How to finance prevention by treatment: The case of Sovaldi

More people in the US die from hepatitis C than HIV. Sovaldi (sofosbuvir)  is a new medication for Hepatitis C. Sovaldi is remarkable because, on the one hand, it has a 90% cure rate and, on the other hand, it costs $1000 a pill and has a total cost of $84,000 per patient. Allan Joseph and Austin have been way ahead on this issue: start here and see here and here.

Allan explained why it is unlikely that insurance companies would cover Sovaldi:

it’s enormously expensive to cover sofosbuvir for all chronic HCV patients. The benefits to the insurance companies that pay for it would be small, too. Though sofosbuvir might be cost-saving in the long run, its costs are recouped over the course of decades — making it exceedingly unlikely that the insurance company that paid for a patient’s sofosbuvir would reap the benefits.

This is tragic, because curing people of a lethal infectious disease produces great benefits. You not only save the lives of the infected but you also prevent new infections. It’s an example of the “treatment as prevention” strategy that also works for HIV. It would be great if we could reduce the price of this drug. Nevertheless, I think the social benefit of curing hepatitis C justifies the cost. But we can’t seem to get there. Allan concluded that

the sofosbuvir problem defies easy solution. Despite its high price, it might be cost-effective — yet it’s almost prohibitively expensive on a large scale. It’s a shockingly clear example of how resources in American healthcare are, in fact, limited, though we often pretend they’re not.

Margot Sanger-Katz writes about Sovaldi in The Upshot. She makes the important point that

we are looking at the costs of Sovaldi in the wrong way. One reason it is causing such angst among insurers and state Medicaid officials is that treatment costs are coming all at once… There are a lot of people with hepatitis C — an estimated 3.2 million in the United States — many of whom have been waiting for a good treatment. Second, unlike drugs for most chronic diseases, like diabetes or H.I.V./AIDS, for which treatment continues over many years, Sovaldi can cure most patients’ hepatitis in just a few weeks, with the bill soon to follow.

So it is the timing of these costs that is the key problem. The treatment is worth the cost, but the costs are going to come in as a financial tsunami and we don’t have the cash.

Let me ask a naïve question: Isn’t this why we have financial markets? Or as, Sanger-Katz noted

Think about AIDS treatment as paying a mortgage. Sovaldi is like buying a house with cash.

And that is why we developed mortgages, no? We have a problem of having a very high short term cost to pay for something that has a substantially larger long term benefit. Shouldn’t we, the public, look at this like the problem of financing a bridge? Isn’t there an opportunity here to issue bonds that would allow us to raise the funds to knock back hepatitis C now, and then pay this cost off smoothly over an extended period of time that corresponds more closely to the flow of benefits?

Allan may be right that private insurers won’t be able to handle this. But there must be a mechanism that would allow us to finance this for Medicare and Medicaid. We could even have a special public fund to handle treatment costs for privately insured patients with hepatitis C.

We should consider financing hepatitis C treatment using social impact bonds (SIBs):

SIBs—also known as “social innovation financing” or “pay for success”—offer governments a risk-free way of pursuing creative social programs that may take years to yield results. Usually, governments decide what problems they want to address and then enter a contractual agreement with an intermediary (or bond-issuing organization) that is responsible for raising capital from independent investors including banks, foundations, and individuals, and for hiring and managing nonprofit service providers. If the project achieves its stated objectives, the government repays the investors with returns based on the savings the government accrues as a result of the program’s success. (Taxpayers also receive a portion of the budget gains in the form of freed-up public resources, though the investors may need to be fully paid first.) A neutral evaluator, agreed on by both parties, is hired to measure the outcomes and resolve any disputes that arise.

So, naïve suggestion: why not issue social impact bonds to pay for Sovaldi?

There’s more to say about this idea (see Jeffrey Liebman and his colleagues here and here), but I want to hear what experts in the disease and in finance think. I am neither.


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