Can't Afford the Cost of Cancer Drugs? Get a Mortgage

Home buyers usually do not pay cash for their new house but instead get a mortgage.

The same concept might work for drug costs, according to researchers from the Massachusetts Institute of Technology (MIT) and Harvard Medical School, in Boston.

In an article published online February 24 in Science Translational Medicine, the authors outline a feasible, albeit controversial, market-based solution that could immediately help patients pay for expensive drugs that are currently out of their reach.

Similar to a home mortgage, the basic concept of the "healthcare loan" (HCL) is to convert a large upfront medical expense into a series of smaller payments that are spread out over the course of many years.

HCLs would be financed through a process known as securitization ― a financial practice of pooling various types of loans and selling their related cash flows to third-party investors as securities.

"The basic idea is to create a new financial entity that offers healthcare loans to patients, issues bonds and equity to investors, and the proceeds from these new issues are used to pay for the loans," said coauthor Andrew W. Lo, PhD, a professor at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering.

"As patients pay interest and principal on these loans, these payments flow through to the bondholders, and once all the bonds are paid off, the remaining funds go to the equity holders," Dr Lo told Medscape Medical News. "This basic structure is currently used today to finance mortgages, auto loans, student loans, and other large consumer purchases."

Numerical simulations, the authors note, suggest that securitization could be a viable option for a wide range of economic environments and cost parameters.

In turn, this would allow many more patients to access transformative therapies while also aligning the interests of patients, payers, and the pharmaceutical industry.

Geared for Cures Only

The HCL is geared to patients who are candidates for transformative medicines, the breakthroughs that cure disease. These agents require only a short course of therapy and must be paid for up front.

One example they cite is sofosbuvir (Solvaldi, Gilead Sciences, Inc), which can cure hepatitis C but comes with a price tag of about $84,000. Even with health insurance, the patient may have to pay a substantial amount out of pocket.

Another is alipogene tiparvovec (Glybera, uniQure Biopharma BV), a gene therapy that cures lipoprotein lipase deficiency, which is an extremely rare disease. The therapy was approved in Europe in 2012 and comes with a price tag of about $1 million. The benefit of this drug, note the authors, may last for the patient's remaining lifetime, but the entire cost must be paid up front.

High prices are not specific to these two drugs, the authors note. Many new curative agents, including other gene therapies, cancer therapeutics, and adoptive cellular therapies that are now looming on the horizon, are likely to be similarly priced.

"As a result, an impending crisis of highly efficacious but financially restricted therapies looms," they write.

The authors are aware that creating loans is not a real solution to high costs and is simply a market-based method of helping patients obtain medications they desperately need right now.

"We fully agree that this is a temporary measure, one that can save many lives while we wait for our policy makers to come to their senses and focus on the business of governing rather than political infighting," said Dr Lo.

This is a temporary measure, one that can save many lives while we wait for our policy makers to come to their senses. Dr Andrew Lo

Coauthor David Weinstock, MD, an associate professor of medicine at Harvard Medical School and Dana-Farber Cancer Institute, Boston, Massachusetts, agrees.

"It's lamentable that such an approach would be necessary," he told Medscape Medical News. "The idea of patients taking mortgages is distasteful to me as a doctor, but it's better than the status quo in many ways."

More Structured Form of Debt

Although the idea of mortgaging healthcare may be distasteful, many patients already go into significant debt to pay for their healthcare.

The HCL would be a more structured way of doing so, with lower interest payments than with a credit card.

"Nowadays, those who can least afford it are using extraordinarily costly forms of borrowing, like credit cards and even payday loans," said Dr Lo. "Our proposal would greatly lower the borrowing cost to patients."

HCLs would require investors, either from the private sector, the insurance industry, or state or federal governments.

Would cancer patients or others with a serious, potentially lethal disease be considered good credit risks, given their illness and the possibility that they may not be able to repay the loan?

The authors do not see that as an issue.

"The motivation for investors to buy the bonds and equity of the entity making the HCL loans is greed," Dr Lo emphasized. "If our simulation results are any indication of actual performance, investors can earn attractive rates of return, especially when compared to what's going on out there today in stock and bond markets."

As for these patients being a credit risk, Dr Lo pointed out that it is not clear whether the risk is any greater than for other borrowers, such as those who have already defaulted on their debts and are still able to get loans.

Dr Weinstock added that that is the reason why HCLs are only applicable to drugs that have a transformative effect on outcomes. "HCLs for drugs that just improve survival for cancer patients by a small amount wouldn't work. That's why they incentivize breakthroughs over incremental advances," he said.

"Imagine HCLs that will pay for CAR-T cells for pediatric acute lymphoblastoic leukemia [ALL],” he added. "It appears that these infusions are going to cure 85% or more of kids with otherwise lethal ALL. They should live another 80 years."

One of the key points of the HCL is that payment is closely linked to therapeutic value. A problem with up-front payment is that if the drug does not work, patients can unexpectedly experience relapse or die. In that case, there is no opportunity to recover any portion of the up-front payment.

Therefore, one of the provisions of the HCL is that amortized payments stop if the benefit stops.

Increase or Lower Drug Pricing?

Another question concerns the effect of HCLs on drug pricing. If patients mortgage their treatment, would there be any incentive to lower drug costs?

It could be beneficial and also have some repercussions, according to the authors.

Dr Lo believes that HCLs would provide pharmaceutical companies with a greater incentive to develop cures rather than "me-too" drugs.

"Second, by concentrating a large pool of healthcare loans into a single fund, it would give that fund's management much greater leverage to negotiate more reasonable prices with pharma," he said.

"As for patients who are poor credit risks or uninsured, they're currently not being served, so the existence of HCLs wouldn't make them worse off, and I think it could make them better off," he explained. "Once policy makers see that more affluent people are getting access, they'll start passing laws to deal with the disadvantaged constituents ― like subsidized loan programs, which we have for housing, student loans, and other forms of consumer credit."

But overall, it is difficult for economists to predict what effect this strategy would have on prices. "There is a possibility it could increase prices, just as home mortgages ostensibly drive up prices, because more people can afford homes," said Dr Weinstock.

On the other hand, the increased market for houses does two things, he pointed out. "It allows more people to live in houses, and it creates more innovation and efficiency within house building, which increases value/dollar."

It is assumed that HCLs could do the same thing. "In addition, an agreement between an insurance company and a pharmaceutical company for a large, up-front purchase would give the former significant leverage to negotiate down the price, especially if there are several different companies with competing drugs, as is the case for hepatitis C," he said.

The authors point out that HCLs and securitization are only two of many potential financial innovations that could increase access to these transformative therapies.

A practical next step would be to hold a meeting that includes all essential stakeholders — biopharma executives, payers, patient advocates, regulators, financial engineers, and investors — in order to identify the most promising methods for financing expensive new therapies.

Support for the study came from the MIT Laboratory for Financial Engineering. Dr Weinstock has received grants and personal fees from Novartis independently of his work on this study. Dr Lo has financial relationships with BridgeBio Capital, ImmuneXcite, KEW, MPM Capital, Novalere, Royalty Pharma, and Visionscope and is a director of the MIT Whitehead Institute.

Sci Transl Med. Published online February 24, 2016. Full text

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