Can the United States Use Mortgage-Like Loans to Pay for High Cost Drugs?

By Elizabeth Guo

Pharmaceutical companies are making breakthrough drugs to cure diseases, but no one knows how to pay for them. In 2013 and 2014, FDA approved Solvaldi and Harmoni, which can cure hepatitis C in more than 90% of patients. Solvaldi and Harmoni cost $84,000 and $95,000, respectively, for a standard course of treatment. Government payers and health plans, without a good solution for providing Solvaldi and Harmoni to patients who need them, have restricted coverage of the drug to only those patients with advanced hepatitis C. Last year, Germany approved Glybera, a gene therapy that enables patients with lipoprotein lipase deficiency to produce the deficient enzyme. Glybera is expected to cost $1 million, and it is doubtful whether any payer could shoulder such a price.

Last week, MIT professor Andrew Lo proposed a new way of paying for these high-priced therapies: securitized consumer healthcare loans (HCLs). HCLs would function as mortgages for large healthcare expenses. Because the benefits of some therapies occur upfront, HCLs would allow consumers to pay for the value of their therapies over time, instead of in one upfront payment. The paper proposed two frameworks to govern HCLs. The first is a consumer-funded loan, where the patient borrows a loan to pay the upfront costs of the drug, and pays back the loan over time. The second framework operates similarly to the consumer-funded loan, except that private payers and government agencies assume the debt. Under this model, insurance companies could take the debt associated with the patient’s treatment then shift the debt onto the next payer if the patient changes insurance companies.

Using long-term loans to pay for expensive, curative treatment sounds logical, in theory. The costs would allow payers to spread out the costs of treatment. Insurers would not need to worry about making large investments now and hoping that these investments would pay off in the long run. Companies would continue to have incentives to develop curative therapies instead of ones that mitigate the effects of chronic conditions.

But before we adopt any type of long-term healthcare loan, we should think carefully about how the loan would operate under our healthcare payment system.

HCLs assume that patients would receive the value of therapies up front, but what happens if an individual pays for a drug but the drug doesn’t work? After all, few drugs are 100% effective. For example, clinical trials for Solvaldi found that 32 out of 327 patients did not respond to treatment after a standard course of therapy. Should these patients have to shoulder a long-term loan for a therapy that offered them little benefit? For HCLs to work, these loans would have to be paired with performance-based risk-sharing agreements so that patients would not need to pay the full price for treatments that do not result in positive outcomes.

HCLs also do not address how patients would shoulder the burden of paying for high-priced chronic drugs. Currently, many patients treating their chronic diseases with expensive therapies are paying high out-of-pocket costs for their treatment, in the form of copayments, coinsurance, and deductibles. For example, patients with HIV/AIDS can pay up to $5000 a year in out-of-pocket HIV drug costs. If payers use HCLs to pay for their drugs, how much would insurers force patients to take on? Would HCLs mean that insurers could make patients cover a greater percentage of the cost for high-priced therapies because insurers could now spread these out-of-pocket costs over a longer period of time?

These practical concerns related to HCLs show that what the US healthcare system really needs isn’t a solution for how to pay for high-cost curative treatments. Instead, the healthcare system needs a solution for how it can sustainably pay for effective therapies to treat chronic disease.

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