Paying for Miracles – The High Cost of Cures

By Josh Barrett, M.D. Candidate, Georgetown University School of Medicine

It is every patient’s dream to hear the words, “You’re cured.” It certainly was for my relative, who suffered from chronic Hepatitis C for decades. For years, he underwent countless therapies that delivered only moderate, short-term relief. Visits to the clinic and overnight stays in the hospital became routine. When it became available in 2013, he was prescribed Sovaldi, the infamously costly medication. After the 12-week therapy, the disease that had defined and repressed his life vanished. He was cured.

Yet the ability to cure comes with a cost. For Sovaldi, it’s $84,000. As more “miracle” drugs become available, the issue of who pays for such cures – and how much – has generated debate. While such new drugs should be celebrated, their cost has prompted anxiety for payers and health plans.

The prominent issue is that the payer who assumes the cost of treatment may not financially profit. For insurers, the down-payment on a curative drug may not deliver a financial return for decades, if ever. For example, if a private insurance company pays for a 60-year-old patient to receive Sovaldi, the benefits to the insurer in avoiding long-term medication, liver cancer treatment or transplantation will only be realized for the short period before the patient becomes eligible for Medicare. Thus, it’s Medicare – or the federal taxpayer – that benefits from the insurer’s decision to cover Sovaldi, not the insurer. The insurer actually saves money by paying for a prolonged and less-effective treatment, while the patient continues to endure the disease.

Similar concerns have abated the excitement for the latest advances in gene therapy. Recent progress in the technique, in which viral vectors are used to insert normal genes into malfunctioning cells, has delivered hope to patients with rare genetic diseases, such as sickle cell anemia or cystic fibrosis. One company, Spark Therapeutics, which developed a gene therapy method to treat blindness, plans to submit its treatment for FDA approval next year. Yet the enthusiasm for these advances to cure disease has been tempered by estimates of its costs. The sticker price for the Spark Therapeutics procedure is estimated to be $500,000 per eye.

To counter such trepidation, unique payment methods have been suggested to encourage insurers to reimburse such an expenditure – and to minimize the public backlash against exorbitant drug prices. Rather than a one-time down payment on treatment, drug manufacturers have proposed that insurers pay in increments, provided that the treatment is still curative. This strategy would both reduce the upfront costs of cures and protect the payer against futile care or transient effectiveness. If the patient switches health plans, the new insurer would pick up the apportioned cost.

Another approach to combat the “free-rider” problem, in which no one payer has the incentive to invest in a cure since the returns will be distributed across many insurers, was introduced by University of Washington economist Anirban Basu. Professor Basu has proposed a new health currency deemed “HealthCoin” in which cures for patients are traded between public and private payers and the private sector. Similar to social impact bonds, in which investments that produce returns to the public sector are privately funded, private payers would invest in cures and reap benefits of reduced expected health care costs. Then once the patient becomes eligible, Medicare would purchase the present value of the HealthCoin, delivering returns to the private insurer.

Regardless of the specifics of the payment proposals, the increasing prospect of curative medical therapies has prompted some to re-think the way we pay for patients to benefit from these advances. Such developments are necessary – no patient should be denied life-saving treatment because of the cost. While the therapies discussed above currently apply to only small segments of the population, one can imagine the financial repercussions caused by the discovery of a miracle treatment for a more common disorder, such as Alzheimer’s disease or diabetes. While such cures should be feted with elation, we must recognize that in medicine even miracles have price tags.

Editor’s Note: This post is part of an occasional series by first year Georgetown medical student, Joshua Barrett.

 

2 thoughts on “Paying for Miracles – The High Cost of Cures

  1. What would be the long term costs associated with decades of treatment for chronic Hepatitis C?

    The quality of life of the patient is very important as is the cost of the drug. However, a comparison of the costs associated with treatment and drugs provides a more accurate view of the cost sharing.

    • Thank you for your comment, Candace. A recent study in Hepatology (http://onlinelibrary.wiley.com/doi/10.1002/hep.26218/full) estimated the lifetime cost of an individual infected in 2011 with Hepatitis C as $64,490 without liver transplantation. When medical inflation was applied, the lifetime cost rose to $205,760. The estimate varied significantly with age and gender because of life expectancy. An interesting study in Annals of Internal Medicine (http://annals.org/article.aspx?articleid=2362306) reveals Medicaid reimbursement policies for these expensive Hepatitis C drugs. In many states, Medicaid will only pay for the drugs for individuals with certain severities of the disease, such as advanced fibrosis or cirrhosis of the liver.

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