CNBC reports that one of the hemophilia genetic treatments is going through the pricing process. Analysts think it could be a $1.5 million dollar drug. If this is a reliable cure like the Hep-C drugs, that is one hell of a bargain compared to current treatment.
New gene therapies that aim to cure hemophilia, a disease affecting the blood’s ability to clot, may carry prices of $1.5 million or more, analysts at Leerink wrote in a research note Monday….
For some patients, costs can approach $1 million a year, or even more. About 20,000 Americans have hemophilia.
This is a lot of money but I think it is still good value.
This will be the first major example of when cost effective/cost saving fails us in pricing. Kidney transplants are life saving but the surgeon doesn’t charge $1.5million. https://t.co/2leKnMyfrd
— Walid Gellad (@walidgellad) May 7, 2018
Assuming $1.5 million is the average price, then the US market has a $30 billion dollar warehouse of demand and under $1 billion in newly diagnosed individuals. That is a lot of money in any context but I want to go back to something I said in March regarding Hep-C cures:
1) They are really freaking expensive on both a per-patient basis and total spending basis
2) They are really effective and thus high value
We’ll dig into ACA risk adjustment to get some rough cost estimators. From there we can get a rough, back of the envelope break even point for a $1.5 million dollar cure versus current treatments.
Platinum Gold Silver Bronze Catastrophic
Hemophilia 61.183 60.705 60.325 60.299 60.296
What that means is an individual who codes as having hemophilia and a few other coagulation disorders is expected to cost an insurer, on average sixty times as much in monthly premium as the typical “healthy” member.
Using the 2018 State Public Use Files , I’ve calculated the average full year premium and the average hemophilia risk adjustment value for Silver buyers for each state. The full federal marketplaces have an average value of $449,835 per year.
Let’s assume that this is a complete cure with no future infusions needed after the course of treatment is needed. (This is a significant assumption but it baselines the question) There is variation among states. Break-even points, assuming uniform pricing for the genetic treatment, are shorter for higher cost states assuming the same severity of patient.
At a 3% discount rate, the net present value of treatment as usual after 4 years is $1.72 million dollars. At a 5% discount rate, the net present value $1.66 million dollars after 4 years. A 10% discount rate has a NPV of $1.54 million dollars after four years. I think a 10% discount rate is too high. The four year break even discount rate threshold is about 12.1%
All off these back of the envelope estimates support the contention that within a childhood, a hemophilia cure with no complications that costs $1.5 million dollars is a net money saver even if we completely disregard the improvements in the quality of life for the child and their family. I am betting there are quality of life improvements. I am also betting insurance companies will see a noticable reduction in catastrophic (multi-million dollar) claims and the variance in the extreme right hand side of the tail will be reduced. It makes pricing insurance easier.
Yes, I am putting my thumb on the scale with the assumption that there is a perfect cure with no complications. There may be systemic differences between the Exchange populations and other covered groups that could lead to different cost profiles and levels. But as a first pass, a $1.5 million dollar hemophilia cure with all of those caveats is not a crazy price from a societal level.
Once we get beyond the societal level, there are serious problems with a $1.5 million dollar cure. The biggest one is churn. Insurers who cover an individual with hemophilia will be facing the challenge of paying for a hyper expensive treatment in the coverage year with only some chance of collecting the cost savings in future years from averted “standard” treatments. For individuals with costly treatment regimes or who are prone to bleed, their annual costs are high enough that a $1.5 million claim quarter under standard treatment is a “good” quarter so they’ll be placed in the front of the line for the genetic cures because it saves the insurer money in the quarter after treatment.
Insurers will attempt to find ways to delay paying for cures for individuals who have reasonably well controlled hemophilia and who are at low risk of a major bleed. They will be motivated to make this cohort someone else’s problem. We should expect network games, we should expect pre-authorization hell, we should expect hoops upon hoops to jump through. And those games will continue for as long as there is only one high efficacy genetic treatment. As soon as there are multiple treatments, I expect these prices to come down like the effective Hep-C cure price has declined.
But overall, if there is an effective cure for some forms of severe hemophilia and if it costs $1.5 million dollars, it is still a great deal even if the first reaction is “Good lord, that is a whole lot of money….”