Could a Netflix model solve big health care problems?

That is what is proposed by Dana Goldman in his article in The Hill.  He uses the case of Louisiana’s approach to pay for treatments for the hepatitis C virus (HCV) to make the point.

The [Louisiana] Department of Health is working on a new strategy to expand access—one that involves a licensing deal. The state would agree to pay a drug company for medication for several years in exchange for unlimited access to treatment.

This is the Netflix model applied to health care, and it makes a lot of sense. Pharmaceuticals have high R&D costs but often low manufacturing costs, much like software. But the current pricing models couldn’t be more different. Netflix content is essentially purchased through a monthly license. They do not charge a fee every time we view a show. The idea is to reward the content creator, but not limit our ability to watch since marginal costs are low.

My colleagues and I have shown that such subscription models can improve outcomes and save money at the same time.

The Netflix model matches will with pharmaceutical cost structure: namely low marginal costs, but high R&D costs.  The key issue, of course, is what price should Louisiana pay for the HCV treatments that (i) will generate social surplus for its residents, and (ii) will compensate life sciences firms for their drug development cost.

Do read the whole article.