Rx drug prices are climbing. Could health care 'mortgages' help patients pay?

Topics: Care Delivery, Access to Care, Costs and Prices, Payments and Reimbursement, Payment Reform, Industry, Prescription Drugs, Insurance, Politics and Policy, Providers

Even for people who have insurance, specialty drugs can be extremely costly -- and policymakers are searching for answers to either rein in costs or help patients pay.

Prescription drug spending soars

Last month, HHS released a report that found prescription drug spending in the United States jumped 12.6 percent in 2014 and 8 percent in 2015. In comparison, drug spending increased by just 2 percent between 2008 and 2012, according to the report.

HHS attributed the spending spike in part to growing demand for costly specialty drugs, such as those for hepatitis C.

Gilead Sciences' blockbuster hepatitis C treatments -- Sovaldi and Harvoni -- have high cure rates but have received criticism for their high costs. Sovaldi costs about $84,000 for a full treatment course, while Harvoni costs about $94,500 for a 12-week treatment.

In addition, some drugmakers in recent years have significantly increased the prices of prescription drugs. For example:

  • Turing Pharmaceuticals bumped the cost of a drug to treat a parasitic infection by 5,000 percent; and
  • Valeant Pharmaceuticals increased the prices of Nitropress and Isuprel, two medications commonly used to treat heart conditions, by 200 percent and 500 percent, respectively.

Hospitals across the United States are grappling with ways to reduce spending on prescription drugs, while patient advocates worry that specialty drugs will become even more costly and inaccessible as health insurers limit coverage, particularly in health plans sold through the Affordable Care Act's exchanges.

Proposals to lower costs

Industry stakeholders have proposed numerous ways to stem the increasing costs of prescription drugs, from calls for better price transparency to testing new payment models.

The American College of Physicians last month published a position paper recommending numerous actions the federal government should take to control costs, including:

  • Allowing Medicare to negotiate prescription drug prices with drugmakers;
  • Re-importing prescription drugs from other countries, where they often are sold at lower prices;
  • Requiring drugmakers to disclose actual research and production costs for drug development and manufacturing; and
  • Requiring drugmakers to disclose the prices of drugs that were developed using research funded by the federal government.

Other experts are proposing a different approach: taking sky-high drug prices as a given, but finding new ways to help patients bear the burden. In a Science Translational Medicine article published earlier this year, Andrew Lo, an economist at the Massachusetts Institute of Technology, and David Weinstock of the Dana-Farber Cancer Institute propose a different approach: health care installment loans that serve as the "equivalent of mortgages for [patients with] large health care expenses."

Lo and Weinstock suggested loans that:

  • Are nine years in duration;
  • Have an interest rate of nine percent; and
  • Patients would be obliged to repay only if a treatment is successful.

Lo and Weinstein stressed that the loans would finance breakthrough treatments, such as those offered by Gilead.

They acknowledged that some consumers already can access credit for health care expenses, but said their approach would expand access to curative therapies and encourage pharmaceutical companies to develop more of these treatments. And while they said it would be best for insurance ultimately to cover the therapies, they said their proposal "is a private sector stopgap way to deal with something right now."

Do the proposals have merit?

Some industry experts have dismissed calls, such as ACP's, for transparency noting that they could harm competition.

Meanwhile, some critics of the health care loan proposal are concerned it would solve the wrong problem. Speaking with NPR/Kaiser Health News, Mark Rukavina, a Boston-based health care consultant with Community Health Advisors, asked, "Isn't this why we have health insurance?" He added, "Insurance used to protect people from financial ruin for these unpredictable, costly occurrences."

Patricia McCoy, a law professor at Boston College who helped create the federal Consumer Financial Protection Bureau, in an interview with WBUR's "CommonHealth" noted that the loans could set the stage for another housing mortgage crisis -- but this time in the health care industry, with patients signing up for loans they cannot afford to pay back.   

In a FierceHealthFinance editorial, Ron Shinkman breaks down the math of such a proposal. He noted that if a patient took out a nine-year mortgage at a 9.1 percent interest rate to make a $40,000 co-payment for hepatitis C treatment, they would have a monthly payment of about $544. However, he noted that the average U.S. household income is $54,000 annually, or about $3,000 per month after taxes, meaning the health care mortgage payment would represent about 18.1 percent of their net income.

Mark Fendrick, director of the University of Michigan Center for Value-Based Insurance Design, told NPR/Kaiser Health News that a loan system that requires patients to pay for treatments only if they are successful could be unfair. He noted, for instance, that some patients fail to adhere to their treatment regimens -- and in such cases, they would not have to repay their loans. He said, "The person who does the right thing and gets the good outcome is penalized and has to pay the money back."

Paul Ginsburg, director of public policy at the University of Southern California's Schaeffer Center for Health Policy and Economics, said a better approach is to focus on the cause of unaffordable medications: rising drug costs. He argued that increasing patients' purchasing power could drive drug prices even higher.

-- by Sam Bernstein, staff writer