Mortgaging New Treatments Kicks the Can on High Drug Prices

May marked the approval of a groundbreaking treatment for infants diagnosed with spinal muscular atrophy, a disease that, in the most severe cases, condemns them to a rapid and ultimately fatal decline in motor function. To date, clinical results of Zolgensma have been impressive, extending the lives of over 90 percent of treated patients.

Zolgensma represents another breakthrough, as well — of a more concerning sort. At a price of  $2.1 million, it is the most expensive one-time treatment ever to be marketed in the United States.

An immutable truth in drug pricing is that once one product sets a price benchmark, the next products in the category use it as their starting point. So even if Zolgensma is only used in a few hundred patients per year and thus won’t be busting any budgets by itself, there are nearly 300 cell and gene therapies under development today with more waiting in the wings to begin human trials. While some of these treatments may fail to gain marketing approval, the Food and Drug Administration has stated that it expects to approve 10 to 20 cell and gene therapies per year by 2025.

Like Zolgensma, these new treatments will be primarily for rare diseases, which have small patient populations. But taken together, rare diseases are common, meaning that collectively, the pricing of the drugs to treat them is a budgetary concern.  Altogether, between 25 million and 30 million Americans are living with one of more than 7,000 rare diseases, on par with the number living with diabetes.

Novartis argues that Zolgensma is priced according to its value, but whether it is, and whether its cohort of cell and gene therapies will prove affordable, are separate matters.

Novartis introduced a solution to this affordability problem: Kick the can down the road. Instead of charging $2.1 million at the time of treatment, Novartis is offering contracts that allow health plans to pay five yearly installments of $425,000, akin to a home mortgage.

While spacing out payment for a one-time expensive purchase over a longer period makes sense for a consumer buying a home, the approach makes no sense if you keep buying house after house. That is what is in store for health plans, and the long-term obligations for each treatment will pile up.

Of course, health plans worry far more about their near-term budgets than their long-term ones — unanticipated costs lead to losses, while anticipated ones can be pushed off. Done well, increases in premiums come with attendant increases in profits. Small wonder then that companies such as Express Scripts, part of Cigna, and Harvard Pilgrim have been at the forefront of developing long-term financing of expensive treatments.

Long-term financing, however, does not create more money. Nevertheless, payers are signaling that high prices can be made more acceptable, desirable even, by offering mortgage financing. As part of the introduction of Luxturna last year, Spark Therapeutics floated a long-term financing proposal to the Centers for Medicare and Medicaid Services; Bluebird Bio announced a plan for five-year financing of its hemophilia gene therapy for the European market.

Between 1982 and 2017, spending per capita on prescription drugs rose from $143 to $1,025 after adjusting for inflation — a six-fold increase. Spending on health care more generally has also increased over that timeframe, by a factor of two.

Despite consistent scrutiny of rising drug prices and spending over those years, solutions have more often than not been creative workarounds that avoid addressing the underlying drivers. But the introduction of multimillion-dollar treatments packaged with long-term financing is a warning sign that the clinical benefits of new treatments may be bringing fiscal calamity with them. The exponential rise in U.S. drug spending has been underway for a long time; this latest “innovative payment model” may finally find the limits of what consumers and the economy can sustain.  


Anna Kaltenboeck is the senior health economist and program director at the Center for Health Policy and Outcomes at the Memorial Sloan Kettering Cancer Center.

Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.

Morning Consult