The Incidental Economist at Academy Health is examining the next wave of very expensive therapies that could be cures for rare but extremely expensive diseases:
most diseases which are the focus of gene therapy research are relatively rare. Most of these conditions affect children. In addition, gene therapy is more like a procedure than a drug. You perform it once, and potentially achieve a lifetime cure. There’s no way that, like many pharmaceutical products, profits can be made on volume.
It’s important to note that at this time, we still don’t have a lot of promising results in human subjects. But we’re getting close – close enough that it’s best we consider how we might pay for this now, rather than wait until it’s here and we all start fighting about it.
We may expect that prices for gene therapy might approach previously unseen amounts. The only gene therapy currently approved for use in Europe is Glybera. It treats lipoprotein lipase deficiency, a rare illness. It’s now priced at more than $1 million per patient, even though, as the authors point out, its efficacy is not without doubt….
The authors offer some ideas on where to start. First, they present some estimates on the current cost of managing genetic disorders. Cystic fibrosis costs almost $6 million per patient over a lifetime. Gaucher disease about $5 million, sickle cell disease $1 million, and Hemophilia A between $5 and $10 million.
In the United States, the current regulatory regime has the current insurer of a patient with a rare, extremely high cost disease pay for ongoing treatments. There is an obligation that insurers pay for medically necessary non-experimental treatment regimes. FDA approved gene therapy regimes that promise a high probability of a cure instead of a lifetime of maintenance treatments, acute crisis response and symptom alleviation would easily qualify as a medically necessary treatment. This would produce a major collective action problem and a game of hot potato.
Let’s make some major assumptions. Let’s assume there will be a Cystic Fibrosis genetic therapy regime that offers a high probability of a cure and once the regime is completed, the individual’s medical expense profile goes from $200,000 to $300,000 per year to a profile that is indistinguishable from their age-group cohort. Let us also assume that the gene therapy is fairly priced (let’s not argue what “fair” means) at the cost of several years of alternative treatment (think $1 million dollars or more). Let us also assume there are multiple insurers and people with cystic fibrosis can change insurers (from Employer Sponsored coverage to Exchange to CHIP to Medicaid) with fairly low costs compared to the alternatives of cure or ongoing maintenance treatments. And finally, let us assume that insurers can’t directly and legally deny coverage for people with cystic fibrosis.
What are the incentives for insurers under the current regulatory regime?
The most basic incentive is to make someone else pay and do as much as possible to be as ugly for the cure regime possible.
When there are multiple payers, whomever pays for the cure is producing massive social benefits and massive individual benefits through better health and quality of life. They are spending several years or more of the alternative treatment costs to eliminate future costs of the alternative treatment because the patients’ lungs now work well. They pay out a million dollars in Year 1 so that the member with CF does not have ten or twenty more years of $300,000 a year treatments. On net, society is savings $5 million dollars in net present value treatment costs ($1 million for a cure vs. 20 years @$300K/year for $6 million). However due to churn, the insurer that pays for the cure won’t capture the long run savings.
With that incentive structure in place, every payer has a strong incentive to get someone else to pay for cures.
How do we solve this problem?
There are two very plausible solutions. The first would be to nationalize the costs of genetic cures for rare and very high cost diseases much like how we nationalize end stage renal disease costs. Medicare would pay for these genetic cures at a very early age and any needed follow-up care that is specifically tied to the cure. After the cure period is over, the treated individual would be placed back into the regular insurance world. The federal government would pay out the million dollars for a cure but society as a whole would capture the multi-million dollar long run benefits. This works because the government has an extremely long shadow of the future and can wait to capture dispersed benefits.
The other method would be a tweak on my idea to create property rights and income streams from pushing prevention:
Make it worth the while of an insurer to actively push good long term preventative care even accepting churn will and should happen. Follow-on transfer payments could be made by future insurers to the insurer that paid for the preventative care that has immediate costs but long run pay-offs.
The size and duration of the payments would differ depending on the pay-off period and either the cost of the preventative care or the net costs avoided….
An IUD is a bit different. Here the immediate treatment cost is fairly high and the duration of the benefit is three to ten years. Insurer B could conceivably make preventative care benefit payments back to Insurer A of $20 a month if the calculation is based solely on the cost of oral hormonal contraception. If there is calculation of averted pregnancies, transfer payments of $40 or $50 per month could be justified under some assumptions. These payments would stop after a reasonable calculated life span of an IUD or the actual removal of the device.
Finally, the HPV vaccine has a very different profile. It’s main cost saving function is avoiding cancers a decade or more after the administration of the vaccine. There is massive churn in a decade, especially among teenagers who become young adults. Two payment schemes could be created. The first would be the vaccine avoidance payment of a few dollars per month until an individual is 18. Then a decade later a second payment stream would be created. This stream would be a small monthly sum for cancer treatments avoided.
In a CF genetic cure scenario, the insurer who pays for the cure of CF could receive a payment each year from other insurers equal to either a lifespan adjusted cost of the cure (for instance annual $50,000 payments for 20 years) or a larger annual payment based on the averted costs of the next best alternative ($300,000/year for 20 years). Doing that would prevent a game of hot potato, intentional ugliness and cure avoidance as curing now becomes either net revenue neutral for an insurer or a net revenue generator for insurers that aggressively long term cost efficient cures even as there is a massive short term cost.
father pussbucket
Now we’ll see how pro-life the GOP is.
singfoom
Richard,
Thank you for all of these posts illuminating the complexities of health care / health insurance in our country. There’s definitely plenty of places like this where nationalizing the costs is the only rational thing to do because of how a private company or a private individual would be affected by shouldering those costs, whether it’s costs for R&D or paying for the treatment….
That said, do you see any places within our health insurance / health care system where you can nationalize with our given gridlock Congress? And when you start making the argument of nationalizing this little piece and this little piece, isn’t the inevitable end game argument “Shouldn’t we nationalize the whole system or large large swathes of it?”
dr. bloor
Your plan looks viable on its face, although maybe a little Rube Goldberg-esque in structure and practice. I’d be partial to government backstopping, which might be as bureaucratically complicated (I really don’t know), but at least takes us one step closer to acknowledging the inevitability of nationally-based health care payment/management.
HinTN
Oh, @father pussbucket, we know.
Minstrel Michael
One impediment I can imagine to the actual implementation of such a plan would be pushback from an actor who materially benefits from the conventional treatment, e.g. a pharmaceutical company that makes some (unnecessarily expensive) drug used in crisis interventions or ongoing health maintenance..
Richard Mayhew
@singfoom: any of these plans would need Congressional action
@dr. bloor: Straight up federalization via Medicare taking on genetic cures likes it takes on ESRD or immunosuppressent drugs for three years would be my first choice (less gaming, more transparent, cheaper) but the work-around with cash flow property rights would tickle the chins of marginal Congresscritters more as it would be “market based” instead of “coercive government” . Either one works, federalization works better but IMO slightly less likely to be implemented.
Richard Mayhew
@Minstrel Michael: Pharma is only slightly more popular than insurers. Picking on one asshole economic sector at a time and being able to roll off $30 or $40 per member per month in super catastrophic premium costs with some type of Pharma kickback could make this plausibly work ….
JasonF
Isn’t the simplest plan a genetic therapy reinsurer, with premiums paid by health insurers in proportion to their patient populations? So if I’m a Mayhew Insurance customer, and I need a million dollar therapy, Mayhew Insurance covers me, then gets reimbursed by its own insurer, and since its own insurer has everybody in its patient pool, you don’t get those perverse incentives/free rider issues since the reinsurer doesn’t care if I switch from Mayhew to BC/BS.
Richard Mayhew
@JasonF: There are multiple reinsurers so Mayhew might use Swiss Re and BCBS might use Lloyds
JasonF
@Richard Mayhew: Right, but isn’t there room for the Genetic Therapies Reinsurance Corporation that does nothing but reinsure genetic therapies? Maybe do it through the government, a la Sallie Mae or Freddie Mac.