Readers of this blog may remember my post from January 2016 entitled New Drug Therapies and the Quality/Cost Quandary. Since it has been a while, I thought I would revisit the topic and share some updated thoughts about it. In doing so, the title of this piece (from Jack Nicholson's phenomenal performance in "A Few Good Men") seemed rather appropriate because it certainly seems like we can't handle the truth. Why? More than 2 years later, little seems to have been done to work through this issue.
Firstly, kudos to AHIP (America's Health Insurance Plans) for publishing their findings regarding the breakdown of a healthcare dollar. According to AHIP's infographic, (with some nuances) prescription drugs now account for 23.2 cents of every dollar, eclipsing everything else. What is so scary is the relatively unabated rise of this cost. Here are some other truths from my humble vantage point to help update the broader landscape:
1) The frequency with which high cost conditions occur continues to rise. This is typically comprised of things like hemophilia and neonatal issues but more recently also includes Hereditary Angioedema (HAE) and other genetic conditions. A single HAE claim has already cost greater than $8 Million.
2) The frequency of other high cost conditions also continues to rise. These are typically comprised of transplants, heart disease, cancer, sepsis, end stage renal disease (ESRD) and others.
3)Consequently, the frequency of high cost claims (those over $1 Million) continues to rise. It experienced a near-doubling from 2.62 per 100,000 member lives in 2012, to 5.13 in 2016. Notably, a single claim was greater than $26 Million stretching over 390 hospital days (crossing over 2 calendar years).
To stay ahead of these conditions, technology has evolved faster than payment mechanisms (or regulations) can maintain. We now have gene therapy, CAR-T Cell therapy and many other treatments found on the cutting edge of the medical profession. To some extent, we are trading places between taking chronic care medications and these therapies. In other cases, new therapies continue to emerge with their growing price tags. With some reaching around, or over, $1 Million, the question must be asked: what are we to do?
Thankfully, there are some in the industry working to tackle these challenges from a payment perspective. I have been privileged to be a part of such efforts from both Tapestry Networks and the MIT NEWDIGS-FoCUS project. These are solid starts on both the consumer and corporate sides, however, both government and industry need to step up even further. If we look at the market for Hep-C as an example, better drugs combined with market competition tend to lower prices over time, but collectively, we need to do a better job of removing inefficiencies and barriers. Kudos to the FDA for taking steps in that direction.
Although financial tools including stop loss insurance and reinsurance exist today in order to alleviate costs associated
with these high cost claims/therapies, they are not likely to be enough. Here are some truths in this arena:
- There are macro and micro trends challenging both insurance and reinsurance
- These trends include the growth of alternative capital including insurance-linked securities (ILS)
- A competitive environment that has depressed prices, margins and perhaps also risk appetites (or at least made them more selective).
- Collateralized reinsurance
- Dis-aggregation of the insurance life cycle
- Technology innovation/disruption, among others
Consequently, given the pace of innovation, structural industry issues, rapidly rising costs and other matters including technology disruptions, current payment models (including the relatively new value-based care designs) are unlikely to stand the test of time. As a result, even more modern models and payment methods for these expensive therapies are required. It used to be that an employer or payer had perhaps one hemophiliac on their roster. Now it is not unusual to see several hemophiliacs in addition to many others including those with HAE or other conditions. We will soon reach a tipping point where our current ability to pay for these services, will no longer work. Diseases don’t care whether you have commercial insurance or Medicare or Medicaid and neither do cures. It is high time we come together and begin to figure out how to pay for all these wonderful innovations in a sustainable way.
Already, I can hear the pharmaceutical and biotech industries saying, "You want me on that wall, you need me on that wall," and the truth is that they are right. We need them to keep pushing that frontier wall farther and farther, but it is also fair to say that they shouldn't be the only ones doing it. I have long believed that the Pharma/Biotech and health insurance industries need to work together much earlier in the process (especially regarding pricing/payment models) than they do today. It is time to handle that truth.
What do you think?