If the societal reaction to the costs to cure Hep C is any indicator, a potential cure for Alzheimer’s will surely stir controversy assuming breakthrough-level pricing. A financing solution may be the only way to reward developers for the value of the therapy and address the challenges facing insurers.
When Andrea awakens, she tries to remember the dream about a new drug to cure or treat her mother’s Alzheimer’s disease.
She knows that her day as an informal caregiver will be full – in equal parts – of love and agony. She fears the progressive deterioration of her mother’s brain function and the gradual loss of memory, judgment, language and complex motor skills. Most often, she is sad about the personality changes caused by the permanent damage and death of the neurons in her mother’s brain.
More than 5 Million Americans are afflicted by dementia. By 2050, there will be nearly three times as many. Yet few of us know that the pharmaceutical industry has already spent over $85 billion to find treatments and cures for this disease. Fewer still know that the best hope in the short term is a drug under development by AstraZeneca PLC and Merck & Co. Inc. that — if based on valid biological understanding of the disease — could be a marked advance in treatment of this disease.
Alzheimer’s patients are unique. They comprise about half of all nursing home patients, are admitted to hospitals 2 to 3 times as often as others and have multiple care providers for every hour of every day and every week. The direct costs of AD patients exceed on a direct basis $200 billion en route to more than $1 trillion in 2050. This excludes the equivalent direct and indirect costs for caregivers.
As a point of comparison, for patients with dementia, costs run from $41,000 to $56,000 per year in direct care costs – – about the same as cancer or heart disease patients. More importantly, the percentage of dementia patients is inevitably going to grow as the population of those over 65 rises from 40 million in 2010 to 72 million in 2030.
The question facing all drug companies that hope to find cures and new treatments is how society will react and what will happen when a product is approved and priced. If the recent example of Gilead Sciences Inc. and its cure for Hepatitis C is any indication, there will be controversy with any breakthrough treatment about price. In essence, the debate will be about whether we evaluate cures on the basis of price or value.
For patients, caregivers and society at large, Andrea – and others — hope the answer centers around value and not the sticker price.
Thinking Long Term
In the United States — unlike the rest of the world — drug prices are set in a relatively free market. This environment — when coupled with a hospitable environment for research — has led the United States into a powerful leadership role in life sciences. Not only does the United States represent the biggest and most lucrative market, it is also the home country of more new drugs than anywhere else in the world.
With this freedom comes conflict. In many cases the government is the direct (Medicare) or indirect (Medicaid) purchaser of more than one half of all drugs sold in America.
Yet despite this payment source, prices are generally set by the drug companies and evaluated by private insurance companies. Recently, insurance companies have been under price pressure from the Affordable Care Act that limits their spending on administrative matters and what they claim to be higher drug costs, especially for chronic diseases. These insurers lead consumers to believe that we cannot afford to pay for cures. They are wrong — and they know it.
Take for example, Solvaldi, a remarkably effective drug for the treatment of Hepatitis C. Some insurers have argued that there should be price controls for such drugs. Price controls have proven successful at only two things: depressing interest in a sector, creating product shortages or both.
The insurance industry does have one valid concern. Is it really fair for them to have to make what is similar to a capital investment for a breakthrough drug that saves money over a long period of time?
When the average insured person has a choice to change insurance firms every year — and about 20% of them do so — it is likely that any long-term savings from an upfront payment for cure will not completely flow to the insurance company.
It would be equitable to provide a financing option for insurers like a mortgage system. Under such a financing scheme, the federal government could provide the innovative drug company with a single up-front payment. Insurers would then pay the government an annual fee matching the cost savings they secure from each insured patient who benefited from the cure or treatment. This kind of reinsurance system could help lower any short term sticker shock about price and permit focus to remain on the value of a cure.
Only by thinking about the longer-term costs of AD patients can we see the full value of an offsetting benefit from a new drug cure or breakthrough treatment.