The Cures are Coming: How Urgently Do We Need Alternative Payment Models for Restorative Treatment?

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Event Type: 
Seminar Series
Date and Time: 
Monday, August 14, 2017
2:00 pm – 3:30 pm

The “Sovaldi shock” has led to a vivid debate about financing of high cost “cures” or restorative drugs, i.e., pharmaceutical products that have a lasting disease-modifying effect with a limited number of doses. Many experts have pointed out the need for deferred payment models that stretch payments over time and tie them to outcomes. Given the operational complexities of implementing such models and possible legal/regulatory obstacles, we explore the need for them in the next few years by combining an analysis of the pipeline for curative drugs, their likely market entry and budget impact for the U.S. with payer interviews. We identified 52 restorative drug candidates in four categories: Alzheimer’s disease, chronic viral infections, common chronic conditions and genetic disorders. Applying prior data on probability of success, duration of clinical trial and regulatory review, and assumptions about eligible population, uptake and pricing, we estimate about $50 billion in spending on “cures” on a risk-adjusted basis, which is about 10% of expected overall spending. However, if approved, several of the candidate drugs could reach over $3 billion in annual spending and an Alzheimer’s drug as much as $80 billion in peak annual spending, which is about three times the peak sales of Sovaldi. Payers stated that restorative drugs and deferred payment models for these were not a pressing concern at this point, as they were mostly worried about oncology drugs and new drugs for common chronic conditions (PCSK9, diabetes, inflammatory diseases), whereas restorative drugs addressed mostly rare and ultrarare disorders.

The results suggest that, while the overall pipeline for restorative drugs seems limited, several candidates in that pipeline could tangibly increase drug spending over the next decade and payers seem to be unaware of that. The approval of a disease-modifying Alzheimer’s drug would create strong pressure to implement a deferred payment model, as it combines substantial upfront spending and a long timeframe, over which its effect will translate into reductions of morbidity and healthcare spending. As the first Alzheimer’s drug could reach the market as early as 2020, work on a payment model ought to begin soon.