A Cost-Saving Medical Revolution If We Can Finance It – Pacific Research Institute

A Cost-Saving Medical Revolution If We Can Finance It

Despite the constant barrage of negative news, this is an exciting time for patients. Truly innovative medicines and gene therapies are under development. New gene therapies are particularly exciting because these therapies do not just treat diseases – they often cure them by fixing underlying genetic defects, frequently with only one dose. There is great optimism that these fundamentally new therapies will, ultimately, cure diseases like hemophilia and sickle cell disease, and even many ultra-rare diseases that were previously untreatable.

Take spinal muscular atrophy (SMA) as an example. SMA is a rare genetic disorder; 90% of the infants born with SMA will die before they turn 2, and those who live past 2 will require ventilators throughout their lives. New gene therapies have allowed kids with SMA to develop normally “after a single dose at four months of age.” It is not just SMA either. There are more than 300 ongoing gene therapy trials currently.

Miracles don’t come cheap, however. Just as a heart transplant can exceed $1 million, these new gene therapies will be costly. It is important to note that while the upfront costs are high, many of these conditions currently require excessive lifetime healthcare expenditures including expensive hospital stays, surgeries, and other (less effective) treatments. Therefore, paying the significant upfront costs for the new gene therapies could ultimately save the health care system money over a patient’s lifetime.

The current payment system is ill-equipped to effectively cover these costs, and obstacles to access are inevitable without changes. Further, the growing popularity of cost effectiveness analyses as a solution, particularly the studies produced by the Institute for Clinical and Economic Review (ICER), will not work because these studies do not address the flaws in the current payment system that created the access issues in the first place.

Greater access can only be enabled if the health care system’s current risk-management flaws are addressed. The lack of proper risk management throughout the U.S. health care system creates the incongruous result that, unlike every other form of insurance, health insurance benefits disappear precisely when patients are suffering the financial risks insurance is supposed to ameliorate.

Take wind insurance as the example of how insurance should work. Wind insurance provides families peace of mind that should hurricane damage occur, they are protected from paying the full, possibly bankrupting, costs. With wind insurance, insurers, not homeowners, bear the financial risks from extensive hurricane damage. If the wind insurers face too much risk, then they can reduce their risks through re-insurance markets. In this case, insurers diversify the risks even further, enhancing their ability to serve policyholders.

Because of wind insurance, families who are at risk of experiencing property damage from hurricanes are able to manage their financial risks – they pay a small sum every year regardless of whether damage occurs to ensure that should damage occur, they will not have to pay large bankrupting costs.

Contrast this market process with the health insurance market. The costs associated with different health risks vary. Some health problems, such as the $10 it costs to purchase a one-month’s supply of the generic high-cholesterol drug atorvastatin, do not create undue financial burdens.

Yet, families, or employers on their behalf, pay a monthly premium to cover these type of health expenditures distorting the entire health insurance system. This coverage twists the concept of insurance, effectively creating a system of pre-paid health care that spends far too much money covering manageable health expenditures while exposing people to massive burdens from the financial risks that trouble families the most.

The most troubling financial risks are the costs associated with treating the conditions that impose undue financial burdens on patients such as covering the $280,000 it costs Hepatitis C patients to receive liver transplants, or the $500,000 it costs leukemia patients to pay for stem cell transplants. Covering the significant one-time cost for the new gene therapies will be no different than covering the costs of these types of life-saving surgical treatments and procedures.

In response to these high costs, ICER attempts to define whether a new therapy will be cost-effective in order to justify which therapies should be covered, and which should not. Such an approach is bound to under-value the benefits that these new gene therapies will create.

Further, a focus on arbitrary cost thresholds, by definition, encourages greater restrictions on patients’ access to these revolutionary gene therapies. If you are the patient whose devastating disease can be cured by a new gene therapy, then the purpose of having insurance was to enable access to these medicines.

Instead of arbitrarily determining what is cost-effective, reforms should turn the current pre-paid health care system into actual health insurance that effectively manages patients’ financial risks. With respect to the new gene therapies, this will likely require the development of well-functioning re-insurance markets that more efficiently diversify the financial risks patients and insurers could face.

A health care payment system that focuses on true financial risks will be better positioned to make these cutting-edge gene therapies available to patients, improving health outcomes and, quite possibly, lowering lifetime health expenditures. It also serves the role that actual health insurance should play – manage the large potential costs of managing or even curing diseases through an effective risk-transfer system so that patients know that their health insurance will be there when they need it the most.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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