. In the case of HCV, there were several substitutable products competing for a relatively fixed number of patients. Manufacturers were willing to agree to a fixed price to ensure they crowded competitors out from the market. Additionally, demand may drop in several decades as curative therapies eradicate the disease, further driving the desire for surety from manufacturers (13).
The budget surety requirement may be harder to achieve with newer drugs for which there are no substitutable competitors. However, some policy experts have argued that new drugs are good targets for subscription models because they lack the extended safety and efficacy records of their competitors. They also argue that drugs approaching patent expiration would be more willing to lower prices for budget surety. Dr. Peter Bach refers to these criteria as the “too little (evidence) or too late (in patent coverage)” approach (20). Too little, too late criteria may not be effective for bargaining until the FDA raises the standard of efficacy for new drug approvals and/or reduces patent extension loopholes.
The Netflix model works well for conditions where early initiation of treatment produces long-term public health gains, either by preventing progression of symptoms that would ultimately require costly hospitalization, or by preventing disease transmission through earlier intervention. HCV treatments save money in the long run by reducing the severity of the illness and slowing the spread of the epidemic.
Final product class for curative therapies: helpful
For curative therapies, both patients and physicians must agree that no further innovations are necessary for treatment. Subscription models have the potential to reduce incentives for additional product development once one treatment has secured a long-term contract. The model is less appropriate for products where the pace of innovation is rapid, as the payer may overinvest in a therapy that is quickly made obsolete. This criterion suggests that the subscription model may be more challenging to implement for chronic disease treatments where patient needs and preferences are more variable.
In addition to the above criteria from the medical literature, the health policy team recommends the two more criteria for implementing the model.
Significant DALY burden: helpful
To increase population health gains from the Netflix model, it would be helpful for the model to target those drugs which represent a significant health burden and loss of productivity in Louisiana. Figure 2 lists the diseases that generated the greatest DALY burdens in 2017 (21). Based on these data, drug use disorders and diabetes may be fruitful areas of pharmaceutical spending to monitor for future purchasing negotiations.
Figure 2. 2017 Burden of Disease in Louisiana
Political momentum: helpful
The payer may have more bargaining power if there is political momentum around a specific drug or condition. For example, Louisiana faced political and legal pressures to expand access to HCV treatment. Nationally, the public has also placed pressure on insulin manufacturers and the producers of the EpiPen by protesting price hikes. Manufacturers may be more willing to negotiate in the face of consumer protests. Conversely, it will be difficult to generate political support for subscription contracts in areas of health that are politically contentious in Louisiana, such as birth control and abortion provision.
Applying the Framework to Louisiana State Health Spending
With the above criteria in mind, the policy team has identified three drug classes as feasible for expanding the Netflix model in Louisiana. Antidiabetics, HIV therapies, and opioid use disorder therapies meet the greatest number of subscription model requirements. Table 1 summarizes suitability of each drug class for a subscription model.
Although psychiatric medications also make up a significant portion of state drug spending, indications for these prescriptions vary from ADHD to schizophrenia. The population is too broad and treatment too varied to accurately estimate the need for universal access. TNF-alpha inhibitors, used to treat arthritis and other musculoskeletal conditions, represent a large portion of state spending. Currently, Humira dominates this class of drugs in the state and bioequivalent competitors are not expected until their patent expires (22). Humira may be open to a Netflix model as their patent expiration approaches, but currently the policy team does not recommend them as a strong fit for a subscription model.
HIV/AIDS/PrEP therapies are the largest source of state drug spending, potentially because Louisiana has one of the highest incidence rates of HIV in the country. This drug class has several clinically-proven and substitutable competitors. State spending is split fairly evenly among competitors, indicating a likely interest in budget surety among manufacturers. The population of need for therapies is definable, and 7,741 Louisiana Medicaid recipients are estimated to be HIV positive (23). There is an additional need for HIV treatment expansion among the state’s incarcerated populations, as Louisiana has one of the highest rates of incarceration. There is also an urgent political need to expand treatment for this population. Investigations by Human Rights Watch found that HIV diagnosis and treatment services are often denied to state prisoners (24). These rationing practices have clear parallels with the state’s HCV treatment policies prior to implementation of the Netflix model. Rural areas of the state also face urgent access issues that could be improved through a universal access model. The population in need of prevention through PrEP antivirals is less defined, but it would be possible to generate estimates by working with community health outreach organizations.
There are positive spillover effects to expansion and early initiation of HIV treatment. Suppressing viral load early in the course of the disease reduces transmission rates and can facilitate epidemic control (25). However, there are no curative therapies, so it takes many years for investment in HIV therapies to lead to a spending reduction. Most research funding for HIV is directed towards vaccine development, so it is unlikely that a subscription payment model would stifle innovation in antiviral treatments. HIV is a major source of spending for the state, but it does not significantly contribute to the disease burden.
Antidiabetics are the third largest source of Medicaid spending in Louisiana, and diabetes is a large contributor to the state’s chronic disease burden. 13.9% of the state is estimated to have diabetes, and 45,520 diabetics are Medicaid recipients (18, 26). There are positive spillover effects to expanding insulin access. Early access to diabetes therapies avoid costly hospitalization and advanced diabetes symptoms.
Three manufacturers dominate the U.S. insulin market : Eli Lilly, Novo Nordisk, and Sanofi (27). Insulin products are substitutable, suggesting most manufacturers would be willing to seek budget surety through a Netflix model. Political pressure in the face of stories about insulin rationing seems to confirm the willingness to negotiate, as Sanofi announced a $99 a month model for delivering insulin to uninsured patients (15, 28). Additionally, a September 2018 study published in BMJ Global Health estimated that manufacturers could charge between $7 and $11 for insulin and still make a profit (29). However, there are rapid innovations in insulin delivery technologies such as glucose monitors and pumps, so manufacturers specializing in these areas are less likely to seek a subscription model. Insulin is likely to be in its final product class, but delivery technologies are not. Although there are urgent access problems are for those patients falling in the Medicare Part D donut hole, insulin access for Louisiana’s Medicaid population was greatly improved through the Medicaid expansion in 2016 (27). There may be less of an urgent public health imperative for new Medicaid payment models with this class of drugs.
Opioid use disorder therapies are urgently needed in Louisiana (30, 31). Drug use disorders contribute significantly to the state’s disease burden, but the population in need is difficult to define due to stigma surrounding addiction. Suboxone, naloxone, and buprenorphine are large spending categories for the state, though there is a lack of professional consensus on which medicine is the best treatment for addiction. Guidelines recommend combining pharmaceutical therapies with behavioral health treatment (32). A recent report found that treatment facilities in the state are more urgently needed than drugs alone (31). Although there is political momentum to address the opioid crisis at a national level, the policy team does not recommend pursuing a Netflix model for this class of drugs at this time.
Table 1. Evaluation of Netflix Model Targets by Drug Class
Hepatitis C (comparison case)
Opiate Use Disorders
Yes for HIV therapies, no for PrEP prevention
Urgent, inadequate product access in Louisiana
Significant DALY burden
U.S. yes, LA Medicaid no
Yes for HIV therapies, no for PrEP
Case stronger for payor than manufacturer
Proven time-sensitive spillover effects
Avoids future costs, does not reduce incidence
Final product class
Most likely met
Most likely met
2019 Medicaid expenditure
~$35 million unlimited access
~$72 million for treatment and PrEP
Total Medicaid population
more data needed
Conclusion and Recommended Next Steps
Based on the expert-informed rubric above, HIV therapies would be the most effective drug category for Louisiana to open to subscription bids. Targeting HIV therapies would control costs, expand access, and facilitate public health gains. It would also relieve political and legal pressures the state has been subject to for withholding treatment from vulnerable populations. Additionally. HIV antivirals are in the same drug class as HCV treatments. Similarities with HCV treatment and viral disease progression make HIV therapies a logical choice for incremental expansion of the model.
There is some concern that expansion of the subscription model cannibalizes funding by pitting one disease against another. Indeed, patient advocacy groups for more widespread but less urgent diseases may protest that Medicaid is using its bargaining power to lower prices for diseases that do not affect them. However, by using evidence-based evaluation metrics and ongoing assessment data from successful subscription models, state payers can ensure that the model is expanded only to those drugs which would be mutually beneficial to both payers and manufacturers. The Netflix model can save the Medicaid program money in the short to medium term, in hopes that broader drug pricing reform will provide alternative solutions in the long run. By expanding the model to HIV therapies, Louisiana can continue its record of drug pricing innovation.