The real estate collapse sparked by the Great Depression inspired the US to invent the 30-year mortgage. Home mortgages existed before the 1930s, but they were un-amortised and lasted only three to five years. It wasn’t that people paid off their homes that quickly; how it worked was when mortgages expired, they simply refinanced new ones. But the Depression annihilated all that refinance money overnight, leaving millions in the lurch.
Acting quickly, President Franklin D Roosevelt arranged for the creation of the Home Owners’ Loan Corporation, a private entity that began swapping bonds for bank mortgages. Because the government’s newly minted Federal Housing Administration (FHA) insured the corporation, bond investors could sleep tight knowing their principal investments were secure, and banks could extend loan horizons to lengths previously deemed ‘immoral’.
Long-term mortgages democratised home ownership and served as a cornerstone for the US’s much vaunted post-war prosperity. They also, along with other New Deal programmes, kickstarted an era of cooperation between the federal government and privately held wealth that persists to this very day – though few on either side of the political aisle ever admit to it.
Portfolio theory, mortgage-backed securities, margin stock buying, savings and loan lenders, credit default swaps, individual retirement accounts, the list goes on – all invented in the Land of Opportunity. And all, one way or another, supported by the government, if only in the form of post-crash bailouts. (Rumour has it credit rating agencies’ forecasts are already including the cost of the next bailout.)
This unique brand of financial ingenuity seems poised to enter the healthcare world. Complex, Wall Street-style financial instruments may be the only politically viable means of providing widespread access to gene therapies, a revolutionary new class of drugs that can easily cost a million dollars per dose.
Standing ready
If all goes to plan, gene therapy, a loose umbrella term for modalities that alter genes to treat or prevent disease, stands at the threshold of enormous clinical success. Although so far only a handful of treatments have been approved, an estimated 1,500 crowd the pipeline, 40 or so of which appear ready for approval in the next few years. Initial disease targets include cancer, neuromuscular disease, haemophilia, immunodeficiencies and blindness.
It’s difficult to exaggerate the game-changing potential the new treatments offer. The only apt parallel might be the discovery of antibiotics or vaccines, but even those milestones may end up paling in comparison. Gene therapies target the underlying disease itself, not symptoms, and often fix the problem permanently. Many are effective cures. Once and done, as the saying goes.
Importantly, genetic remedies skip the painstaking middle step of drug discovery. No more searching the haystack for small molecule needles. Researchers can go right from identifying a genetic target to treating it, which should speed the discovery process considerably.
But wait, there’s more: well established and respected experts in the field believe gene therapy will unlock real-world potential not just to halt the biological ageing process, but to reverse it as well. Yes, you read that correctly. At this moment researchers are working on anti-ageing therapies designed to rejuvenate molecular physiology, strength, memory, immune function, etc – the whole system. If they work, even the patient’s appearance will be impacted, according to press statements made by prominent Harvard geneticist George Church.
Heady stuff, to be sure. But there’s a catch. Price tags for these treatments shatter all established norms, to the point of making Sovaldi look like a generic. Without some kind of outside support, the healthcare system as it exists now cannot hope to pay for their widespread application.
For example, the ophthalmic drug Luxturna, approved last year, costs $850,000 per dose. Cancer drugs Kymriah and Yescarta go for $475,000 and $375,000 respectively. Before being pulled from the European market for safety concerns and lack of uptake, pancreatic drug Glybera cost $1m a dose. Another EU drug, Strimvelis, targeting immune deficiency, retails for $665,000.
Keep in mind, these are just sticker prices. True costs may soar far higher after including ancillary expenses, often high because implementations tend to be complicated and patients extremely ill. “I don’t know that we have sufficient experience to tell us what the actual costs of these therapies will be,” said Len Lichtenfeld, MD, deputy chief medical officer for the American Cancer Society. “But some estimates go as high as double [the stated cost] – and I don’t think they are too far off.”
Given the animus that exists among US pharma stakeholders, reactions so far have been remarkably conciliatory. Most parties appear to understand the incalculable societal benefits at stake. For example, Luxturna maker Spark Therapeutics approached a commercial payer with a pay-for-performance option. Novartis is said to be open to a similar deal with Medicare for Kymriah.
In a company statement, even chief medical officer of pharmacy benefit manager Express Scripts Steve Miller, usually a fierce critic of high drug prices, offered this olive branch: “As these life-saving and revolutionary treatments continue to be developed, it is up to payers, pharma companies and policymakers to unite and ensure they reach patients. Express Scripts stands ready to do its part.”
Or as the Alliance for Regenerative Medicine’s co founder Michael Werner put it: “When you’ve got products that demonstrate the kind of game-changing benefits to human health, particularly for unmet medical needs, that some of these products do, then the payer community wants to figure out how to make them available.”
Distasteful but…
In addition to pay-for-performance, other possible funding strategies under consideration include mandatory price limits; re-insurance (currently used for expensive transplant operations); risk pooling; and lease-like financing for payers or providers.
All these options contain weaknesses. In consecutive order: Pay-for-performance undermines itself, since all therapies seek 100% efficacy. Even cutting prices by half – an unlikely event in a land as keen on commerce as the US – would still leave such treatments well outside the affordability of commercial payers. Re-insurance and risk pools only work when treatments remain uncommon, which these won’t. And providers and payers lack the kind of financial clout needed to float such immense lines of credit.
When such realities are discussed, people in the industry often mention the name Andrew W Lo, an MIT professor and investment strategist. Lo has spent the last few years making the case that amortised loans to large institutions like commercial payers, hospitals or governments could work if they were bundled, securitised and sold to Wall Street and institutional investors – in a strategy not unlike how mortgages were lengthened during the Great Depression.
‘Securitisation brings new participants (for example, pension funds, mutual funds and life insurance companies) into the financing pool and helps transform a set of disjointed and sometimes competing interests into a more cooperative system focused on improving care,’ according to a study Lo co-authored on the topic.
In press reports, Lo has admitted that while it may seem ‘distasteful’ to fund healthcare via the same techniques that helped plunge the world economy into financial crisis a decade ago, it might also be the only real-world option with a chance of success.
The study concedes any such solution would require unprecedented regulatory approval and cooperation from the federal government, and in this respect the timing appears opportune. Any solution that can be pitched as ‘market based’ seems certain to appeal to the current administration in Washington.
Another serendipity lies in how neatly this whole challenge fits the national character. Task Americans with doing something down-to-earth and rational that every other developed nation has pulled off, like providing healthcare to fellow citizens, and watch us fall to pieces. But make it a mythical, quasi-impossible quest – splitting an atom, landing a man on the moon, or launching a priceless class of miracle cures – and just stand back as we leap into action.