If Health Insurance Isn't Good Enough, Will 'Drug Loans' Help Cover For Expensive Cancer, Hepatitis C Drugs?
Increasing cost of medication and therapies would make securitized drug loans appealing to some patients, but it is not without its own drawbacks.
Big pharmaceutical companies are known to jack up the prices of their medications to increase their revenue without thinking about the effects it would cause patients. In 2015, the U.S. Senate investigation found that Gilead Sciences, maker of a hepa C drug Sovaldi, knowingly charged patients with exorbitant prices to maximize their revenue.
Andrew Lo, Massachusetts Institute of Technology (MIT) finance professor Sloan School of Management and director of MIT Laboratory for Financial Engineering, together with David Weinstock, Dana-Farber Cancer Institute physician, published a proposal that showed capital markets can provide financing for expensive treatments for illnesses, such as hepatitis C and cancers.
Lo shares that a number of his family members and friend are struggling with expensive treatment costs and this has pushed him to know more about the process of drug development. He did a research of what drives the market, and this is how health care loans or HCLs came into fruition.
Lo explains that HCLs work by having individuals assume part or all of a treatment cost and in order to pay for it they would take out a loan from a special purpose entity (SPE) that will finance the treatment over a repayment period of several years. The SPE would get the money by securitizing them so investors can buy shares and loans of the SPE. However, the researchers do not speculate on the potential returns. They say HCL would probably act like other asset-backed securities market and would highly appeal to institutional investors.
In Lo and Weinstock's hypothetical model, the HCL has 9.1 percent interest rate. This is slightly higher than an average mortgage and would only be good for those with credit standing. If HCL were based on a credit standing of a patient, the model would raise some ethical concerns.
"You can create a market for anything, but that doesn't solve the problem of healthcare costs," says Gerald Kominski, professor for health policy and management at the UCLA Fielding School of Public Health. He contends that this type of financing would only aggravate the existing inequality within the healthcare system.
The study authors maintain that as soon as the market for HCL grows, borrowers and lenders would have the leverage to lower the prices of drugs. The proposed model also takes into consideration the lemon provision that would allow the borrowers to stop payment if there is treatment failure or if they develop side effects.
Lo and Weinstock have also offered a second HCL model that would allow insurance companies to take on amortization of treatment.
Lo says insurance companies do not want to pay for expensive treatments because switching patients creates a dent in their capital reserves and they cannot immediately recover from the patient's subsequent payments.
He adds that particular switch, under the HCL model, would allow the insurance to take out a loan and if the patient switches providers, the new insurance would take up and continue the loan from the previous insurance.
Kominski argues that the proposal is theoretically good but he fears that the implementation by stateless insurance policies may weaken existing consumer laws.
The proposal was published in the journal Science Translational Medicine and was presented at an MIT conference with attendance from various health insurance companies.
As experts argue on how patients can afford expensive medications, patients are hoping that experts would be able to manufacture and distribute cheap and effective medications.
Photo: Brandon Giesbrecht | Flickr