Pharmaceutical innovations—particularly those that cure chronic or life-threatening diseases—create enormous value for society by preventing deaths, improving lives, and lowering health care costs. Witness the medicines that cure hepatitis C (HCV) and those that hold great promise to cure other diseases, such as certain types of cancer.
But the pharma industry’s predominant economic model—charging per treatment at the time of care—can limit society’s ability to reap the full benefits of a cure. The problem: a mismatch in the timing of payment versus the timing of benefits. The prevailing model front-loads the payment to pharmaceutical companies while the treatment’s value to society accrues over time, sometimes decades.
The advent of cures creates a true pricing dilemma for pharmaceutical companies and those that pay for medicines. If drugs were priced today to reflect only the value that accrues over time, the resulting (high) prices would strain payers, prompting some of them to limit patient access. Conversely, treating all patients as fast as possible—and in doing so, accelerating eradication—requires prices so low that developing certain cures would become far less economically attractive, particularly compared with the economics of drugs that treat chronic diseases.
Is it possible to solve this dilemma and align the incentives of pharmaceutical companies, payers, and patients?
We argue that the answer is yes. The solution is an alternative, population-based treatment-pricing model—what we call the payer licensing agreement (PLA). Its rationale lies in the differences in economics between “managing” and “curing” a disease. For most diseases, treatment focuses on the acute and follow-up regimens to manage individual patients whose current symptoms meet a specific profile. To align value and stakeholder incentives with that objective, pharma manufacturers traditionally apply a fixed, per-patient pricing model. Eradicating diseases, in contrast, should take an entire “population” of patients with a given disease into account at a price that reflects the value of curing all patients. In this article, we use the case of HCV, whose cure was first introduced in 2013, to demonstrate the advantages of a PLA over traditional per-patient models. Our arguments are built on a concept that we first presented in February 2018 at the 5th Annual Global Health Economics Colloquium, held at the University of California, San Francisco, Institute for Global Health Sciences.