News Release
Alternative Financing Schemes May Be Needed to Pay for Expensive New Medications
Mar 11, 2015
Borrowing for the Cure
Debt Financing of Breakthrough Treatments
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Research Questions
- How are breakthrough pharmaceutical treatments currently financed?
- What problems exist in the current model?
- What alternatives might facilitate access to high-cost but highly effective treatments?
Recent market entries of breakthrough pharmaceutical products have reignited the debate about the affordability of high-priced drugs for public and private payers worldwide. Payers had voiced concerns about such drugs before but, faced with a possible outcry of patients and advocates, grudgingly accepted them. But as more high-cost drugs reach the market and treat more-prevalent conditions, medical professionals and government ministers have complained that this "blank check" might not be sustainable. Concerns about short-term budget impact have led countries to restrict access to expensive drugs, even when they met cost-effectiveness criteria and could lead to long-term savings. This paper offers a research-grounded perspective on innovative financing mechanisms to facilitate access to expensive yet highly effective breakthrough medical treatments. The authors outline the scope of the problem; describe several policy and market options, including bond financing and linking repayment to real-world value generation; and describe real-world applications.
Key Findings
Increases in Costs for Pharmaceutical Treatments Are on the Horizon
- Breakthrough treatments can rid patients of deadly and costly scourges, but the short-term cost might be unaffordable for many payers.
- Communicable diseases and the spending on their main therapeutics succinctly capture the tension between short-term budget impact considerations and long-term value generation. Expensive treatments, such as Sovaldi® (sofosbuvir), are found to be 95 percent effective, yet are projected to drive drug spending substantially. As more of such highly effective yet costly treatments come to market, they might create a very uncomfortable situation for policymakers and payers: Make treatment accessible and accept high short-term costs with the expectation of long-term savings, or insist on budget discipline, forgo clinical benefit and long-term savings, and anger affected populations.
- Publicly financed health care could learn from creative financing approaches in the private sector and adapt them to make purchases of high-impact, high-cost drugs more affordable in the short run.
Recommendations
- The authors propose a debt-financing model for breakthrough medical innovations as a means to overcome short-term budget and cash-flow constraints and enable investments with long-term benefits.
- The debt arrangements should have covenants that link repayment to real-world treatment effectiveness. A neutral arbiter would determine the actual effectiveness of the drug or vaccine; if effectiveness fell short of the agreed-upon target, the repayment rates would decline.
- The authors propose to ascertain effectiveness based on a population-level sample. The neutral arbiter would obtain a stratified random sample representative for the treated population and estimate impact based on it. Proper weighting and statistical techniques would allow generating valid estimates, even if some patients were lost to follow-up. The details of the estimation procedure and the potential penalties would be documented in the covenants of the debt arrangements so that both sides would have a clear and shared understanding of the implications.
- Such schemes could even bridge budget silos between different government agencies and funding pools.
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The research underlying this paper was conducted in RAND Health Advisory Services, the consulting practice of RAND Health.
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