In the Tragedy of the Commons, an invaluable resource is destroyed by the very parties who depend on it — not out of malice or neglect but by acting in their own rational self interest. In U.S. healthcare, we’re in danger of seeing that tragedy play out with the emergence of a remarkable new category of innovative drugs known as cell and gene therapies. We must find a way to treat our ecosystem of innovation as a precious resource we all have a stake in sharing.
Our healthcare system has always struggled with the tension between innovation and affordability. We justify higher costs for prescription drugs, surgeries, and hospital stays to preserve the innovation that is central to drug development, clinical advancements, and world-class care. In the process, we push healthcare costs perilously close to the breaking point, threatening access. With the arrival of cell and gene therapies (CGTs), that breaking point may be here.
A new era of clinical breakthroughs
CGTs represent a new pinnacle of innovation. They are possible because of decades of hard-earned advancements in genetics and associated technologies. Depending on the drug pathway, faulty or missing genes are either repaired, reprogrammed, or replaced, sometimes outside the body, sometimes within, and lives can be saved often with a single dose.
Only a few years ago, that sounded like science fiction. Today, a handful of fatal or life-diminishing conditions including sickle cell disease, spinal muscular atrophy, hemophilia, and certain blood cancers can be treated and, sometimes, even cured. While these conditions are relatively rare, they could be joined in the near future by many more. There are thousands of CGTs in the development pipeline, some designed to cure more common conditions like type-1 diabetes, multiple sclerosis, Parkinson’s, and even as a replacement for GLP-1s.
Because these drugs are so new, their long-term efficacy and side effects are not fully understood. But for people with those afflictions, they’ve created real hope for an actual medical miracle.
Market failure is inevitable without extraordinary measures
The biggest challenge is their extraordinary cost, which can exceed $4 million per treatment. This is many times higher than the average lifetime medical costs for a typical person in the U.S., but significantly less than the lifetime medical costs of a person with a disease like hemophilia.
The problem is that the cost of a CGT comes upfront instead of being spread over the course of that lifetime. Obviously, few individuals can manage such an expense, so it falls on the insurer. But that entity — whether Medicare, Medicaid, a commercial insurer, or a self-insured employer — bears those costs on their own instead of sharing them across multiple payers over the lifetime of the patient.
Health systems or physician groups that would like to administer such drugs to their patients bear their own costs — including millions of dollars to stand up and operate a treatment center for each specific CGT. And because such diseases are so rare, a health system needs to negotiate the cost of the drug on a per case basis, pay for it themselves, and carry the financial burden on their books for many months until they are reimbursed.
Given these limitations, a Tragedy of the Commons seems inevitable if each party acts in their own self interest. Payers will not authorize treatment, despite the lifetime benefit to their member or employee, because of the out-sized impact on their ability to cover others. Health systems will not administer or deliver the treatment, despite their calling to save the life of their patient, because of the financial jeopardy to their entire organization. And drug developers will not reduce their prices because they’ve invested so much to bring those drugs to market, reinforcing the challenges experienced by payers and health systems.
And if the above scenario plays out, patients won’t be able to access the drugs they desperately need and developers will not invest in future therapies knowing they are likely to fail in the market. The innovation that made those medical miracles possible will be destroyed by the very parties which prize it.
An approach that’s never been applied to a class of drugs
A radical solution starts by realigning the interests of each party and minimizing their risk. CGTs can be treated as a carve-out from the traditional payment system, instead of being absorbed into standard insurance costs and reimbursement flows. Insurers (including employers) can pool risk by paying into a shared fund that covers high-cost cases, stabilizes premiums, and caps exposure, spreading costs across purchasers and even over time.
Manufacturers can embrace transparent cost-plus pricing with outcome accountability built in to ensure their profitability while dramatically reducing the risk and cost for any single insurer, health system, manufacturer, or patient. Health systems can coordinate their investment in specialized care centers to ensure access to patients and support patients in getting the treatment they need.
This kind of coordination and alignment has never been tried before for a class of drugs and is unusual in our free market system. But it is common for investments in areas of public infrastructure or shared need. While not a perfect analogy, the cost of power plants and grids, for example, would make electricity far too expensive for consumers without a rate-based capital recovery approach to financing coupled with a societal obligation to provide access.
For transformative cell and gene therapies, several large incumbent insurers and early stage start-ups are stepping into the breach with solutions to pool risk and leverage collective action to support sustainability and access. More enterprises may follow. However, with a growing pipeline, the need will be so great, yet so diverse, that a multitude of private solutions risk creating a patchwork of cover which allows access to the fortunate few and leaves some patients and therapies stranded. Consolidation is essential to smooth risk, promote predictability, align incentives and meaningfully solve the problem.
This proposed model should also evolve as circumstances change. For example, it is likely that CGT prices will fall as the drugs become more common and the infrastructure for developing, administering, and paying for them gets built out. So the nature and structure of a carve-out approach must change for specific drugs over time.
But the critical challenge at this early stage of the amazing CGT era is to preserve the innovation AND affordability that will make our commons thrive long-term for the benefit of all.
Photo: Overearth, Getty Images
Will Shrank is a physician and the CEO and co-founder of Aradigm Health, a public benefit corporation focused on cell and gene therapy access and financing. He previously served as Chief Medical Officer at Humana, Director of Innovation at CMMI, and assistant professor at Harvard Medical School. He has spent his career at the intersection of health policy, payer economics, and clinical innovation.
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