Earlier this week, Bluebird Bio received FDA approval for a genetic treatment for a disease called beta thalassemia. This disease makes blood cells not have enough hemoglobin. It is a very rare disease with perhaps 1,000 people in the US being symptomatic. It is also one hell of a policy challenge.
Priced at $2.8M per dose. ICER analysis estimates cost-effectiveness up to price of $3M (given mean $6.5M lifetime cost for beta-thal).
— Pradeep Natarajan (@pnatarajanmd) August 17, 2022
Two things can be true.
- Over a societal perspective and infinite time frame, a $2.8 million drug/cure can be cost effective
- For insurers using 1 year contracts, this is a massive cash flow problem
Structurally this is a similar problem that payers including private insurers and Medicaid agencies faced in 2013 and 2014 when the first Hep-C anti-virals came on the market. A disease that previously had been poorly managed could likely be cured with a cost effective one time treatment that was equal in price to several years of the previous best in class treatment. 5 or 10 years worth of costs were compressed into a single quarter for a patient who received the treatment. The payer had no guarantee that they would ever see the reduced expenditures in Year 2 through 10 if they paid for the Hep-C cure in Year 1. Almost all of the benefits accrued to either the now much healthier individual or future payers. Insurers aggressively found ways to not pay for Hep-C cures early on. I would not be surprised if insurers have significant and arduous prior authorization requirements for a drug that costs almost as much as the first arbitration year of a Major League average 2nd basemen with a bit of pop in his bat.
In the ACA context, insurers probably have a pretty decent idea of where the people who are likely to qualify for this treatment live in a given state. This treatment will not risk adjust well so anyone who receives this treatment will be a massive money loser for the insurer. A big insurer with several hundred thousand covered lives in a single state might not care but smaller insurers could see most of their profit margin disappear if they get five of these patients. This may change decision-making.
The current budget neutral federal catastrophic reinsurance program where the feds pay a fraction of all claims costs over $1,000,000 per year will help make insurers risk agnostic but it is likely to be insufficient. Reinsurance programs that pay a percentage of claims between say $20,000 and $250,000 will also slightly reduce idiosyncratic tail risk. However, as I mentioned yesterday, these “caliper” reinsurance programs are not efficient at removing risk from insurers even as they are effective at lowering gross premiums.
Here is where a national reinsurance program where every insurer in a given line of business pays into a pot that covers this, and likely other, expensive genetic cures would be quite useful in shaping markets where insurers compete on their ability to negotiate prices and effectively manage care to reduce premiums without pissing off their customers too much instead of a market where insurers compete against other insurers on their ability to identify and run like hell away from bad risk.