This weekly column offers opinions on the latest pharmaceutical industry news.
Consumers take out loans every day to purchase houses, cars, and college tuition. What if they could do the same for expensive medicines?
It’s an idea that a group of Boston-area health economists floated last month in response to the rising cost of prescription drugs. And as envisioned, everyone involved in health care and finance could benefit from the availability of a health care loan.
Patients would gain access to needed medicines. Drug makers would gain more confidence their treatments would find a market and generate more revenue that could be invested in research. And by bundling the loans and then reselling them — a financial maneuver known as securitization — banks could create a market to attract and reward investors.
“There’s a win-win, but the most important thing is that we would be saving lives,” said Andrew Lo, a health economist at the MIT Sloan School of Management, who proposed the idea of health care loans in the journal Science Translational Medicine.
Lo and his colleagues suggest lenders could earn 9 percent on nine-year loans and investors could earn a hypothetical 12 percent annual return from a loan fund. And as a further enticement to consumers, they propose a pay-for-performance mechanism in which a loan could be cancelled if a treatment fails to work and an illness returns before final payments are due.
The notion is appealing. After all, making it possible for patients to obtain expensive life-saving medicines could go a long way toward tackling the mushrooming problem of rising drug costs — an issue that’s likely to become even more vexing as pricey personalized medicines become available.
But before anyone signs on the bottom line, consider the fine print.
For one, some diseases may be riskier than others. Lo’s paper points to hepatitis C treatments as good examples of why such loans are needed. The medicines don’t come cheap — running anywhere from $54,600 to $94,500 for a course of treatment, depending upon the drug and regimen — and some private and public payers are facing lawsuits and investigations for restricting access to only the sickest patients.
Yet hep C drugs have been in high demand because they offer cure rates exceeding 90 percent. This is the kind of result that should entice the financial community, since the patient would be more likely to return to health and pay off the loan on schedule. But not every illness is so easily vanquished. This underscores the challenges lenders may face as they evaluate the credit risk of sick consumers.
Here’s another concern: If health care loans are guaranteed by the federal government the way that student loans are, the pharmaceutical industry may not feel constrained about pricing. And with more people borrowing money to obtain and pay for more treatments, health care costs could soar when the loan system is intended to do the opposite.
As Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning Washington think tank, pointed out, the loans “may give drug makers incentive to do exactly what we don’t want them to do. And there’s nothing to stop them from trying” to raise prices.
Others worry that securitization is problematic, because this is the same mortgage-bundling technique that led to the Great Recession.
“I’m not sure these loans would prevent us from more bankruptcies any more than easy mortgages prevented us from disaster in the housing market,” said Arthur Caplan, a bioethicist at the New York University School of Medicine.
Lo acknowledged the proposal is only a starting point, and he said he hopes the idea can gain enough traction to eventually convince insurers and government agencies to take on the loans.
Already, some on Wall Street seem open to the notion.
“I think it is worth exploring,” said Tom Rutledge, who heads the fixed income group at the Magnetar Capital hedge fund. “The question is how do we make it transparent for everybody involved, and make it a fair market for both borrowers and lenders?”
Indeed, more work is needed in order to create a dedicated loan market and overcome legitimate skepticism about mortgaging patient lives. This is a distasteful notion, but perhaps it will spur policymakers into addressing drug costs.
If for no other reason than that, Lo and his colleagues deserve credit for putting the issue on the table.