In recent years drug makers have developed costly gene therapies priced at more than $1 million. Sometimes these are taken once in a lifetime. Other times they must be repeated periodically. Sometimes they work well, other times not so much. Fast Company admits these therapies are unaffordable, even for insurers, saying:
In recent years, the FDA has approved dozens of gene and cell therapies that can potentially cure rare diseases like sickle cell disease and spinal muscular atrophy. But many patients still can’t access these treatments because insurers have refused to cover them.
That reluctance is understandable, unfortunately. Widespread use of these multimillion-dollar therapies would bankrupt many health insurers.
But the solution isn’t to deny lifesaving drugs to patients. Rather, it is to deploy creative financing solutions that deliver these therapies to sick Americans without collapsing the insurance system.
An example is sickle cell disease. Approximately 100,000 people have the condition. In sickle cell disease red blood cells are crescent-shaped, which impedes circulation, causing severe pain and reducing lifespan.
Two therapies approved by the FDA show great promise, but are each priced above $2 million, reflecting the decades of research and development costs required to bring them to market and the relatively small patient population.
Is $2 million a high price? Yes and no, and it depends. Drug makers look at such things as the cost to treat for a lifetime without the new therapy. The annual cost to treat sickle cell disease is upwards of $50,000. Drug companies also look at pain and suffering of the underlying disease. Drug makers look at societal costs, such as disability. They look at how deep the pocket of those who must pay the tab. Prices would be much lower if individuals had to pay the bill themselves, or if a nonprofit funded some individuals but had the choice not to fund. That is a problem with our health insurance system. When insurers are required to pay, the sky is the limit on pricing. If individuals must pay, prices will be much lower since not everyone can pay, a condition economists call a budget constraint.
Medicaid covers about half of sickle cell cases, at a cost of about $2.5 billion a year. There may be alternatives that Medicaid has not explored. More from Fast Company:
But if banks partnered with Medicaid, they could finance sickle cell gene therapies in bulk for a discount, say $1.7 million, then Medicaid would amortize the loan over several decades, the same as mortgaging a multimillion-dollar house. At a federally subsidized interest rate of 1%, Medicaid would pay $50,000 per patient per year over 40 years. In other words, the government would effectively pay the same annual price for gene therapies that cure patients up-front as it currently spends just to manage the condition in perpetuity.
The idea is instead of insurance companies, Medicare and Medicaid paying the upfront cost of sickle cell disease and other rare genetic disorders, they could pay for individuals’ therapies over time getting a volume discount. Just like a house, if most people had to pay cash for their home far fewer people would own their own home. Mortgages allow people to pay off a house similar to how they pay monthly rent.
On the other hand, why should states spend $2 million apiece on potentially hundreds of patients without some assurance it will work? There are promising experiments to get around that risk:
The Centers for Medicare & Medicaid Services is embarking on a voluntary program between the makers of sickle cell gene therapies and state Medicaid offices to expand access, but it is limited to contracts that take the states off the hook if a treatment doesn’t work as intended. So-called outcomes-based contracts are rife with complexities and are unlikely to lead to widespread access for sickle cell patients.
Another potential method (not discussed by Fast Company) could be for case managers to require the two manufacturers of the sickle cell gene therapy to bid against each other. If the bids were too high, another option would be to continue the older ($50,000 per year) treatment, with the implied threat of running the clock out on the patents. If the patents only have 10 years left, the cost of waiting for patent expiry would be $500,000. That would be an incentive for the patent holders to make a deal.
The way Americans finance health care is a convoluted mess teeming with perverse incentives. However, there are a variety of methods the health care system could evaluate, including the use of indemnity insurance. Some costs, such as heath care, deserve to be spread out over a 40-year working career. For some care, a mortgage could include gene therapy.
Read more at Fast Company: These breakthrough gene therapies cost millions of dollars. Is a mortgage model the secret to paying for them?