Molding the US Healthcare System to our Biggest Foes: Cancer as a Case Study for Healthcare Innovation
What: I think curative and preventative medicine are the best ways to treat disease. Yet, for a couple important reasons, the United States healthcare system is structurally unable to support, incentivize, and reimburse preventative and curative therapeutics for the primary diseases impacting American patients.
Health is a primary player in nearly every other policy issue, industry, and metric in the US. In addition to fundamentals such as food and shelter, the healthfulness of a population is an unnegotiable precursor to its education, productivity, and innovation.
You have to live with your health for your entire life. In the US, your health provider — in most instances — does not. This is a stark difference from countries which use a single payer healthcare system or derivate of, where one entity is responsible for your healthcare costs from birth to death.
Single Payer: one entity (usually the government) is responsible for the healthcare costs of the country’s population
Multi-Payer: multiple entities (e.g., health insurance companies) are responsible for the healthcare costs of the population.
(this is an extreme simplification of healthcare system categories!)
I’ll argue here that this disconnect is a significant factor in the dysfunction of the US healthcare system, and more broadly, a factor driving the unreasonable rise of healthcare costs in the US. I will use cancer as a case study, but these arguments are applicable to most age-related diseases.
From Killer Bugs to Faulty Membrane Receptors
The primary causes of death in the previous century were largely infectious diseases (viral or bacterial). With the advent of antibiotics, vaccines, a common understanding of germ theory, and improvement in sanitization in urban areas and hospitals, infectious diseases have fallen behind diseases of age such as cardiovascular, cancer, and diabetes.
Indeed, cancer is now the second leading cause of death in the US behind cardiovascular disease.
The biology of cancer makes drug development in this space challenging. Market and economic factors increase this challenge.
Cancer is highly heterogenous
Unlike vaccines, where (generally) one vaccine is efficacious at eradicating the target disease for a wide swatch of the population, 45 oncology drugs have been approved just this year. [1] Increasingly, cancer is being dictated not by its location in the body, but by the primary molecular pathways driving the malignancy (“orphanization”)
Orphan drugs are drugs which are for rare diseases, usually defined as diseases affecting less than 200,000 people.
Orphanization refers to the reclassifying of common diseases into more specific subclasses which encompass smaller patient populations, e.g. breast cancer with receptor B upregulated, gene mutation X, and protein A downregulated.
Cancer is opaque
Clostridium tetani causes tetanus, Streptococcus pyogenes causes strep throat…when the ‘bad guy’ is known, the disease is usually easier to treat. In comparison, a patient’s breast cancer could be caused by any number of co-factors and these factors will differ across patient populations.
The best cancer therapeutics need to be highly specific
At a high level, chemotherapy works by killing all quickly dividing cells. Cancer cells replicate quicker than most other tissues, so it’s a generally effective way of targeting them. However, chemo’s brutal side effects occur because many other healthy tissues divide quickly. It’s a blunt instrument. Much R&D focus is now on targeting individual receptors, proteins, and pathways. While beneficial for patient outcomes, this may imply that blockbuster drugs will be less common in favor of highly specialized (and therefore small patient population) medicines.
A blockbuster drug is a highly financially-successful drug, defined as over $1 billion in sales per year.
Cancer develops over years and decades
While you may “catch” the flu (let’s ignore viral incubation for convenience here), non-childhood cancers often develop over years or decades. This has a few implications: (i) by the time you see the symptom (the tumor), the easiest window to treat the disease has passed; (ii) the most effective intervention period for some cancers may be years or decades earlier than is currently standard; (iii) unless there are cheap and easy ways of screening healthy people on a regular basis, most people will not know they have a cancer precursor until they become symptomatic.
So how does the US healthcare system inadvertently dis-incentivize disease prevention and cures?
I’ll discuss four factors below:
- The rapid movement of patients from insurer to insurer
- The profitability of drugs over vaccines from a pharmaceutical company perspective
- The differing revenue curves of cures versus disease management
- The inability to be utilitarian in healthcare
Patient Loyalty and the Health Benefits Discount Rate
Discounting of future returns is a way to quantify the prioritization and higher value of benefit realized sooner (whether health-related or financial) rather than later. Mathematically, you can think of it as reverse-interest, in that the money or benefits gained in the future depreciate over time.
The net present value (nPV) of health or financial benefits can be calculated as
nPV = -C0 + (1/(1 + d)^n)
where C0 is the initial investment (here, this would be the cost of the therapeutic), d is the discount rate, n is the number of years in the future.
In health care, the discount rate is usually around 3% (d=0.03). A higher discount rate (d) or a longer time till the return (n) results in lower present value of the benefit.
The explicit discount rate used by healthcare providers when deciding what therapeutics to provide or prioritize differs from the internal discount rate patients have about their own health.
Put simply, both payers and patients value immediate health benefit the most. However, patients value their future health more than the payer does. The patient’s discount rate is smaller than the payers.
Why is this so? It’s not because health insurance companies are “evil” and do not care about their patients’ health. It is in part because of the nature of a mutli-payer healthcare system with a free market: patients are free to move from health insurer to insurer. Indeed, the average patient stays with their health insurance provider for an average of 2 years.
Health insurers know this. Therefore, any investment they make in your long-term health will likely have have a very small net present value to them, as you will likely be with another health insurer by the time the beenfit of the drug is realized.
Here is another visualization. Even if the benefit of a drug is large and clinically significant, if it is too far in the future the discounted benefit (and therefore its net present value from a healthcare provider perspective) will be low.
(as a note — discouting has an exponential effect on the net present value of the drug due to the ^n term — I have not visualized this in the above figures for simplicity’s sake)
Why does this matter?
A short-term outlook on health is neither beneficial to the patient nor the healthcare system as a whole, and leads to increased healthcare costs down the line coupled with worse patient outcomes.
Profitability of Drugs versus Vaccines
This section is adopted from the economic working paper “ Why are Drugs More Profitable than Vaccines? NBER Working Paper Series Reference 9833, available at: http://www.nber.org/papers/w9833
You can see my in depth post about this super-cool paper [here]
The highly generalized version of the concept argued in this paper is that vaccines are less profitable for drug developers than drugs, therefore they are decentivized from investing in vaccine R&D.
The maximum price a patient is willing to pay (Pwtp)for a vaccine is a function of the risk they believe they have of contracting the disease (θ, which is a value from 0 to 1) times the price they would pay if they had a 100% chance of contracting the disease (Pmax). Pwtp = θ*Pmax
In comparison, if the patient already has the disease, they are willing to pay the max price immediately. Pwtp = Pmax ; θ = 1
In addition, as the vaccine is adopted by more of the population, the risk of contracting the disease if you are not vaccinated decreases; θ goes to 0 over time. The vaccine developer is curing their patient population and eradicating the need for their vaccine.
Here is the example given in the paper I cited above:
- There are 100 total customers
- 10 have a 100% chance of developing the disease (high risk), while 90 have a 10% chance (low risk)
- The vaccine developer can charge $100k for their vaccine. Only the 10 high risk patients will be willing to pay this. Revenue = $1 million.
- Alternatively, the vaccine developer can charge $10k for their vaccine. All of the 100 are willing to pay this. Revenue = $1 million
- The drug developer charges $100k for the treatment to any patient who develops the disease. On average, 19 of the 100 will. All 19 are willing to pay since they are now sick. Revenue = $1.9 million
Why does this matter?
It goes back to our previous assumption that prevention and cures are better than treatments and symptom management. If we want more preventatives to be on market, developers need to be properly incentivized to do so — and as in the end therapeutics is a for-profit industry. that includes the economic factors.
One-time Cures versus Chronic Disease Management
In an ideal world, it is better to immediately cure a patient of any disease they acquire to mimize the suffering had. In the real world, most therapeutics work by mitigating and managing the major symptoms of the disease. This is in part biological (cures are hard!), but with the advent of new therapeutic modalities such as gene and cell therapy, cures may be close for a number of diseases. I’ll discuss some of the economic challenges potentially hindering the development of cures.
Gene therapy is a type of therapeutic where a gene product is delivered to a cell to correct for a genetic mutation or other deleterious process in the cell, or to repurpose the cell’s functionality for a therapeutic benefit.
Cell therapy is the introduction of cellular products for a therapeutic benefit.
A therapy can be both a cell and a gene therapy.
The former (curing) is presumably preferred by the patient, but the latter (managing) is preferred by the drug developer. Why? It is more profitable to sell a managing treatment which must be taken for years or decades, than it is a one-time cure.
I’d argue that this is for two primary reasons: (i) a cure will likely be more specific to a sub-population and therefore have a smaller potential market, in comparison to a therapeutic which is designed to manage the symptoms regardless of their underlying molecular cause; and (ii) after initial adoption of the cure, the annual revenue will be tied to the incidence rate of the disease. In comparison, the managing treatment will continue to be taken by all eligible patients for many years.
As such, the developer of the cure will need to charge a higher price for their drug, as they will need to recoup their profit from the one-time treatment regime. In comparison, the managing drug developer can charge a lower price (and therefore have an easier time being adopted by healthcare providers).
Why does this matter?
Cures are better for both the healthcare system and the patient, but are more challenging to achieve market traction and health insurer adoption due to the inevitably higher price that cures must cost over managing treatments.
Moral Challenges in Healthcare Decision Making
This topic is justifying of its own post, but it is worth briefly acknowledging the moral challenges any company attempting to work in the healthcare space must mitigate.
You cannot simply be utilitarian in healthcare. It may be better for a government to adopt Policy X, which net more health gains on average for the population than Policy Y. However, if Policy X requires abandoning certain patient groups or other morally unsavory behaviors in order to achieve these superior health gains, it is likely morally unacceptable.
In this same line, it is better for the country and the healthcare system as a whole if everyone is as healthful as possible. However, what if people do not want to be healthy? What if they want to partake in risk-taking behavior, if they want to smoke, if they want to eat unhealthily and avoid health check ups? Can you force people to be healthy? Probably not — and you also cannot deny these people healthcare when they inevitably become ill.
It’s arguable that most other things we insure — cars, boats, life insurance — are a right, not a human necessity. In my opinion, health is a human right and therefore undeniable. So, where do you draw the line between morally unsavory but economically necessary policies, and moral necessities regardless of the societal cost?
