Finance Innovation

Why aren’t there more cures?

The answer is money, reimbursement, and incentives.  Treating chronic disease gives innovators payoff over a long period of time.  If innovators created a cure for that disease, they could of course charge the net present value of this same stream of payments.  Health plans, patients and the media, however, are often shocked at the high sticker price of such a large one-time payment for a cure.   Mark Trusheim, a visiting scientist at MIT’s Sloan School of Management and one of my co-attendees at the NBER Conference on Economic Dimensions of Personalized and Precision Medicine stated:

Insurers are “used to paying rent for health, and we’re asking them to buy a houseful of cure.

Spark Chief Executive Officer Jeff Marrazzo, whose company spent $400 million creating a genetic therapy to cure retinal disease, said in a Bloomberg article:

Why is it that there are not more cures?” Marrazzo says. “It’s not because there are bad actors. It’s an industry full of people who react to incentive structures.” If compensation could be redesigned to reward one-time treatments over chronic treatments, “that’s where people would play,” he says.

If we want cures, we clearly need a different payment structure than is needed for treatments for chronic diseases.  One solution is health care mortgages–proposed by Tomas Phillipson and Andrew von Eschenbach–where innovators could receive a high one time payment for cures, but this payment could be financed over time, similar to a home mortgage.  These types of innovative payment schemes are needed to ensure that innovators start creating cures to treat the sickest patients in society.


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