How Would You Price the Cure for Hemophilia?

Today’s Managing Health Care Costs Indicator is $20 million

The New England Journal this weekend published an exciting small series showing that a genetically engineered virus can infect the liver of hemophiliacs and produce the missing protein that can prevent abnormal bleeding.  This was covered in the New York Times, and an accompanying NEJM editorial calls this a landmark study – the first evidence that we can use the body as a factory for deficient proteins, rather than manufacturing them outside and administering them artificially.

Granted, it’s a small study – a total of six patients – and only two got the highest dose therapy.  One of those had only a brief positive response before his immune system destroyed the (good) infected liver cells, and those who got a lower dose had relatively small responses.  This viral infection can only be administered once – as future doses would be rejected by the immune system.

The editorialist points out that the annual cost of factor to treat this type of hemophilia is $300,000, and the lifetime cost can be up to $20 million.  She writes

Since the vector [engineered viral infection]  is estimated to cost $30,000 per patient, dramatic cost savings have already been achieved.

 Will this dramatic advance lead to lower health care costs?

I doubt it.

First of all – it’s likely this treatment will only work in a portion of patients with this disease, and will only work for a limited period of time. Further – there will undoubtedly be some adverse effects, possibly even induction of liver cancer.  Most of those treated continued to need some factor concentrate – just not nearly as much.

More importantly, the cost of the injection was stated to be $30,000 in this government-funded study. That's probably just for the marginal costs of each injection - and doesn't include any of the earlier research that led up to this point.   The treatment will need considerably more testing – it’s not yet ready for widespread use.  

If the treatment is commercialized by a private company, the price would not be based on the resource cost of production, but rather based on the value created by the treatment.   I’d argue the true value of such an injection, assuming it worked in 50% of patients with few side effects and assuming it was effective for 5 years would be about $650,000 – or the net present value of $150,000 of savings each year for five years. (I used a discount rate of 5%).   

So – if the pharmaceutical company which commercializes this treatment is rational in setting the price for it – it will capture most of the social value of the innovation.  Of course, our current health care system financing will have a difficult time dealing with a one-time $650,000 injection, in a world where many people change employer or change insurance frequently. 

The likely high price for a cure for hemophilia isn't bad – it’s part of why we have such intense innovation and so many life-saving innovations in the biopharmaceutical space.  However, we can’t count on these innovations to lower cost – because they will be priced to capture a substantial portion of the value for those who own the patent.

We can count on innovations like this, over time, to improve the quality and perhaps quantity of life for those who suffer from this and other genetic deficiencies.  And that’s the purpose of health care – to make life better, not to save money.  

It will be a long time before such an innovation is available as a generic!