StatNews has an article that the Bubble Boy genetic disorder may be curable and raises an excellent example of the pricing and ethical challenges of high cost cures:
GlaxoSmithKline has developed what looks like a cure for a rare and deadly disease, and it’s going to cost $665,000 for a single dose….
Strimvelis, is a gene therapy for severe combined immune deficiency, an inborn illness that leaves children unable to protect themselves against infection.
those results are worth $665,000, according to the Italian Medicines Agency, which agreed to reimburse for GSK’s drug. Severe combined immune deficiency is otherwise treated with risky bone marrow transplants or enzyme replacement therapies that must be taken for life and can cost more than $4 million over the course of a decade, GSK said. Strimvelis, by contrast, could be a bargain.
The initial human clinical trials show that this drug works and it is much more cost effective than the current next best alternative treatment regime. The problem is the price. $655,000 is a lot of money for a single dosing regime. Insurers and other payers would be facing dramatic shocks as what was a constant stream of money is a one time bucket of money instead. The stream of money could be managed by an insurer in the United States being absolutely fugly and driving persistently high cost patients away and onto someone else’s books.
Yet the current price of $655,000 is “only” eighteen to twenty four months of incremental pricing for the current next best alternative. So this is a good deal for the payer with infinite time horizons and an amazing advancement in the quality of life. It could be a financially sucky deal for insurers that assume a lot of churn in their business model. In that case, their best incentive is to deny and delay while praying that the sick individual goes elsewhere.
So in the United States, how do we change that incentive structure? One of my hobby horses is the creation of health cost averted bonds. This is the same logic as creating residual revenue streams for preventive care.
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.
Instead of paying for prevention, future insurers of an individual with SCID would pay the insurer that payed for the gene treatment $5,500 a month for the first ten years. If the individual stays on the same insurer a month after treatment, it is purely an internal accounting mechanism. If the individual is treated by Big Blue but comes to Mayhew Insurance, Mayhew Insurance writes a steady stream of checks for the length of stay on the new Mayhew policy.
If we want to really encourage wide spread adaption of this treatment regime, we add a second layer of transfer payments. If the current treatment regime has an annual average cost (over a ten year span) of $400,000 per year that the gene therapy averts, a transfer payment that is some fraction of the monthly expected costs under the previous best alternative would be made. So the transfer payment would by $5,500 for the treatment and say $10,000 for costs avoided. Monthly average costs avoided would have been around $63,500 so the remaining $18,000 is net systemic cost savings. We can fiddle with those numbers but the idea is to pay the payer for both the cost of the cure and some shared savings of the cure. (The same logic could apply to paying the drug maker for the averted costs in a gain share arrangement where the drug maker sells “direct” to the patient and more importantly the averted cost bond market).
And oh yeah, the kids are better and after a couple of years they are trying to learn how to ride their bicycle while wearng a superhero cape.
That is the core win.
jamesjhare
I’ve got a toddler and that last line just damn near killed me.
MomSense
@jamesjhare:
Same here even though mine are all grown up now.
Feathers
But again, what if this kid then gets some other costly disease within those ten years? It seems to me that the medicine bubble and the higher Ed bubble are similar. You have “worthy and benevolent” institutions basing their pricing on “added value”. But when multiple sectors are doing this, how is it supposed to work?
Kylroy
@Feathers: The question isn’t if any specific kid gets a costly disease, it’s whether recipients of this treatment are, as a whole, significantly likelier to get other costly illnesses later.
Zinsky
This article is a classic example of why decent societies don’t allow greedy pharmaceutical or health insurance companies to price their products or services at any level they damn well choose. Public health is part of the commonwealth and should be subsidized through public taxation, not thrown to the vagaries and capricious forces of the so-called “free market”. That is why the founders put into the preamble to the Constitution that one of the primary roles of government is to “promote the common welfare…”. What do these right-wing assholes think that means anyway?
Tissue Thin Pseudonym
@Zinsky: A large part of what is going into the price is that GSK probably spent a huge amount of money developing this treatment. There are probably 40-100 new cases of SCID in the U.S., and this this treatment only needs one dose. So, the R&D cost has to be amortized over 40-100 uses per year.
There is no regime under which that drug could be anything less than horrendously expensive.
Tom65
I just have an objection to pricing life-sustaining drugs out of the reach of the very people it would save.
Zinsky
@Tissue Thin Pseudonym: It’s called monopolistic pricing and it always results in the consumer getting screwed. GSK is not producing this drug out of the kindness of their hearts. Don’t kid yourself – there is a very hefty profit margin baked into the price they want to charge. Government should subsidize this, not the individual consumer.
Feathers
@Kylroy: I’m seeing the issue as if a year of life is worth $50,000, what happens when entities in multiple sectors are pricing their products as thus being worth $50,000 (or $500,000).
chopper
will they tho? this is a pretty rare disease. I can’t imagine an insurance company having to pay out for more than a few of these treatments.
Sam Dobermann
A much simpler way to handle this is to require the pharmaceutical company to sell this drug for, say, 6 years of equal monthly payments by the insurer. Then if patient leaves insurer 1 after a year or two insurer 1 won’t be stuck for the whole thing. Insurer 2 will have to take over the payments ….
And I wouldn’t allow pharmacy to charge interest!
The Other Chuck
Do we have any inkling what the marginal cost of the drug is? The R&D investment needs to be covered, sure, but one could imagine other ways of reimbursing that, and it doesn’t intrinsically make the drug into unobtanium regardless.
Major Major Major Major
@Zinsky: The alternative is no drug pricing since there would be no drugs. Government subsidies wouldn’t work the same because with the market-based research amortization plan there’s a natural bias towards treatments that will actually work, and work at scale, which is not true in institutional research and hard to game out in a government-subsidized scheme.
Stan
Two things:
SCID is not particularly rare. It is probably under-doagnosed because a lot of infants die of e.g. pneumonia when the underlying cause was really (undiagnosed) SCID. In New York, which screens all newborns for SCID, I believe the incidence is about 1:50,000.
Second – a cord blood transplant immediately after birth is also a cure and is damned cheap to boot. Obviously that doesn’t help older children with the disease, but it *cures* SCID in newborns.
Just thought I’d add that.
Richard Mayhew
@Tissue Thin Pseudonym: I am guessing GSK chose this pathway for a few reasons. I don’t know which one(s) apply.
1) someone high at GSK has personal experience with SKID
2) Rare/Orphan drugs can get a transferrable waiver for accelerated FDA drug review that can be sold for mass market drugs (the going rate for those waivers is $200 million +)
3) There might be an interesting cluster of diseases with similar mechanisms where SKID is the proof of concept application
4) As nose into new payment models as this is an extremely small, extremely sympathetic and extremely managable population to try out shared savings, gain sharing and effectiveness pricing. If it works for this disease/cure combination, it could work for something that applies to more people at a lower total cost
5) pure profit making opportunity.
I don’t know which ones make sense
Richard Mayhew
@chopper: If Mayhew CHIP has to pay for a single dose of this, it blows up the risk model for the year. Kids “should” be cheap
cervantes
I have a much better solution than kludgy bonds. Universal, comprehensive, single payer national health care.
Richard Mayhew
@cervantes: okay, 218-60-1-5
Fair Economist
You should be working in a thinktank or for the legislature.
Ian
This does not justify charging that much money for a life saving medicine. I want to see the R+D numbers, the GSK profit margins, and the real cost of this drug. If those things actually cause it to be 655,000 dollars than we have mucher bigger problem across the board.
Richard Mayhew
@Fair Economist: want to help me get a new job? I’m up for that.
RaflW
@cervantes:
I have to say, I’m coming around on single payer publicly funded insurance for under-65s (or whatever the Medicare age is now, 67?…)
I think how progressives have campaigned for single payer has often left me flat, but as we see for-profit (and the Blues, with their strange sort-of-nonprofit status) pulling out of more and more state exchanges (or whole states private ins – I’m losing my non-exchange Blue Cross plan this Dec and have to shop … again. Ugh).
I am ready for the country to finally freakin’ admit that the capitalist model is shite for pricing and administering a public good like healthcare. Maybe a fantasy (in the short term), but I think there is a reason that most countries do it (and we do for the olds).
I hope we can manage to get HRC as president. Because if we have the Trumpenfuhrer, our health insurance problems will get much worse, pronto. I think if we can sweep the GOP out of the Senate, hold the WH, and dent the US House, we might be able to start having single payer actual policy discussions by, perhaps, the time she starts campaigning for a second term.
But whadda I know – only wishes…
cervantes
@Richard Mayhew: WTF does that mean?
Richard Mayhew
@cervantes: the minimum winning coalition to get system transforming change (218 votes in the House, 60 in the Senate, 1 President, 5 SCOTUS)
cervantes
Ahh. Well, that may never happen in one swell foop, but we can sneak up on it maybe someday. Lower the Medicare age, allow Medicare buy-in for younger people . . .
Interrobang
@Stan: I just did a quick scan of the literature, and cord blood is not a “cure” for SCID. It’s a treatment that gets them to the point of most likely needing immunoglobin therapy lifelong, and doesn’t work in some cases, so you’re comparing something that sort of works in most cases to something that completely works 100% of the time, albeit in a small trial. It also seems to be disfavoured over bone marrow transplantation.
KithKanan
@Richard Mayhew: How do you get the kind of bonds you’re talking about without 218-60-1-5?
Why would any insurer downstream pay for those without a law forcing them to? If it already takes a law change then wouldn’t a national reinsurance program for cases like this make more sense than a convoluted structure involving downstream cost recovery bonds?