New research by MIT Sloan Prof. Andrew W. Lo, Dana-Farber Cancer Institute‘s David Weinstock, M.D., and Vahid Montazerhodjat, an MIT post-doctoral fellow, offers a solution for the excessive costs associated with breakthrough therapies that already exist for certain diseases such as ALS: securitized consumer healthcare loans (HCLs).
The research introducing this practical remedy for the problem is published in Science Translational Medicine, titled “Buying cures versus renting health: Financing health care with consumer loans.”
Healthcare loans (HCLs) are the equivalent of mortgages for large healthcare costs. HCLs allow patients in both multipayer and single-payer markets to access a wider set of therapeutics, including expensive short-duration curative treatments. HCLs also link payments to clinical benefits and should help lower per-patient costs while bringing an incentive to the development of transformative treatment, rather than those that offer small incremental progresses.
“This is an instance where financial engineering could benefit the entire ecosystem,” Lo said in a press release. “It helps patients by providing them with affordable access to therapeutic drugs and cures. It helps biopharmaceutical companies by enabling them to get paid back for the substantial investments in R&D they make to develop the therapies in the first place. And it helps insurance companies by linking payments to ongoing benefits.”
New breakthrough cures for certain types of cancer, hepatitis C, and rare disease such as ALS have been recently developed. But the costs of these new medicine is stratospheric.
Glybera, for example, a gene therapy that cures lipoprotein lipase deficiency, was approved in Germany with a price tag of about $1 million. This therapy may last for the patient’s remaining lifetime, but patients have to pay upfront for the entire treatment.
“The stark reality is that many patients don’t have access to transformative therapies like Glybera solely due to affordability,” Weinstock said. “This is a problem that will only grow as scientists create more cures. In the next five to seven years, we could see cures for diseases like ALS, Duchenne muscular dystrophy, and many types of cancer, but those therapies could be too expensive for the average patient.”
Securitized HCLs may also be lucrative investments. Mathematical simulations showed that an HCLs fund produced a putative annual return of 12 percent. In contrast, over the period from January 2006 to December 2015, the Standard & Poor’s 500 Index had an annual return of only of 7.3 percent.
“As an investment, securitized HCLs have another important advantage — they are not likely to be highly correlated with the stock market,” Lo said. “This makes them even more attractive for investors such as pension funds, mutual funds, and life insurance companies.”
Lo and his colleagues admit that there is an associated risk in financial engineering methods in healthcare, especially as securitization was one of the leading financial models that triggered the recent worldwide financial crisis. Although securitization is used today in many markets and plays a vital role in financing mortgages, consumer credit and student loans, it can still be abused in the absence of regulatory protections.
“But to argue that securitization is simply too risky without a reasonable alternative is to relegate patients in desperate need to the status quo,” Lo said. “Securitized HCLs make expensive breakthrough therapies more affordable right now. The science is here and it’s moving at breakneck speed. Now we need the financial models to catch up.”