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Curative Therapies

“Drug mortgages” may be the solution to fund million-dollar cures

Elizabeth Gardner | April 15, 2019

Key Takeaway: Drug companies and payers need to innovate to confront the new economics of curative therapies with six- and seven-figure price tags.

An MIT finance professor used the Thursday morning Health Evolution Summit discussion “The Age of Curative Therapies — Moving Towards a Cost-Benefit Equilibrium?” to elaborate on his proposal to pay for six- and seven-figure curative drugs the way most people pay for houses—over many years.

“You have a one-time treatment with a lifetime of benefits,” said Andrew Lo, a professor at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering. “If you require people to pay [upfront], it’s unaffordable, just like most people can’t buy homes for cash. We should think about creating a ‘drug mortgage.’”

Of course, a patient with health insurance would not pay the bulk of the installment cost, but their insurer would reap similar affordability benefits from stretching out the payments on a million-dollar cure for cancer or blindness or rheumatoid arthritis or congestive heart failure. Only a few genuine curative drugs have hit the market so far but “the biotech pipeline is exploding,” said host Jackie Kosecoff, managing partner at investment firm Moriah Partners. The first gene therapy treatment in the U.S., Luxturna by Spark Therapeutics, was approved in 2017 to treat a rare, inherited form of blindness, with a price tag of $850,000.

Insurers are accustomed to paying a certain amount annually to manage diseases but fronting a much larger sum in order to eliminate those perpetual annual costs is not something their budgets are set up to handle, Kosecoff said.

Discussion leader Jean-Jacques Bienaime heads a company, BioMarin, Novato, Calif., that hopes to release a treatment for hemophilia that has all the earmarks of a cure, based on clinical trials, and could be priced at $1 million or more for a single curative dose. He justified the high price because the drug would eliminate the $300,000 to $800,000 typical annual cost of treating a hemophilia patient, generated by twice-weekly transfusions and frequent bleeding episodes that destroy the joints of many patients by the time they are in their 20s. With 300 or more cell therapy and gene therapy trials now under way, “many drugs are coming and there is definitely a need to improve the payment system,” he said.

Under Lo’s model, insurers and payers would partner to work out a value-based price, and payers would purchase reinsurance to further limit their risk. He observed that Spark Therapeutics met with payers beforehand to discuss how to handle the high price, including providing a money-back guarantee and discussing installment payments.

Spreading the payments out could help remove a major block for payers who pay for expensive cures only to lose their now healthy patients to another health plan, said Lo, if the installment payments followed the patient from payer to payer. “If you edit the preexisting conditions rule to including preexisting financial conditions, that would solve the problem,” he said, adding, “Good luck getting that one through the legislature.”

Drug companies have an incentive to work out payment plans so that patients aren’t shut out from cures by limitations in payers’ budgets. “We would prefer payment over time and pay for performance,” said BioMarin’s Bienaime. “This is better for everyone.”

About the Author

Elizabeth Gardner, Staff Writer