Breaking the Bank: Three Financing Models for Addressing the Drug Innovation Cost Crisis

Abstract

Background: The introduction of innovative specialty pharmaceuticals with high prices has renewed efforts by public and private healthcare payers to constrain their utilization, increase patient cost-sharing, and compel government intervention on pricing. These efforts, although rational for individual payers, have the potential to undermine the public health impact and overall economic value of these innovations for society. The emerging archetypal example is the outcry over the cost of sofosbuvir, a drug proved to cure hepatitis C infection at a cost of $84,000 per person for a course of treatment (or $1000 per tablet). This represents a radical medical breakthrough for public health, with great promise for the long-term costs associated with this disease, but with major short-term cost implications for the budgets of healthcare payers.

Objectives: To propose potential financing models to provide a workable and lasting solution that directly addresses the misalignment of incentives between healthcare payers confronted with the high upfront costs of innovative specialty drugs and the rest of the US healthcare system, and to articulate these in the context of the historic struggle over paying for innovation.

Discussion: We describe 3 innovative financing models to manage expensive specialty drugs that will significantly reduce the direct, immediate cost burden of these drugs to public and private healthcare payers. The 3 financing models include high-cost drug mortgages, high-cost drugs reinsurance, and high-cost drug patient rebates. These models have been proved successful in other areas and should be adopted into healthcare to mitigate the high-cost of specialty drugs. We discuss the distribution of this burden over time and across the healthcare system, and we match the financial burden of medical innovations to the healthcare stakeholders who capture their overall value. All 3 models work within or replicate the current healthcare marketplace mechanisms for distributing immediate high-cost events across multiple at-risk stakeholders, and/or encouraging active participation by patients as consumers.

Conclusion: The adoption of these 3 models for the financing of high-cost drugs would ameliorate decades-long economic conflict in the healthcare system over the value of, and financial responsibility for, drug innovation.

Keywords: US healthcare system; amortization; copayments; drug industry; drug innovation; drug mortgages; financing models; healthcare payers; high-cost drugs; patient rebates; reinsurance; specialty pharmaceuticals.