Earlier this week, the Food and Drug Administration (FDA) approved a new cystic fibrosis (CF) treatment that can be used against the mutations that 90% of the people who have CF and are over the age of 12 have. This is a major risk adjustment problem.
- Perfect risk adjustment should make insurers indifferent to population characteristics
- Risk adjustment is never perfect
- Most risk adjustment systems don’t deal well with shocks
- Selection and screening are to be expected
The Food and Drug Administration has approved a triple combination therapy manufactured by Vertex that would treat 90% of patients with cystic fibrosis.
The big picture: The approval of Trikafta came in record time at five months and will be priced at $311,503 annually, or $23,896 per 28-day pack
That is a lot of money. Insurers don’t collect enough in premiums from someone with CF to cover that expense. Instead, they must rely on reinsurance and risk adjustment to help cover the expense.
The ACA risk adjustment system currently adjusts for cystic fibrosis. In 2020, an individual with cystic fibrosis (HCC 159) has a risk adjustment co-efficienct between 6.2 and 6.673 times the average statewide premium. Nationally, that means an insurer covering someone with cystic fibrosis will receive a credit of about $40,000. The $40,000 is not perfect. Some people will have lower incremental costs than that, other people will have significantly higher incremental costs than that. It varies widely at the individual level and there is error at the group level as well.
Costs can be trended and adjustments can be made. However these models have trouble when there is a major technological shock.
A new treatment that is used for a large proportion of the potential population of interest and which is notably more expensive than the baseline treatment regime blows the calculation out of the water. All of a sudden, a lot of the people who had relatively low incremental costs because the previous best course of treatment might not have been that good but it was cheap are now getting a much more expensive and effective treatment. This is good for their quality of life. It is bad for functioning insurance markets as insurers are no longer close enough to risk indifferent due to the change in the mix of folks who are now receiving high cost treatments versus the much smaller number of folks who are receiving low cost treatments.
Insurers when faced with a population that is unexpectedly but now predictably high cost net of risk adjustment and reinsurance will have strong incentives to find ways to not cover folks with cystic fibrosis. Strategic entry and exit from certain counties is one tool. Hoop jumping and administrative frictions for pre-authorization and re-authorization of prescriptions could be another as well as network adjustments to cut out the leading centers and clinicians that treat most of a region’s patients who have CF would be another viable strategy.
Risk adjustment does not handle technological shocks well as the current systems effectively assume that the present and near future will look like a somewhat lagged past.
Capri
There was a story in my news feed that the UK just negotiated a price for this companies’ first CF drug. Until they got the manufacturer to the table and got concessions from the company the drug wasn’t available. It’s still not cheap, but at least there is an effort to make the company do its part.
It’s a shame the US isn’t willing to do this – shifting the burden onto individuals who have to duke it out with insurance companies for life-saving treatments.
Mathguy
It would be very interesting to know what the development costs were and profit margins are on this drug cocktail. Forgive me for being extremely skeptical of a 300k/year cost.
Cermet
First I heard of this drug was on NPR and they claim that this is merely a mix of three existing drugs. As such, this drug would require very little new testing compared to a really new drug never used in humans before. That said, wonder what the ridiculous costs of each of those drugs are? Can be certain of one thing – the real cost to develop these drugs is a tiny fraction of what they claim – always.
TomatoQueen
Hep C redux?
taumaturgo
Do you deduce that is a lot of money for much-needed life-saving drugs? This is a much clearer example of a LOT of $$$! fiercehealthcare.com/payer/ceo-pay-2017-342-million-unitedhealth-molina-cigna-aetna
David Anderson
@TomatoQueen: In some ways yes, especially as it applies to risk adjustment in the first year of deployment. In other ways, this is meaningfully different as I don’t think there are another half dozen drugs in the near term pipeline with clinically similar effects for CF unlike Hep-C so the economics are very different.
bemused senior
I want to be sure the cost-benefit analysis considers the immense loss incurred when young lives with enormous potential are lost. RIP and breathe easy, my friend Katherine Ramer.
Zelma
Do you know what the NHS will be paying for the drug? Let’s pass a law that says that no drug in the US can cost more than the average price being paid in Britain, France and Germany. Given that the NHS usually drives the best bargain, this might be sort of fair. But just sort of – because the profiteering from drugs is sinful.
Gretchen
David Corn has a new article saying that our brains are more hard-wired to avoid loss than to seek gain, which could affect people’s willingness to vote for M4A. motherjones.com/politics/2019/10/are-our-brains-wired-to-reject-medicare-for-all/
Of course he’s being attacked as a tool of the insurance industry and asked how, if this were true, how do other countries have universal health care? I’d love to hear David Anderson’s take on the question.
Gretchen
The answer, at least for Britain, is that they had no system before the NHS so most people got something much better with no loss, but the M4A folks think this is a gotcha. I don’t know how other countries who got it later fit into this.
jl
@Gretchen: The NHS was, at least originally, a completely nationalized health care system, government owned and run, from insurance finance to provision of services. There as been increasing allowance for private provision of services since then. Medicare is a single payer insurance finance mechanism, a social insurance system that keeps existing system of medical service provision intact. so a different kind of system. Latest research I know of indicates that people in countries with social insurance systems are more satisfied than those in countries with nationalized systems, on average. But social insurance systems are more expensive in terms of percent of GDP spent on health care, on average.
Hope that addresses your question. I don’t know what kind of gotcha the M4A see in that.
Gretchen
@jl: M4A purists refuse to admit that there’s a way to get to the goal of universal coverage besides their way, so all data supports their viewpoint.