Creative Financing for Innovative, Curative Therapies

States are getting inventive in their approaches to meeting the health care needs of their citizens, especially when it comes to curative treatments for conditions that have a high prevalence rate. Louisiana, for instance, in January 2019 became one the first states to adopt a subscription model—also known as the Netflix model—to get more hepatitis C virus (HCV) treatments to the patients with the greatest needs. This model is just one of several financing approaches that states and organizations are testing as ways to ensure their health care dollars are spent more efficiently and effectively while providing patients with access to innovative, curative therapies.

Louisiana has a high rate of HCV prevalence in its Medicaid and prison populations and a limited health care budget. Similar to how Netflix allows consumers to watch unlimited programming for a monthly subscription fee, Louisiana worked out a fixed-cost, 5-year contract with Gilead Sciences’ authorized generics subsidiary, Asegua Therapeutics, to access all the HCV medications it needs.

Washington state followed suit weeks later by announcing an agreement with AbbVie to provide HCV treatments for approximately 25,000 patients covered by its Medicaid program. Through Medicaid supplemental rebates, rather than the complicated and often politically charged waiver process, Washington will pay until it reaches a certain level of total spending for HCV treatment. After that, the state will receive the medication at a very low cost.

These strategies are likely just the start of a broader financing trend by states. With the treatments used over a short term for lifetime effects, the question of who pays and who benefits is always front and center. Given that 45 to 60 curative therapies are expected to reach the market in the next decade, with estimated total treatment costs of $20 billion to $25 billion, it’s not surprising that states are looking for ways to stretch their limited budgets.

Many of these treatments are gene therapies and immunotherapies for rare or ultrarare diseases with no or few treatment options. For patients, these treatments could mean marked improvements in daily quality of life. Treating these patients and monitoring their outcomes are complex propositions, however, which is why we’re now seeing states and organizations testing different types of financing approaches, in addition to the Netflix model.

Under an effort led by the Financing and Reimbursement of Cures in the US (FoCUS) program, part of Massachusetts Institute of Technology’s (MIT) NEW Drug Development ParadIGmS (NEWDIGS) initiative, and supported by the National Pharmaceutical Council, investigators are testing financing models that include performance-based annuities for treatments of blood disorders, milestone-based rebates for chimeric antigen receptor (CAR) T-cell therapies, and the creation of an orphan reinsurer benefit manager for orphan/ultraorphan diseases.

For blood disorders, an up-front payment tied to the initial treatment followed by a series of payments over time (eg, several years), would reduce not only the 1-time impact of the potential cost but also the uncertainty for payers. When a treatment first comes to market, there are little to no robust durability data, so the risk of financing such a treatment needs to be shared, with payments made as pre-agreed performance metrics are met. One example is a 5-year performance-based annuity that mitigates actuarial risk from patient backlog or rare but high-cost cases.

Financing CAR T-cell therapies is trickier because patient success is more difficult to judge. CAR T is a type of immunotherapy that involves multiple steps to treat advanced cancers, and patients can relapse after 1 or many years. Under a milestone-based contract, a payer would provide compensation to the innovator at the time of delivery with an understanding that if a patient recovery milestone is not met, a rebate for that payment is forthcoming. This could alleviate short-term performance risk with minimal implementation hurdles.

The impact of gene therapy is asymmetric, affecting small health plans more significantly than those with a larger number of covered lives, and many patients switch plans. One way to address this challenge is through orphan reinsurers and benefit managers (ORBMs). These organizations could combine the risk bearing of reinsurers with the therapy-contracting capabilities of pharmacy benefit managers. Another way is through multipayer risk pools, in which payers combine to provide coverage for orphan and ultraorphan diseases. These could be implemented via state-sponsored Medicaid pools or an ORBM.

Why aren’t more states and other organizations jumping at the chance to try out these approaches? They need to figure out how to deal with regulatory barriers first. Among those barriers, Medicaid Best Price—the lowest price for which a treatment is offered and the required rate provided to federal programs—and the Anti-Kickback Statute present unique challenges. Even more challenging, though, according to MIT FoCUS, are current Health Insurance Portability and Accountability Act (HIPAA) privacy protections. “Sharing patient performance data among the involved parties in performance-based agreements (especially developers and subsequent payers) often requires additional hurdles due to HIPAA regulations that did not contemplate this sort of agreement,” the group wrote in its “Federal Policy Suggestions for Durable Therapies” document.¹ They also recommend amending HIPAA regulations to ensure the availability of the data needed to inform long-term, performance-based agreements.

The structure of our health care payment and delivery system makes keeping pace with medical and scientific innovation difficult. However, if these creative financing models begin to show promise and improve access for patients, they could lead to further innovation and adoption of financing approaches. That’s a move we’re all looking forward to watching.