How to pay for cures

Do you want to cure cancer?   Diabetes?  HIV?  Imagine if there was a single pill for each of these diseases that one could take to cure the diseases.  That would be a clear clinical advance, it would save lives, and also save money form reducing the cost of treating these disease.

Can we expect to see these cures?  This is partly a question of science and partly a question of finance.  On the science side, curing complex diseases is difficult and this fact should not be underestimated.  On the finance side, however, innovators have less an incentive to invent cures than to invent treatments.  For instance, let us say that someone had a drug that would treat diabetes, but patients had to pay $1000 per month over 50 years (60 months) in order to keep the disease in reemission.  This means that patients and health plans will spend $600,000 ($1000 x 50 years x 12 months) over this time period.  If someone could invent a drug that had the same efficacy in terms of long-term, 50-year disease remission, the treatment would be worth at least $600,000.  However, health plans may not be able to afford spending $600,000 per patient in the short-run.  Even if they could afford this price, many health plan enrollees leave the system after only a few years and thus health plans that pay for the $600,000 will not accrue the full benefit.

One clear solution to the first issue is to just finance the purchase of the cure with debt.  Many individuals want to own a house, but most people cannot afford to make a lump sum payment for the house.  The solution is that people take out a mortgage and spread the payments over time.  Tomas Philipson and Andrew von Eschenbach have proposed debt financings of high-value cures.  This approach, however, does not solve the free rider problem that occurs if there is frequent health plan turnover.

Another innovation is the concept of a HealthCoin developed by Basu (2015).  In this approach, the health advantages of a cure turn into an asset.  For instance, by giving someone Sovaldi to cure Hepatitis C, a health plan could earn a “HealthCoin.”  If a person who received Sovaldi later leaves the plan, he new plan where the person was enrolled would need to pay the original plan the value of the HealthCoin. A more general description is below from Yeung et al. (2017).

HealthCoin is a potential tradable currency that would be backed by Medicare, wherein Medicare guarantees payment to the private payer for each treated person entering the Medicare program.²⁰ This option incentivizes private payers to invest in upfront coverage for cures, since cured individuals would likely have lower morbidity, and the private payer can sell the remaining value of the HealthCoins when the member switches plans

Although the concept of a HealthCoin may seem esoteric, managed care pharmacists seem to appreciate the value of this idea, once it is clearly explained to them.

Regardless if you think HealthCoins are the right answer, we need to have the right incentives in place to make sure innovators have the incentive to develop cures for highly prevalent, high-burden diseases.

 

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