Can’t Afford the Cost of that Fancy New Drug? MIT Says Get a Mortgage

Writing in the journal Science Translational Medicine, MIT researchers discuss a novel way for patients to afford breakthrough medications they otherwise could not afford. Their interim solution: health care loans.  Not unlike the way most people buy a house, a health care loan would turn a large upfront medical bill into a series of manageable periodic payments. In my opinion, a better analogy is a car loan. If you’re diagnosed with cancer or are at risk of losing your liver to hepatitis C, taking out a $30,000 loan to pay for treatment beats the alternative.

Using a process called securitization would provide revenue to drug innovators while providing cash flow to investors — who buy the loans at a discount. One drawback (if you want to call it a drawback) is that this only works for cures. Sovaldi is an example. Sovaldie is a highly effective cure for hepatitis C but has a “retail” cost of $84,000 for a treatment regimen.

There is at least one other benefit that I don’t believe the authors recognize. If individuals were forced to pay for advanced therapies, they would demand more proof they work before coughing up the funds. Because consumers’ pockets are not as deep as insurers, they would demand more value and the prices of cures would likely be much lower. Just as Sovaldi sells for less in countries with lower standards of living, selling Sovaldi to people who have to pay treatment costs directly would probably result in lower prices.

Of course no investor would buy a securitized loan for that $250,000 lung cancer treatment that only extends lives by six weeks. So in those cases the drug maker might have to accept weekly payments for ongoing treatments.  Again, patients would likely demand more proof of benefit. If patients had to pay directly — only stopping when they die — maybe the health care system would ultimately spend less on marginal treatments. Just think about it: marginal treatments would generate revenue for shorter periods than highly effective treatments.

One of the coauthors states “We fully agree that this is a temporary measure, one that can save many lives while we wait for our policy makers to come to their senses and focus on the business of governing rather than political infighting,” I thought he had a good idea up until that last statement.  Another coauthor said “It’s lamentable that such an approach would be necessary.  The idea of patients taking mortgages is distasteful to me as a doctor, but it’s better than the status quo in many ways.”

Source: Medscape.


Comments (13)

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  1. The big ham says:

    Cool them MIT geniuses have finally caught up to what us agents have been saying for 20 years. Then again Gruber is one of the MIT geniuses ..go figure

    • Devon Herrick says:

      Life is priceless! Heaven forbid you pay out of pocket instead of paying with OPM (other peoples’ money).

      • Ron Greiner says:

        OPM is the new NCPA theme huh? The NCPA used to be about health policy but I guess those days are done.

        CATO’s Cannon is saying that tax credits is an individual mandate and others are saying that’s crazy. I agree, CATO is crazy.

        OPM is taxpayer money when health insurance is purchased with tax-free money from an employer.

        In the real world when a consumer has $20,000 in his tax-free HSA and owes a $5,000 deductible to the hospital the consumer will set the $5,000 debt up on payments of $50 a month with no interest and the hospital will usually agree.

        MIT is a little slow because this has been happening forever. Why would the consumer drain his HSA when the hospitals will take payments with no interest?

        When is the NCPA going to discuss Health Policy again?

        • Devon Herrick says:

          “MIT is a little slow because this has been happening forever. Why would the consumer drain his HSA when the hospitals will take payments with no interest?”

          I admit I found the MIT article somewhat amusing (the researchers did a variety of modeling and simulations and then proclaim they don’t really like the idea).

          To set up the $5,000 debt to a $50 a month payment you would need to ensure the hospital doesn’t have access to your HSA when they bill your insurer. I believe it’s an election you need to make with your insurer.

          • Ron Greiner says:

            “To set up the $5,000 debt to a $50 a month payment you would need to ensure the hospital doesn’t have access to your HSA when they bill your insurer. I believe it’s an election you need to make with your insurer.”

            Devon the insurer has nothing to say about where the consumer has his HSA funds. Also, consumers don’t mention the HSA to the provider before they get their EOB. Why would they?

            After the consumer get their EOB and their part of the cost, if any, that’s when the consumer decides which funds to pay the expense with. Many people don’t spend their HSA funds because they have the freedom to let those funds continue to grow tax free and to take the expense at anytime in the future.

            Telling the doctor’s staff about your tax free HSA is a waste of time and would just confuse them. I have clients that have over $100,000 in the tax-free HSA and have never taken a withdrawal yet.

            • Devon Herrick says:

              Thanks Ron! All very good points! I tell my doctor(s) I have a high-deductible plan. I don’t elaborate that I have an HSA lest they get the idea I’m not sensitive to what they charge or what tests they order.

  2. Barry Carol says:

    Homes can be foreclosed on if a homeowner defaults on his mortgage. Cars can be repossessed if the car owner defaults on his loan. Even credit cards are not extended to people with unduly low credit scores. The lender has to perceive some reasonable prospect of repayment before granting a loan. For those with poor credit, payday lenders charge annual interest rates on small loans in the 500% range. Who in their right mind would lend money to pay for expensive drugs to people with no assets and little or no income?

    Even in the case of drugs that can offer a cure or at least a highly effective treatment, there is a huge segment of the population that could probably not get a loan. Remember that over 60% of adults today couldn’t come up with even $400 on short notice to pay for an unexpected car repair, home repair or medical bill without putting it on a credit card, borrowing from a family member or pawning / selling valuable assets if they have any.

    It’s true that if people had to pay for expensive specialty drugs themselves, they would ask a lot of questions about efficacy and many of these drugs probably would never be developed in the first place. I’m not so sure that would be a good thing though. There have been plenty of treatments over the years that were not very effective at first but became more effective later as we learned more about how the human body works and responds to treatments.

    Drug pricing, especially specialty drug pricing, is a serious issue but healthcare loans aren’t a solution for most of the population, in my opinion.

  3. Perry says:

    You know, all this would not be a problem if the Affordable Care Act did what it was supposed to do.
    I would think a cancer patient would be a bad risk.

    • Devon Herrick says:

      The authors say it would only work for “cures” like Sovaldi for Hepatitis C. But, then again, how many new therapies come out that are as clearly effective as Sovaldi? Most new therapies are marginal improvements over earlier treatments. Some may not even show clear benefits until they have had time for doctor to figure out how to use them effectively.

      • Sheldon Weinhaus says:

        And from recent news articles — and some in the past — researchers sometimes “cheat” on what they report, so the poor patient really cannot make an intelligent decision.

        Further , like the real estate loan packaging as in the past debacle that led to the 2008 recession, would we not see the same issues here if those loans are packaged to investors.

        • Devon Herrick says:

          The idea of securitization is problematic. At least with a house, there is a tangible asset as collateral and a credit score. But, in health care a diagnosis could be coupled with different aged people, different disease conditions, with different credit risks and so on.

          I don’t know how drug makers could bundle health care loans into packages that an investor would buy without having to discount the amount (to account for risk) more than drug makers are willing to accept.

          For example, a person with a great credit score but with a poor prognosis would be a poor risk. A person with a good prognosis but a bad credit score would also be a bad risk. The only patients whose loans would be investment-worthy are those with a good prognosis and a good credit score. They don’t need loans.

  4. Bob Hertz says:

    It sounds rather morbid to have lenders make assessments of life expectancy, as I believe Devon is implying.

    The overall of this interesting article to promote self-rationing…..where indviduals (and maybe lenders) decide not to take overpriced drugs or undergo marginal surgeries.

    I do not endorse this approach myself. I do not have the same horror which Devon has of a government agency making some decisions about risky, end-of-life care.

    Of course that is easy for me to say. The American government has shown no inclination to make hard choices.
    In the case of Terry Schaivo, I think we damn near had a special session of Congress to let debate letting one poor pitiful soul die.

  5. Erik says:

    Henry Ford was an American visionary.

    Todays CEO’s, not so much…