NCPA - National Center for Policy Analysis

Could Affording Drugs be Easier Under a New Finance Method?

May 7, 2015

Researchers at RAND Corporation have given a clear and precise description of a new financing mechanism for medical breakthroughs. The proposal would address a problem recognized about a year and a half ago, when healthcare payers launched high-profile complaints about the price of Sovaldi®, a miracle drug that effectively cures a strain of Hepatitis C, says NCPA senior fellow John R. Graham. 

In a nutshell, the problem is that Sovaldi® costs up to $84,000 per course, administered over a short period of 12 to 24 weeks. However, its benefits are lifelong: Hepatitis C patients live for decades with diseased livers. Transplantation is a $300,000 procedure followed by expensive drugs to prevent rejection of the new liver. Nevertheless, payers with annual budgets do not have adequate incentives to pay in one year for savings that accrue over decades.

RAND researchers:

  • Indicate that gene therapy will require a commercialization model that values early intervention with lifelong benefits much more than current models do.
  • Describe a borrowing facility (bond, mortgage or line of credit) the drug maker extends to the payer.  They give the example of a developing country in need of an expensive vaccine. The credit facility works such that the country would not pay the entire cost of one year's vaccinations in that year, but over a period of (e.g.) 10 years, plus interest.
  • Conclude that if drug makers are to be held partially responsible for outcomes, they need to be much closer to patients, by sponsoring education and other engagement.

Further, the long-term financing described by the RAND authors assumes people can somehow get public and private payers to look beyond one-year budgets. Unfortunately, health systems in both developed and developing countries are governed by politicians with very short-term horizons.

Source: John R. Graham, "Financing Breakthrough Medicine: Opportunities and Obstacles," National Center for Policy Analysis, May 6, 2015. 


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