How to Pay For Effective But High-Cost Treatments

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I recently was joined on Sirius XM channel 111’s “The Business of Health Care” program by three expert panelists: Associate Professor Jalpa Doshi, Ph.D., Penn Medicine; Nancy McGee, Dr.PH, Executive Vice President at Avalere Health; and Soeren Mattke, Ph.D., M.D., Managing Director RAND Health Advisory Services, who discussed how the U.S. health system might address paying for very expensive yet highly effective (i.e. curative) treatments. The quandary that the U.S. health system faces is that the cost and cure occur in the short term, yet the benefits occur over the longer term. Compounding this issue are two related challenges: The volume of patients affected by a condition/disease and the fact that patients can switch health plans on a periodic basis (e.g. every three to five years). Thus health plan X can incur all of the costs yet none of the benefits that health plan Y receives after the patient is cured and switches to plan Y.

A case in point is the drug Solvaldi, which is curative for Hepatitis C. Recent estimates are that this drug costs $84,000 for a 12-week course of treatment. Additionally, with a prevalence of approximately 3.2 million people infected with Hepatitis C and 17,000 new cases annually, the costs add up very quickly.

So how should our health system pay for these types of therapies without bankrupting the system and patients, and without delaying or abandoning therapy? (Note: recent studies have found that financial insolvency has been found to be a risk factor for mortality in cancer patients.)

The panelists discussed how to pay for these short term costs and longer term benefits, agreeing the that key factors to consider are the prevalence, population to be treated, who pays for the therapy, the potency/effect of the treatment, and its price. It’s critical for the payers, drug manufacturers, and the FDA to plan ahead for how best to manage this issue. Currently, there is really no coordination or communication between these entities. The panelists also agreed that this problem is likely to get worse unless something is done, considering advancements in science towards curative treatments—e.g. gene therapies.

One of the more promising concepts discussed is outcomes-based payment contracts between drug manufacturers and payers. Under this model, outcomes are paid for if and when realized, and discounts would be considered based on patient adherence to medications. Alternatively, non-adherent patients would pay more, and therapeutic failures would not be paid for or paid less. We may see these types of arrangements soon. Stay tuned.

 

For audio of this episode of “The Business of Health Care” on Business Radio Powered by the Wharton School on Sirius XM Channel 111, click below:

 

 

 

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