A new class of medications was recently approved that cures more than 95 percent of people with Hepatitis C in only six weeks at a cost of about $84,000 per person, and new therapies with price tags that are likely to exceed $1 million per person are now available or coming soon. How can patients possibly afford them?
In an article published in the journal Science Translation Medicine, we outline a feasible market-based solution that could immediately expand access to transformative medications, including cures for Hepatitis C and cancer. The basic concept is to convert a large upfront medical expense into a series of more affordable payments, akin to getting a mortgage when buying a house. The challenge of curative medications that only require a short course of therapy is that the whole price is paid upfront — how many homeowners could buy their houses using only cash? Instead, most home buyers get a mortgage and make monthly payments for as long as they benefit from owning the house or until the full amount is paid. We propose the same solution to overcome the liquidity problem that prevents access to curative medications, which we call "health care loans," or HCLs.
The second problem with upfront payment is the possibility of buying a "lemon." Patients could unexpectedly relapse, die, or suffer a terrible side effect, in which case there's no opportunity to recoup a portion of the upfront payment. Therefore, we propose that amortized payments stop if the benefit stops (i.e., if the "cure" doesn't cure), thereby linking payment more closely to therapeutic value.
There are, of course, many complex ethical considerations and social ramifications related to the pricing of highly effective therapies above a threshold that permits universal access. Price gouging — like the recent 5,000 percent increase for a generic medication by Turing Pharmaceuticals — is a concern. To address this, some politicians and advocacy groups have proposed that prices be capped by legislation. Capping prices would stifle innovation and disincentivize drug development, the exact opposite of what we need.
Our HCL proposal has many advantages over price caps. It incentivizes (rather than disincentivizes) the development of highly effective therapies, because the greater the benefit, the greater the payment. And it can be implemented immediately. Our calculations indicate that bonds with competitive return characteristics could be raised to support HCLs across a range of financial scenarios. The creation of a large and liquid market for HCLs would give payers and lenders greater negotiating leverage with drug makers to get better pricing. Linking payment to value would establish a paradigm in which medications that offer very little benefit, like many of the recently approved cancer therapies, could not have exorbitant prices.
Under our proposal, most stakeholders would benefit. The drug companies would sell more of their drug, albeit at a lower negotiated price and with the risk of less payment if their drug fails. The payer, whether a private insurance company or the government, would provide a better service to their customers by overcoming the problem of liquidity. And the patients would get the medicines that they desperately need.
Our solution is far from perfect. The very idea of mortgaging health care is distasteful. The subprime mortgage crisis demonstrated how easily amortization can be abused, so tighter regulation of these mortgages would be essential. Patients would have to report on their ongoing health. Finally, mortgages introduce an inefficiency into the health care market by diverting some of the payment to investors. In fact, a law that mandates full coverage for curative therapies and allows for price negotiation would likely be economically more efficient than our approach.
Unfortunately, such a law has yet to be enacted. Rather than charge at windmills like Don Quixote, we propose a market-based solution to get patients the medications they desperately need right now.
Andrew W. Lo is a professor at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering. David Weinstock is associate professor of Harvard Medical School and Dana-Farber Cancer Institute.