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Forum Explores Financing Mechanisms for Costly Therapies that Cure

Eastman, Peggy

doi: 10.1097/

WASHINGTON—The era of molecular, targeted medicine has ushered in the possibility of outright cures for cancer and other life-threatening diseases, and such cures would be an undeniable boon for patients and their physicians. But the cost of a cure could approach $1 million, and the U.S. health care system is not designed to reimburse for such expensive up-front, life-saving therapies, according to speakers at a forum here on the high cost of cures sponsored by the American Enterprise Institute (AEI).

Simply put, insurers are used to paying for incremental treatments for chronic disease, not a high one-time cost, and it is very difficult to figure out how to pay for an expensive, innovative cure.

“We could be dealing with some very high-cost products,” said Scott Gottlieb, MD, Resident Fellow at AEI and former Deputy Commissioner for Medical and Scientific Affairs at the U.S. Food and Drug Administration. Gottlieb, also a Clinical Assistant Professor at New York University School of Medicine and editorial board member of the journal Value Based Cancer Care, noted that the idea for the forum came about because of the good news that there have never been so many promising therapies in development, and patients, of course, understandably want immediate access to high-cost cures as soon as they become available.

Michael C. Burgess, MD (R-TX), a member of the U.S. House of Representatives, agreed. “There may need to be a novel payment mechanism for cures,” said Burgess, Vice Chairman of the Subcommittee on Health of the House Energy and Commerce Committee and founder (in 2009) and Chairman of the Congressional Health Care Caucus. “If you leave it to us [Congress], we'll figure something out.” But, he said, speaking to the policy makers and insurers in the room, “I encourage you to do it first.”

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‘21st Century Cures’ Initiative

On April 30 of this year the House of Representatives Energy and Commerce Committee launched an initiative called 21st Century Cures, which aims to accelerate the pace of development of cures and medical breakthroughs in the United States. It is believed to be the first time Congress has taken a comprehensive look at what paths can be pursued to speed U.S. development of cures for serious diseases.

Building on a platform of the mapping of the human genome and the growth of targeted therapies, the House committee plans to produce white papers, hold hearings, and collaborate with the FDA, the National Institutes of Health, and other agencies, as well as with scientific researchers, patients, and advocates.



The aim is to make sure there is no major gap between the science of cures and the way new therapies are regulated, said Mark B. McClellan, MD, PhD, Senior Fellow and Director of the Health Care Innovation and Value Initiative at the Brookings Institution and former Administrator of the Centers for Medicare & Medicaid and former Commissioner of the FDA. “The initiative is likely to accelerate some of the targeted, personalized approaches to disease,” he predicted.

At the AEI forum, speakers discussed Sovaldi (sofosbuvir) as a new cure for chronic hepatitis C, a virus which has no vaccine and which can cause liver cancer. In many ways this drug is a “poster child” for costly cures of the future,” said Gregg Alton, JD, Executive Vice President for Corporate and Medical Affairs at Gilead Sciences, Inc.,, which developed the drug. “With Sovaldi we're curing virtually all patients who are eligible.”

The cost of the 12-week regimen is about $95,000 and the cure rate is about 90 percent, he said. The treatment regimen with Sovaldi is meant to include ribovirin or ribovirin with pegylated interferon. As for the reaction of insurers, he said, “This is a cost they didn't anticipate,” because up until now there was no cure for hepatitis C. We knew that there would be criticism.”

But, he noted, “there is a disconnect here,” because critics of the high up-front cost are not taking into account the value of a lifetime cure, which prevents the need for continued downstream chronic care and prevents liver cancer, cirrhosis, severe bleeding from the stomach and esophagus, liver failure, and the need for a liver transplant.

“Curing hepatitis C—that's incredible,” said Rep. Burgess. “The big headline should be ‘We cured hepatitis C.’” Some 3.2 million Americans are infected with hepatitis C, according to statistics from the Centers for Disease Control and Prevention.

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‘Price Per Cure’

Curing a population of a serious disease such as hepatitis C or a type of cancer creates societal value as well as value for patients, said Dirk Calcoen, MD, Partner and Managing Director in the San Francisco office of the Boston Consulting Group and a former public health physician with Doctors without Borders. “You should really think about price per cure. There is also a cost of inaction impacting payers,” he said, pointing out that not paying the up-front cost for a cure could lead to high downstream costs for chronic care over the life of the patient.

“What we really need to be thinking about is a system where we are not discriminating against people with serious illness,” advised Dan Mendelson, MPP, founder, CEO, and President of Avalere Health LLC., as well as Adjunct Professor of Business Administration at the Fuqua School of Business at Duke University and a director of Champions Oncology.

What needs to be avoided, he said, is a situation where insured patients who could benefit immediately from an innovative cure would have such high out-of-pocket costs that they could not afford it. McClellan agreed, pointing out that current mechanisms for insurance reimbursement really do need to be redesigned for cures.

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Suggested New Payment Models

In a white paper prepared for the AEI meeting, “Establishing New Payment Provisions for the High Cost of Curing Disease,” Gottlieb and his coauthor, Tanisha Carino, PhD, Executive Vice President of Avalere Health, present some possible new payment models for high-priced curative therapies. These include:

  • Carving out the high cost of an outright cure from an ordinary health insurance plan. For example, a reinsurance scheme for a carved-out cure might include a direct partial payment by an existing government health care program or an indirect government-led credit vehicle that, in turn, “could accelerate the delivery of curative therapies by enabling their cost to be paid over time through credit financing,” in the words of the white paper.
  • Adopting accounting rules that allow payers to spread the high up-front cost of a cure over a longer period of time (amortization). Gottlieb and Carino point out that such payment models are commonplace when it comes to capital equipment, where leveraged lease financing and other terms are a routine part of the acquisition process. The authors state that “a medicine that can cure a vexing and costly disease is not that different.” And they note that such a financing scheme is already common when it comes to purchasing medical equipment: “The cost of a robotic tool for performing prostate surgery, for example, is typically spread out (or amortized) over the seven years during which the device is presumed to be useful.” In the case of a cure, a payer might enter into a financing arrangement with a pharmaceutical company (or a third party acting as an intermediary) in which the payer could pay for the curative therapy in annual increments, for example.

In an article for titled “Medical Breakthroughs and Credit Markets” ( that was distributed at the meeting, Tomas J. Philipson, PhD, the Daniel Levin Chair of Public Policy Studies at the University of Chicago and by Andrew C. von Eschenbach, MD, President of Samaritan Health Initiatives and a former FDA Commissioner and former Director of the National Cancer Institute, suggest a similar kind of credit financing for medical breakthroughs and potential cures. They point out that the high cost of a curative medical breakthrough mimics that of durable goods such as housing, “for which construction costs must be paid up front through mortgages while the value of having a home endures over time.”

The authors suggest that the federal government could facilitate better credit instruments for curative therapies for public payers—for example by guaranteeing or subsidizing health care loans to state Medicaid programs. “Existing financing options are already in place through specialized health care loans for some elective procedures such as plastic surgery,” the article states, adding: “For high mortality diseases such as oncology, patient-based health care loans for specialty drugs may face particularly high rates because of the borrower's death, so additional mechanisms would be needed to better allow third-party borrowing by, for example, family members.”

And Gottlieb and Carino, in their white paper, note that “payers are increasingly reluctant to absorb large costs associated with the rapid and widespread introduction of a transformative medicine,” given the pressure on their operating margins.

Therefore, the authors conclude, as scientific research advances to the point where it yields more outright cures, “the resulting opportunities and challenges will require more creative thinking on how to finance adoption of these transformative therapies.”

© 2014 by Lippincott Williams & Wilkins, Inc.
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