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Can The Subscription Model Fix Healthcare?

Amy Konary
8.30.2020

As the coronavirus pandemic lays bare the dismal state of our healthcare system and its inherent inequities, and countries fight each other to be the first beneficiaries of the vaccine, I can’t help but wonder — does it have to be this way?

The efficacy of the current system has been debated for years. Drug prices in the US are exorbitant, with many costing as much as $120,000 per treatment, and some closing in on $1M. The pharmaceutical industry justifies the high costs as necessary to fund expensive research projects to find new cures and treatments. The extent to which this is true and fair is often questioned. What is clear is that the current system excludes thousands of people from treatment who could benefit, and places incredible financial hardship on others. It also is applied unevenly, with Americans paying much more for the exact same drug than citizens of other similarly rich countries.

But what if the problem isn’t the price of the drugs — it’s the pricing model?

This is the question that was posed by Jean-Manuel Izaret, Managing Director & Senior Partner at the Boston Consulting Group. He believes that a Netflix pricing model, a subscription, could pave the path to more affordable healthcare. In his inspiring TED talk, Izaret says that “in many circumstances, changing the pricing model, the unit by which we price things, could unlock a lot of value, because it can increase the access to that product or service.”

I couldn’t agree more. Let’s look at it this way. I believe that the goal of every scientist working on a breakthrough drug or vaccine is aligned with the goal of governments, healthcare providers, and patients everywhere– a healthier population. A pricing model focused only on selling units at the highest price possible—the current model— does not successfully support this outcome. A pricing model focused on providing wider and more affordable access to disease-curing medicines could do much better, as long as it provides cost savings for healthcare systems, and enough revenue for pharmaceutical companies to continue their innovative work.

In his talk, Izaret illustrates this concept with the example of a new class of Hepatitis C drugs that came out in 2014. At the time, the drug cost $85,000 per patient! A staggering figure which leads to rationing by healthcare systems so that only the patients with the most advanced disease can get the drug. “The problem is not the number, but the unit by which we price. I think if we change the way we price this drug, we could potentially price over time, ” says Izaret.

Imagine that the drug company offers the payer (often a healthcare insurance or government healthcare systems) enough of the drug to treat the entire population that can benefit in exchange for a fixed price subscription with a ten-year commitment. For the drug manufacturer, this guarantees ongoing business and predictable revenue. For the healthcare provider, the benefits are multifold — more patients can be treated and interventions can be made earlier, saving payers money in the long-run by preventing costly complications from chronic disease such as hospital stays, cancer, or transplants. For the patient, this model guarantees access to the most advanced and best treatments possible at a much lower cost than the current model. In Izaret’s words, it’s a “win, win, win solution.”

This isn’t just an inspiring idea. Louisiana started just such a program for Hepatitis C last year and has achieved positive outcomes so far. While Hepatitis C is curable and the treatment cost has gone down over time, it’s still very expensive with generics costing as much as $30,000. As a result, the state had to restrict who could get the drug, only paying for it for people whose disease had advanced to the point that their livers were already damaged.

To expand access to this drug and treat people earlier, the state made a deal with Asegua Therapeutics to provide an unlimited supply of an authorized generic version of its drug Epclusa to the state via subscription. It’s expected that in the early years of the deal, the state is likely to get more of the drug than it pays for. But in later years, as the spread of the virus slows down, Louisiana may pay for more than it uses.

Louisiana’s approach has prompted the Centers for Medicaid and Medicaid services to encourage other states to investigate similar approaches, saying “The high cost of prescription drugs is one of the greatest challenges in our healthcare system, and Louisiana’s innovative approach to leveraging a subscription model to promote access to hepatitis C therapy is a great example of how states can lead in designing solutions.”

The subscription business model is not just for increasing access to software and entertainment services. At its core, it’s all about increasing access and improving outcomes. And if there is one outcome that we are all striving for these days, it is a healthy population.

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