Coping with the Costs of Treating Coronavirus

This is a joint post from Bill Gardner, David States, and Nicholas Bagley, and is a follow up to our earlier post on the coronavirus outbreak.

The coronavirus isn’t the apocalypse, but it’s bad, with effects that are plausibly on the order of an awful year of seasonal flu and a small risk of something like the 1918 flu.

Comparing COVID-19 to annual flu might not sound terrible until you remember that flu kills between 12,000 and 61,000 people every year. Plus, we’ve designed our medical infrastructure to cope with the flu. Insurance premiums reflect the risk of flu. Likewise, ICUs have been built and ventilators purchased to accommodate annual surges in patients. We’ve trained the workforce in flu-specific infection control protocols to prevent spread and to protect health-care workers.

What we can’t manage is flu plus coronavirus. The combination will place an enormous demand shock on a system that can’t quickly adapt. And throwing money at the supply side of the problem—building temporary acute-care hospitals in urban areas, training new people, paying for new therapies that come on-line—will be especially hard if the world slides into a recession.

A demand shock plus supply constraints mean that we will inevitably ration care. That’s what we saw in Wuhan, that’s what we’ll see here. And we will probably do so haphazardly and unjustly. An urgent priority is to come up with ways to ration rationally and fairly.

Which brings me back to the rough cost model that David States, Bill Gardner, and I posted on Tuesday. An antiviral, if one is developed, could possibly cost us $40 billion or more, at an estimated price tag of $20,000 per course of treatment. But we assumed that 19% of the U.S. population becomes infected and that only the very sick are treated. Either assumption could low-ball actual need.

Regardless, these aren’t manageable costs for employers and private insurers. Reinsurers will groan under the expense. Medicaid, too, will struggle. The states can’t deficit spend like the federal government can, meaning that any dollar spent on an antiviral is a dollar less spent on something else. As they did with the new Hep C antivirals, states may have little choice but to adopt unlawful barriers to care to spread the costs over multiple years.

The only silver lining is that treatment costs will fall disproportionately on the over-65 Medicare population. In contrast to the states, Congress has the power to deficit-spend to cover its commitment to provide all medically necessary care to Medicare beneficiaries. (Permanent appropriations support much of Medicare, though supplemental appropriations may eventually become necessary.) This means that, in Medicare, we’ve got a program that can cope (to some extent) with demand shocks like the coronavirus.

Still, there’s an urgent question lurking here: what tools does the federal government have in its arsenal to assure broad access to effective antivirals at a reasonable cost?

Lots, as it turns out. They’re risky tools, to be sure: price constraints can dull manufacturers’ incentives to develop antivirals in the first place. The goal can’t be to spend as little as possible. Good things are worth paying for—and a coronavirus therapy would be a good thing indeed.

Subject to that constraint, however, what could the federal government do? Under 28 U.S.C. §1498, it could start manufacturing (or threaten to start manufacturing) generic versions of a patented antiviral that’s priced too aggressively, as Amy Kapczynski and Aaron Kesselheim explain here. The government would have to pay “reasonable and entire compensation” to the patent holder. But that compensation could be set at a level well below what the manufacturer would charge. Section 1498 is no panacea—it leaves employers and private insurers paying the full cost, unless the government got into the business of reselling generic versions. But it gives the federal government some real leverage in price negotiations with manufacturers.

The Bayh-Dole Act also gives the federal government ‘march-in rights’. That is, the government can force companies to  license patents that were developed with NIH funding when the invention in question is not “available to the public on reasonable terms.” But this isn’t as advantageous as it may sound. New drugs are often covered by a thicket of patents, some of which are federally supported and others that aren’t. A mandatory license of only some of a drug’s patents isn’t useful.

There’s no need, however, to restrict ourselves to the laws on the books. Congress could always act. To be sure, the political will isn’t there yet. A group of progressive Democrats, for example, tried to insert language guaranteeing the affordability of any coronavirus vaccine into the emergency funding measure that just passed the House of Representatives. But the final bill says only that “the Secretary may take such measures authorized under current law to ensure that vaccines, therapeutics, and diagnostics developed from funds provided in this Act will be affordable in the commercial market.”

The political will may materialize, however. If it does, Congress has ample authority to restrain perceived price gouging. It could impose price caps (as could state legislatures). It could negotiate patent buyouts. In a pandemic emergency, the federal government could “take” a drug manufacturer’s patents in exchange for just compensation, in the same way that it can take land to build a highway.

But Congress could also think more creatively. Daniel Hemel and Lisa Larrimore Ouellette have a proposal—a compelling one, in my book—to create a prize for a coronavirus vaccine, with the total award keyed to the total number of people treated. Similarly, Congress could make an “advance purchase commitment”—a promise to purchase some fixed number of units of an effective vaccine, even if the coronavirus epidemic fizzles—in order to give drug manufacturers confidence that their investments aren’t wasted. A commitment like that spurred the development of a pneumococcal vaccine that has been credited with 700,000 lives; it could work here too.

These are all options. Doubtless, there are others. Coping with the costs of an eventual antiviral may turn out to be relatively straightforward.

The bigger challenge will likely be the lack of infrastructure to cope with those who need intensive treatment. Emergency funding is well and good, but distributing it and spending it sensibly is tougher than it sounds. And in the United States, you can’t build hospitals in two weeks. We’re in desperate need of more ventilators. New doctors or nurses can’t be trained overnight. (And what happens when they start being quarantined?)

Maybe the crisis will pass. But if coronavirus hits hard, all the warts of the U.S. health-care system will show. And there are an awful lot of warts.

David J. StatesBill Gardner, and Nicholas Bagley

David States, MD, PhD, is an internist and a computational biologist. He is the Chief Scientific Officer for Angstrom Bio.

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