Ways of better addressing the high cost of breakthrough treatments that either are or might soon be available for a range of chronic and rare diseases, from certain cancers to Duchenne muscular dystrophy (DMD) or Becker’s muscular dystrophy (BMD), was the subject of recent research — with the authors suggesting that healthcare adopt an approach used by the housing market and offer securitized consumer healthcare loans (HCLs).
HCLs would be the equivalent of real estate mortgages for large healthcare expenses, spreading the prohibitive cost of new therapies and drugs over many years to make them more affordable to those in need. The securitization of HCLs — a financial engineering tool involving the pooling of loans to turn them into securities — might also make these loans attractive to investors.
“This is an instance where financial engineering could benefit the entire ecosystem,” Professor Andrew W. Lo of MIT Sloan School of Management said in a press release. “It helps patients by providing them with affordable access to therapeutic drugs and cures. It helps biopharmaceutical companies by enabling them to get paid back for the substantial investments in R&D they make to develop the therapies in the first place. And it helps insurance companies by linking payment to ongoing benefit.”
The authors believe that securitized HCLs might even become profitable, based on statistical simulations and models. A large and diversified fund of HCLs generated hypothetical returns equivalent to 12 percent, they reported.
“As an investment, securitized HCLs have another important advantage — they are not likely to be highly correlated with the stock market,” Lo added. “This makes them even more attractive for investors such as pension funds, mutual funds, and life insurance companies.”
The authors said the motivation for their research was the recent development of breakthrough treatments that come with prohibitively high costs, using as an example Glybera, a gene therapy to cure a rare condition known as lipoprotein lipase deficiency (LPL). Glybera was approved for use in Germany, but at an upfront the price of approximately $1 million.
“The stark reality is that many patients don’t have access to transformative therapies like Glybera solely due to affordability,” David Weinstock, an MD from the Dana-Farber Cancer Institute and a study co-author, said. “This is a problem that will only grow as scientists create more cures. In the next five to seven years we could see cures for diseases like ALS, Duchenne muscular dystrophy, and many types of cancer, but those therapies could be too expensive for the average patient.”
All co-authors acknowledge that using financial engineering in healthcare is not risk-free, particularly as securitization was a key player in the recent global financial crisis led by the collapse of the housing market. They advise that financial securitization in healthcare — as in mortgages, education loans and consumer credit, where it is still in widespread use — requires both regulatory oversight and ‘consumer’ protection.
“But to argue that securitization is simply ‘too risky’ without a reasonable alternative is to relegate patients in desperate need to the status quo,” Professor Lo concluded. “Securitized HCLs make expensive breakthrough therapies more affordable right now. The science is here and it’s moving at breakneck speed. Now we need the financial models to catch up.”