Health care leaders are gathered today in Boston for The Economist’s Health Care Forum to discuss progress in cancer care and how to pay for the innovations that may one day cure this diverse set of diseases. If the recent hepatitis C example is any indication, it’s clear today’s health care system isn’t financially prepared for a cure.
The treatment of hepatitis C experienced a massive breakthrough in late 2013, when the FDA approved two novel therapies for the disease. Despite high cure rates with the new options, state Medicaid programs and private health plans have been denying patients access to the treatments for financial reasons. Yet financial analyses suggest the therapy offers substantial savings over the long-term.
“It’s a paradoxical situation,” Soeren Mattke, senior scientist at the RAND Corporation, said. “You have a therapy with undisputed value, but a payer can’t pay for it because of their cash flow problems.”
Their short-term cash flow issues are preventing the economy — and patients — from reaping the lifelong financial benefits. While a curative therapy has a reported price tag of $84,000, the alternative is ongoing supportive therapy, at nearly $10,000 per year. In just nine years, then, the novel therapy would pay for itself. And after 25 years, the cost of supportive therapy would reach an estimated $242,000, several times the cost of a cure.
But today’s health systems were not designed to recognize such long-term cost-savings. Private insurers are not guaranteed to realize them, since their members can change health plans yearly. And more cash-constrained programs like Medicaid and the U.K.’s National Health System are up against strict annual budgets that don’t lend themselves to future-looking decisions.
What health needs is a way to finance those early upfront costs over the long-term. “Treatment costs can be stretched over time, making therapies more affordable for payers,” Mattke said. “It’s been kind of an accident that no one has thought of financing treatments before.”
Treatment costs can be stretched over time, making therapies more affordable for payers. It’s been kind of an accident that no one has thought of financing treatments before.
This happens every day in housing and education. When we purchase a house or put ourselves through college, we don’t pay for it all upfront. Without credit markets, we would have fewer homes and college diplomas, both of which provide lifelong value for their owners.
Even in health care, examples exist. Medical equipment manufacturers offer health care facilities financing options to lower upfront costs.
Payments could even be linked to real-world performance to reduce the risks associated with new technologies, since clinical trials don’t always mimic the real world performance of a drug. “You don’t want to be stuck paying for something that isn’t working,” Tomas Philipson, Daniel Levin Professor of Public Policy at the University of Chicago, said. “Tying payments to performance is harder to do administratively but not impossible.”
Returning to the problem that private payers face, of patients’ moving from one insurer to another, Mattke noted that it’s not an insurmountable challenge. “It’s only a technicality,” he said. “When you move, you sell your mortgage, right? It’s all about money flow, and that can always be managed.”
And yet resistance to such financing innovation remains high. Private insurers and Medicaid have found it easier to ration therapies, but we’re beginning to see a backlash. Earlier this month, health experts urged the White House that Medicaid should provide patients with better access to new hepatitis C therapies.
The hepatitis example was a wake-up call for health care payers, Philipson said. “New innovations are coming to market, and we’re going to run into this situation more and more,” he said. “If we don’t solve these cash flow problems, there’s going to be less innovation.”