Paying for cures?

There was a pretty awesome science breakthrough yesterday on the genetic and physiological roots of schizophrenia.

From Nature:

The most strongly associated markers in several large case/control cohorts were near a complex, multi-allelic, and only partially characterized form of genome variation that affects the C4 gene encoding complement component 4 (Extended Data Fig. 1) . The association of schizophrenia to CSMD1 (refs 6, 10), which encodes a regulator of C4 (ref. 13), further motivated us to consider C4….
The association of schizophrenia to these genetic variants exhibited two prominent features (Fig. 4a, b). One feature involved a large set of similarly associating SNPs spanning 2 Mb across the distal end of the extended MHC region (we use this set’s most strongly associating SNP, rs13194504, as its genetic proxy). The other peak of association centred at C4, where schizophrenia associated most strongly with the genetic predictor of C4A expression levels (P = 3.6 × 10−24) (Fig. 4a and Extended Data Fig. 5). In the region near C4 (chromosome 6, 31–33 Mb), the more strongly a SNP correlated with predicted C4A expression, the more strongly it associated with schizophrenia (Fig. 4b, bottom panel)…..

What this research means is that scientists are isolating a probable cause for at least some forms of schizophrenia. A specific gene variant causes some immune systems to ineffectively prune neurons during the transition from late teens to early adulthood.

This is amazing. It gives bio-chemists, neurologists, doctors and drugmakers a fairly precise target to chase for new drugs. The best case scenario is for those drugs that have yet to be invented will be available for prescription in eight to ten years. The probable case is much longer.

However there are several things that a best case scenario illustrates for discussion purposes:

• How much should a drug cost?
• Who should get them?
• Who pays?

Schizophrenia is an expensive condition to treat.  On average, schizophrenia costs $10,000 or more per person per year in direct medical costs.  Indirect costs are higher.  Treatment right now is harm mitigation, psychosis minimization, and behavioral modifications.  If there was to be a cure or a significant prophylactic treatment that significantly reduced symptoms it would be a game changer.

Let’s assume a wonder drug that has a high probability over a course of a single treatment regime of indeterminate time where the end result is a very significant reduction in the number of people who are diagnosable at the end of the treatment and observation regime with schizophrenia.  How does that wonder drug get priced?

Assuming a fifty year life after initial diagnosis and initial treatment cost of $10,000 per year, the lifetime incremental net present value of treatment cost can vary between $480,000 (3.5% medical inflation rate, 3.5% discount rate) to $900,000 (6% medical inflation rate, 3.5% discount) to $1.2 million dollars (6% medical inflation 2.5% discount rate).  These assumptions are highly sensitive to initial assumptions, but over the course of a lifetime, any assumption produces a fairly large incremental cost to treat.

Under a basic analysis of market forces, the wonder drug would be priced at a smidgen below current cost of treating schizophrenia with a discount equal to the failure rate of the wonder drug.  This schema could produce pricing of $300,000 or $500,000 for a prophylactic regimen given to teenagers who had the bad version of the pruning gene.

The argument would be that the regimen brought forward the very long run costs and avoided them, so the economic value over the life of the individual being treated to avoid a serious mental illness should be encapsulated with a minor discount for the new technology as it saves the system money over the very long term.  This is basically the argument that has been used when Solvaldi was introduced.  Hep-C had lifetime treatment costs above $100,000 per individual, so a pill at $85,000 that produced a cure was a “good deal”.  Since then, competition by similar drugs with similar results have driven down the actual prices paid for the new Hep-C cures.

That argument may be valid, but it would be an argument that bankrupts every single insurer in the country and most states’ Medicaid and CHIP programs in the first year.  It would be a replication of the Hep-C cost crisis times a thousand.

Instead the payers would do two things.  The first would be to use public pressure initially and then competition among near substitutes in an attempt to drive the cost of the drugs down to the combined cost of R&D plus manufacturing/administration.  Secondly, the payers would be looking at massive up front costs if they treated everyone.  They would try not to treat everyone.  They would treat people who had the highest probability of becoming schizophrenic.  People would be assigned a risk score based on some set of criteria and only the people in the top tiers(s) would get the very expensive drug as that is where the greatest bang for the buck would lie.  The goal would be to treat the worst off and most probably the most expensive over the course of the lifetime while hoping that the non-treated but eligible for treatment individuals can muddle through long enough for prices to come down.

And that raises the question of who pays?  There is a good argument that the federal government could and should finance a very large public health campaign to reduce Hep-C to a small, localized disease through funding very aggressive pharmaceutical treatment to reduce the carrier pool and needle exchange to reduce the odds of infection transmission among non-treated carriers and frequent testing among high risk populations and less frequent testing among all populations.  A single large public health pulse over several years would knock Hep-C back significantly.  Knocking back an infectious disease produces very large gains through cost aversion in the out years.   Schizophrenia is different as there is always a new cohort of people who are entering the high risk years of teenage and early adulthood neurological pruning.  Treating a member in a network at high risk does not change the risk of symptom manifestation of other people in that network unlike in the Hep-C example.

A single pulse would not solve the problem.  It would improve the lives of many people who are touched by that pulse but five years later the next cohort would face the same risk profile no matter how successful the previous pulse was.

There can be a good argument that the federal government should take on the costs of prophylactic treatment of individuals with high risk genetic markers.  The feds could use their purchasing power to get a good deal among a set of near substitutes to reduce overall costs.  Furthermore, the federal government can afford to wait thirty years for pay-offs as the population does not churn.  Private insurers would gladly hand off the risk and the costs as they know that if they treat a 16 year old, they won’t see the reduced future costs as that 16 year old will have moved to Nashville to start a bad band at age 21 and then goes to work for a medium size financial service firm in Denver at age 32.  If a treatment like this was to be paid for with private insurance, the Exchanges would be better able to handle this type of shock as there is back end risk adjustment so insurers would not run from these risks.  Group insurance would not have risk adjustment so insurers would run like hell if they can.

This is a tough example and it deserves some thought as to how a drug or treatment regime would be treated.