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RAND Report: Alternative Financing Schemes May Be Needed to Pay for Expensive New Medications
In an era of $1,000-a-pill medications, a new approach may be needed to finance an emerging breed of highly expensive pharmaceuticals and vaccines, according to a new RAND Corporation analysis.
In other industries, it is common for suppliers to encourage investment through approaches such as equipment leases or supplier-financed credit. Health care could learn from such approaches, according to lead author Dr. Soeren Mattke.
Instead of paying upfront for the cost of a treatment — $20 billion to vaccinate Brazil’s 203 million people against dengue fever, for example — a health system could issue debt instruments to the manufacturer, Mattke said. Those instruments could be structured as bonds, as mortgages, or as lines of credit. Terms and interest rates would vary.
It’s not unprecedented, even in the health care industry, researchers say. When hospitals need expensive equipment, they might lease it, or the supplier might offer a financial arrangement to help with the upfront cost.
“So it’s not far-fetched for pharmaceutical companies to offer payers financial arrangements to ease some of the up-front costs,” Mattke said.
New approaches to pay for health care may be needed as the pharmaceutical industry has turned its attention to specialty breakthrough drugs.
“Pharmaceutical companies are focusing on highly targeted medicines to treat rarer conditions and smaller numbers of patients,” Mattke commented. And when the drug offers a cure, the companies must make their investment pay off over a shorter period of time.
“In order to get to a blockbuster, drug companies may need to charge $100,000 per course of treatment and give a medication to 10,000 people,” Mattke said. “In this scenario, you have a drug that is highly effective, a good value for the money, and yet you have payers saying that they cannot afford it because of the front-loaded nature of the cost.”
One drug that captures the tension between immediate budget concerns and the long-term value of treatment is Sovaldi (sofosbuvir), a drug made by Gilead Scientific that cures hepatitis C virus (HCV) infection in 95% of patients, albeit at a cost of $1,000 per pill, or $84,000 for a typical course of treatment in the U.S.
The short-term effect on health care budgets can put this cure out of reach, Mattke said. Express Scripts, a pharmacy benefits manager, estimates that prescription drug spending on HCV infection will increase 1,800% by 2017.
But Sovaldi might pay for itself in, say, 10 years in savings from reduced hospital stays and liver transplant costs, according to Mattke. “So stretch those payments over the time period in which the savings would materialize,” he said.
There are caveats to such financial schemes, write Mattke and his co-author, Emily Hoch. For example, companies would have to show that “real world” outcomes were as good as clinical trial results to receive full payment.
If the drug or vaccine didn’t work as well as promised, repayment would be lowered accordingly. A neutral third party would need to design and evaluate the payment arrangement and evaluate the drug’s effectiveness in a “real world” sample of patients.
Such financial arrangements could work well in countries with national health systems or at least stable insurance coverage, Mattke said. They would be more difficult in the U.S., however, where patients often change health plans.
“It’s possible, in theory, in the United States if you have a transfer mechanism,” Mattke said. “If I get cleared from hepatitis C from one insurer, the debt would have to travel with me to my next insurer.”
The authors are currently working on a paper to explore options for how a long-term repayment system could operate in the U.S.
Sources: RAND Corporation; March 11, 2015; and Perspective; 2015.