Expensive cures and NPV savings

Bloomberg has a good article from earlier this week that is looking at the genetic treatments that are in the pipeline that may be long term cures for rare and expensive to treat diseases. The most important paragraph from a policy perspective is the outlay/benefit dissonance:

The new therapies aim to fix the root causes of disease with a single dose, in which the correct genetic material is introduced into the patient’s cells. If the treatments can replace a lifetime of conventional costly drugs, they may slash overall spending, even at multimillion-dollar prices. Yet the prospect of high costs is already stirring pushback.

The big problem is similar to the Hepatitis-C cure cash flow problem. Current technology was not particularly effective, but not particularly costly. And since the technologies were not particularly effective, watching and waiting was a reasonable clinical choice. A patient with Hep-c could be handled for a modest sum unless they were crashing and qualified for a liver transplant. Life long costs for the patient might be fairly high in direct medical spend and lower quality of life, but the yearly costs were unlikely to be high for any payer.

The introduction of a new set of technologies produced a surge of cures. People got better! It also made getting treatment really attractive for people who were previously being watched and waited for trouble. From an insurer point of view, this was a cash flow challenge as demand went up massively for a very expensive cure that produced benefits that the current year insurer could not easily capture. The benefits flowed to the patient in the form of better health and future insurers who did not have to pay for the now surpassed therapeutic regime.

New genetic cures are a similar problem from a payer’s point of view. They may produce amazing improvements in the quality and quantity of life. They may have a break-even point of three or four or five or ten years compared to current non-curative treatment. That means after the break-even point, they are all cost saving gravy. But under current payment regimes, the current payer still does not internalize the savings that equals or exceeds the oh-my-god level of one time cash outlays for the new technologies.

This is an incentive mismatch.

9 replies
  1. 1
    Alce_e Ardilla says:

    A solution would be either to subsidize the payors for the cost of the treatment, or to remove them from the system, (i.e. government administered program.)

  2. 2
    Procopius says:

    I’m really grateful to you for your analyses of insurance issues, since I am not knowledgeable in the field. I may be completely mistaken, because of my combined contrarianism and cynicism, but I believe all the pharma companies have one thing in common. I believe they search for treatments that ameliorate, but do not cure. The developers of penicillin and several vaccines tried to put them in the public domain, because they were really motivated to cure people. The pharma companies have, since then, been able to recapture patent control of the treatments and are raking off monopoly rents. We need to reform the patent system, and I feel sure it’s not going to happen.

  3. 3
    dr. bloor says:


    I believe they search for treatments that ameliorate, but do not cure.

    Do pharma companies want to make every last buck they can? Sure. But this is an odd statement to make in the context of David’s post, since it focuses on the high cost of…cures.

  4. 4
    Brachiator says:


    I believe they search for treatments that ameliorate, but do not cure.

    This is, of course, why smallpox, polio, yellow fever, measles, etc, kill hundreds of thousands of people every year, and in countries without Big Pharma, people live for a hundred years.

    As another poster noted, the blog post is about the cost of actual cures.

  5. 5

    @Procopius: I’m going to respond to this post tomorrow as I think it is worth a response but the logic doesn’t hold up in general cases. In that argument, I will be assuming that every Pharma Exec will kill his/her grandmother for an extra half a penny on the stock price. Now are there edge-cases where this could hold; yes, but not the dominant cases.

  6. 6
    ProfDamatu says:

    @Procopius: Yeah, not to pile on, but it *is* a post about cures! :-)

    I understand your cynicism, and I do think that pharma probably does spend an outsized amount of money developing “me-too” drugs and the like. However, I rather doubt that researchers are intentionally trying to treat rather than cure diseases. I mean, the moral implications of that would be that they’re all monsters, preferring to, say, let people live for years taking debilitating, toxic, expensive cancer treatments rather that developing something that would cure the diseases. It would make a lot of money, but would directly profit from making people suffer unnecessarily.

    Maybe I’m a Pollyanna, but I feel like the reason we don’t have large numbers of cures for expensive diseases is because these are biological problems that are genuinely very, very difficult to solve – the systems involved are so complex that often the treatments cause other serious problems and side effects.

    I’d also point out that there are curative treatments that sometimes cause other problems years down the road. For instance, the chemotherapy regimens that cure Hodgkin’s lymphoma in many young people and children can cause non-Hodgkin lymphoma decades later. NHL drugs can cause leukemia years after they’ve cured the NHL. And so on. Even cures don’t necessarily mean no future profits for the company off of those cured patients!

  7. 7
    laura says:

    @Alce_e Ardilla: let a thousand Salk’s bloom!
    This is one more reason why government ought to be in charge of healthcare. Our universities are already capable of the research, and students/staff are motivated even in the absence of profit, and big pharma can fuck the fuck right off (Sacklers and Shkreli’s and fellow travellers have done enough to emiserate us for private profit at the expense of public good).

  8. 8
    Doug says:

    I have reasonably high-level experience with some large pharma companies based in Basel Switzerland, and people working there are definitely looking for cures.

    If there’s a complicating factor, it’s following the science and path-dependency. If your science points toward step-by-step improvements and small gains in either length or quality of life for cancer patients, then it’s likely that’s where your products will wind up, too. Sometimes there are breakthroughs in the applications (recent cures of Hepatitis C, for example) or in the basic conception of the condition (like recognizing the bacterial cause of many ulcers). Big pharma is on the lookout for those, too. And sometimes there are things that only really big institutions can do; the genetic therapies that David talks about in this post are the result of investments of hundreds of millions over the better part of a decade. Biotech startups just don’t have those sorts of resources. Nor, really, do even small or medium-sized countries.

  9. 9
    Redshift says:

    Doesn’t this entire class of cures cry out for some kind government program where the program pays for the cure, insurers pay into it the average annual cost customers would have cost them, minus some discount to make it worth the investment?

    I’m guessing it would have to be mandatory to avoid free riders offering cheaper policies to people who have been cured. Could it work without being any more complicated than that?

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