Making Life-Saving Medical Treatments More Affordable

That is the title of an article by my colleagues Anupam B. Jena, Rebecca Kee, James R. Baumgardner and others in an article published this month in Harvard Business Review. While the FDA has created “Breakthrough” designations for drug approvals, getting innovative, but high-priced drugs to patients is often delayed by hurdles in coverage and reimbursement faced by payers. The article notes four key challenges:

  • Fee-for-service reimbursement. Because many curative therapies–like CAR-T and new treatments for hepatitis C virus–have high up-front cost, payers may wish to delay paying, especially as these treatments will eventually become generic.
  • Lack of long-term clinical data. Clinical trials are typically of short duration. For treatments providing cures, however, long-term data is needed to verify this claim. Thus, payers may be hesitant to pay high up-front costs if long-term real-world effectiveness is unknown.
  • Insurance churn. In the private health insurance market, individuals often change health plans. Thus, a health plan paying for an expensive curative treatment may be stuck footing the bill, while another health plan may reap the benefits when the patient switches to their plan.
  • Lack of government flexibility. When innovative treatments are administered as part of an inpatient stay, for instance, things become more complicated. A new MS-DRG inpatient code may be needed to capture the added cost of the new treatment. Other alternatives–such as add-on payments–often take time to go through regulatory processes. For Medicare Advantage plans, bids need to be submitted 6 months before a plan year starts. Thus, new therapies may increase expected cost and plans may be reluctant to cover new expensive treatments.

What is the solution? The article gives some options such as outcomes-based payments, installment payments, risk pooling, and subscription payments. Do read the whole thing to learn more about these solutions.

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