Who Pays for Multimillion-Dollar Miracle Cures?

 JENA: Jimi, nice to meet you virtually. Thank you for doing this. I know it’s early in the morning.

OLAGHERE: Thank you for having me. I am an early riser.

JENA: What time do you get up normally?

OLAGHERE: 4 a.m.

JENA: Did you always wake up at 4 a.m.?

OLAGHERE: No, actually, for most of my life I barely slept ’cause I had this thing called “pain-somnia” that I think me and my wife coined, when you have so much pain that you can’t sleep.

JENA: Why did you have so much pain?

OLAGHERE: I had a disease called sickle cell anemia. It’s like a succession of time bombs because first your spleen goes, then your gallbladder, then your hips, and all your organs are in jeopardy. And aside from that, there’s the cornerstone of pain that you have to live with nonstop, lots and lots of pain.

Jimi Olaghere lives in Atlanta, where he works in e-commerce. But he’s originally from Nigeria, which has one of the largest sickle cell disease populations in the world, at around 4 to 6 million people. In the United States, around 100,000 people have sickle cell disease — so we classify it as a “rare” disease. Most Americans with the disease have African ancestry; in fact, sickle cell disease occurs in around one out of every 365 Black or African-American births. It’s caused by a single mutation in a single gene. People with sickle cell disease produce red blood cells that are rigid and sickle-shaped; as a result, they can’t carry oxygen and also clog small blood vessels, causing extreme pain episodes, known as crises, like the ones Jimi described.

OLAGHERE: Growing up in Nigeria at the time, they had no breakthrough pain medication. When I’ll have my crisis,  it’ll be a menthol rub and some Advil.

Jimi’s family moved to the U.S. when he was a child so he could get better care — but nothing made much of a difference. He considered a bone marrow transplant, but neither of his sisters were good donor matches. Jimi’s pain crises got worse as he got older. The disease dominated his life — and, eventually, his wife’s.

OLAGHERE: Everything we did, we had this child called sickle cell that we had to do it with. I almost died on my honeymoon because of sickle cell.

JENA: You told me that you used to spend a lot of time in bed with “pain-somnia.” You told me that you now wake up at four o’clock in the morning, energetic and ready to do something with your day. How did this all come about?

OLAGHERE: This came about by something called CRISPR.

In the fall of 2019, Jimi got a news alert that changed everything. It was about a clinical trial for a novel cure that uses CRISPR gene-editing technology to fix the genetic mutation that causes sickle cell disease. Jimi reached out to the doctors running the trial, and they called him back the next day to start the qualification process. This all coincided with another life-altering event for Jimi.

OLAGHER: My wife has a son December 5th, 2019. And I think it was a few days before Christmas, December 20-something, they called me and officially told me that I qualified.

JENA: How’d you feel?

OLAGHERE: I was really just desperate knowing that I was gonna be a father and just how much sickle cell can be a demanding companion.

In January 2020, Jimi, his wife, and their newborn moved part-time to Nashville, where the trial was taking place, and started the lengthy D.N.A. collection and transplant preparation process. This was no walk in the park — he endured blood draws that lasted up to eight hours, and weeks of chemotherapy. Finally, 18 months later, in September 2021, it was time.

OLAGHERE: After going through that long painstaking process, it all amounted to a small syringe of D.N.A. that took about 30 seconds to infuse. And my life changed completely. I remember probably two weeks after I’d been infused, I started to notice, like, wow, I actually don’t need any pain medication today because, I don’t feel pain like I used to. That pain that just lingers all the time all of a sudden, was gone.

Jimi no longer lives with sickle cell disease — a fate that had seemed impossible. Ironically, the cutting-edge treatment that made it possible relies on something that bacteria evolved billions of years ago, called CRISPR.

As I explained last week, it consists of just two molecules: an enzyme that acts as a pair of D.N.A. scissors, and a special piece of genetic material that tells the enzyme where in the D.N.A. to cut. Bacteria use CRISPR to destroy invading parasites. In humans, that same mechanism can be used to cut out defective genes, and even repair them. There were gene therapies before CRISPR, but they relied on modified viruses to deliver new genetic material into a patient’s cells; CRISPR is revolutionary because it allows us to edit a patient’s genes directly. The treatment that cured Jimi’s sickle cell disease is now the first CRISPR-based therapeutic up for approval by the F.D.A., meaning it could hit the market as early as this year. And when it does, one thing is nearly certain: it will be very expensive. Last year, a gene therapy cure for the blood clotting disorder hemophilia broke the record for the most expensive drug in the world when it hit the market at $3.5 million per treatment. If the CRISPR cure for sickle cell disease — or for any other genetic condition — comes with a price tag like that, will anyone be able to afford it?

From the Freakonomics Radio Network, this is Freakonomics, M.D. I’m Bapu Jena. Last week on the show: we laid out the pieces of this economic puzzle. Today: we’ll meet an economist who thinks he’s solved it.

LO: With the right kind of financing, it actually ends up accelerating our ability to treat these patients.

And: We’ll look at how solving this problem could have ripple effects across healthcare.

URNOV: “Thank you rare disease community for showing us the path for how to address a much bigger killer.”

LO: Over a seven-year period, six people that were close to me, including my mother, all died of cancer.

That’s Andrew Lo. He’s a professor of finance at the M.I.T. Sloan School of Management.

LO: The more I read about what my friends and family were going through, the more surprised I was to learn that finance actually plays a huge role in drug development. Sometimes too big a role, driving the source of scientific discovery rather than the other way around.

JENA: There are diseases that have large markets — diabetes, high blood pressure — where you can expect as an innovator if you develop an important treatment, that there’s a large number of people who will be able to take the drug. But for rare diseases that have a genetic basis, the market size is very small and so the ability of an investor who’s thinking about developing a treatment for that disease is gonna be limited by the fact that there’s just only a certain number of people that they can sell that drug to. How does that play out when it comes to financial engineering?

LO: Very often when you’re focusing on just one disease, by itself, it may not be economical to develop the particular therapeutic. But if you combine multiple diseases into a single financial portfolio, all of a sudden the risk-reward trade off becomes more attractive. If you can put together a large number of projects that are statistically independent — that their success and failure have no bearing on the other successes and failures — that’s the best way of reducing risk in a portfolio.

JENA: How do I think about risk spreading across diseases versus the fact that, a rare disease, if it’s successful, will only have a few people who can use it?

LO: Well, the question that you have to answer is: what is it worth to those patients and to our healthcare system to be able to treat them? For example, certain ultra-rare diseases may seem really expensive to treat, but remember that those patients are gonna have to be addressed by the healthcare system one way or another. They’re gonna need medical care, and in some cases, the medical care may be even more expensive than the cure.

JENA: The most expensive drug in the world right now is a one-time cure for a rare disease called hemophilia. And that drug costs something like $3.5 million. And so under this framework, help me understand why it’s so expensive.

LO: Hemophilia is a very difficult disease to deal with without the cure. The lifespan of a hemophilia patient is fraught with episodes where they are gonna start bleeding and they need to have treatment, and those treatments often can lead to infections. One particular episode could cause the healthcare system upwards of several hundred thousand dollars. So if you think about a lifetime, it turns out that three and a half million dollars is actually a pretty good deal. In fact, the United States government, when they make policy decisions, they use a concept called “the value of a statistical life.” The most recent estimate is about $10 million. So $3.5 million is in fact a bargain because the value of that life lost could be on the order of 10 million.

JENA: In most markets, prices are determined by the supply and not the demand. For example, if it’s a really hot day and you just finished running six miles, you might go to the C.V.S. pharmacy and buy a bottle of water. You might be willing to spend $10 for it, $20 for it, because you’re really thirsty. But you can buy it for $1.50 because if C.V.S. tried to charge you $3, Walgreens right across the street would charge you $2, and then the gas station right across the street would charge you $1.50. Through competition, based on the cost of producing and distributing that water bottle, we get down to $1.50. And we generally think of that as being good for society. What you’re describing is price being more reflective of the underlying value, which in many markets we view as a bad thing. The challenge here in innovative markets is you wanna make sure that innovation enters the market in the first place.

LO: There’s an added element here that I think is worth considering, and that’s the U.S. patent system. You come up with a new drug, you get 20 years of exclusivity where you are the only person that can make use of that idea. In the case of drug development, we have to test the drug first. And the F.D.A. approval process generally takes on the order of five to 15 years, depending on the nature of the disease, so let’s call it 10 years. During that time, you’re earning no money. You’re charging nothing. But then, if you get the drug approved, you’ll have something on average of about 10 years left of that 20-year patent. After those 20 years are up, the idea is available to everybody under the sun, and now the price can drop dramatically.

The pricing of novel cures is one issue. But there’s another problem, one that stems from how we pay for medical care in this country.

LO: If you’re a company that’s got about a thousand employees, most likely you are self-insured. That means you’re using your own money to pay for your particular employee’s medical needs in any given year. With a thousand members of your plan, your annual budget is about $6 million. If one of them ends up developing a case of hemophilia, you’re gonna have to write a $3.5 million check. That’s more than 50 percent of your entire annual budget going to one patient. And that’s a problem.

JENA: It does strike me that absent a solution to the problem, the company doesn’t have an incentive to give you a one-shot cure. In fact, they have an incentive to provide you a pill that you have to remember to take every day, and that’s inconvenient for the rest of your life.

LO: I couldn’t agree with you more. In fact, a few years ago, Goldman Sachs looked at the economics of these one-time cures. They looked at the economics of these chronic treatments and they came to the conclusion that there is a significant incentive for drug companies to develop chronic treatments as opposed to cures.

So how can we make one-time cures affordable for patients and attractive to investors?

LO: We need to have that conversation sooner rather than later.

That’s after the break. I’m Bapu Jena, and this is Freakonomics, M.D.

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LO: When you decide to buy a home, you’re getting a lifetime worth of housing. And to pay for a lifetime worth of housing upfront in cash is difficult. So we figured out that you can get a mortgage. A 30-year mortgage spreads out the payment of your value of housing over a lifetime of 30 years,

Economist Andrew Lo published a paper in 2016 proposing we use a similar payment model to finance expensive cures for chronic diseases.

LO: What you’re getting for that one-time payment is a lifetime of health. So why not create a kind of a drug mortgage that will allow us to spread the payments over a number of years?

It turns out there’s one big reason why not. Remember that in most cases, the “payer” isn’t the patient, but an insurance provider acting on their behalf. And, in the U.S., we have a mix of public insurance programs, private insurance companies, and independent employer-funded insurance plans that make up our multi-payer system.

LO: The problem with these drug mortgages is that if you leave that health plan to go to another one, then you left the first health plan with that series of mortgage payments, but you are not paying that health plan premiums as a healthy individual. So there has to be a better way to be able to make these more affordable, and that’s the current proposal that I’ve been working on, which is using a subscription model.

Before we get into it, I should note that Andrew Lo co-founded a company that would act as a payment platform for such a subscription model. But he wasn’t the first person to come up with this idea.

LO: There is a precedent if you look back a few years to the rollout of Solvaldi, the drug that cures Hepatitis C.

Hepatitis C is not a rare disease. In the U.S. alone, as many as 4.7 million people live with Hep C. It’s a viral infection that spreads through the blood and causes liver damage. It had always been hard to treat until a drug company called Gilead developed Solvaldi. The medication was approved by the F.D.A. and came to market in December 2013.

LO: Gilead’s original proposed market price was $84,000. And from an economist point of view, that was a bargain. But the problem is, given the number of people that have Hepatitis C at the time, if every one of them had to pay $84,000, that would’ve easily blown the budgets of state Medicaid plans and many independent insurers that had to pay for these costs. And so the state of Louisiana developed an interesting approach. They agreed to pay Gilead a certain amount of money per member per month, and in exchange for that subscription fee, Gilead agreed to treat anybody and everybody in the state of Louisiana that needed the drug. It provides drug companies with cash flows immediately based upon the number of members and the per-member-per-month fee. And it provides the state of Louisiana with as much drug as they’ll ever need. And I think that that would apply very directly to rare diseases.

Imagine that you’ve got a company with a thousand employees, they’re self-insured, and they are worried about getting hit with one of these rare diseases that could wipe out their budget. They can go to the drug manufacturer now and say, “Let’s enter into an agreement where we will pay you 50 cents per member per month. You agree that if we develop any of the rare diseases that your company covers, you will treat our employees for free.”

It’s not really for free because the payer, in this case the employer, is paying the small monthly premium. This payment plan operates sort of like insurance, but instead of being provided directly to an individual by a traditional insurer, it’s provided to the traditional insurers by the drug companies themselves. For the drug makers, it offers the prospect of predictable, recurring payments rather than big sporadic purchases. That change is especially popular with investors.

LO: As soon as they get their drug approved and are ready to deploy that drug, they will start getting payments per member per month. So it turns a very lumpy cash flow into a relatively smooth and steady stream. And that is a lot less risky and, from Wall Street’s perspective, a lot more attractive.

It also solves a problem for insurance providers. Today, the three most expensive drugs in the world are all treatments for rare genetic diseases, all approved within the past few years. And we know that more multi-million-dollar drugs, like the CRISPR cure for sickle cell disease, are on the horizon. Those costs are a challenge for payers — from private insurance companies to Medicaid to employers with independent plans. But providing those drugs on a subscription basis would effectively create a “single-payer” system for that particular drug.

LO: With a single-payer system, everybody is part of that risk pool. You’ve reduced the level of risk across as many people as you possibly can. From a purely economic efficiency point of view, that is the best outcome. We have a very, very complex multi-payer system, but we do have the chance right now to focus on a single-payer system for rare diseases.

JENA: One of the big problems for these types of diseases is that they go under- or undiagnosed for many years. Do you think that having, A, the technology to be able to treat more of these diseases, and B, a financial model to be able to pay for these treatments, might also create an incentive to diagnose these diseases earlier?

LO: Without a doubt. I’ve spoken to a number of pancreatic oncologists who’ve told me that they feel more like morticians than oncologists or doctors. They’re not healers because they have very little in their toolkit to heal. If we can provide doctors with therapies that will save patient lives, they will absolutely go out there and try to diagnose every single instance of this disease because their goal is to save as many lives as possible. With the subscription model, the health plans that are paying these premiums are gonna wanna make sure that they get their money’s worth by identifying every single patient that’s out there.

This brings us back to the conversation I had last week with the physician and computer scientist Gaurav Singal. He talked about the role artificial intelligence could play in diagnosing rare genetic diseases at scale, but his vision had an economic hurdle.

SINGAL: The payer is caught in a bind here because if we screen more for rare conditions, we identify more patients who will need to have expensive treatments.

If drug companies entered into subscription agreements with payers, their incentives would realign, as Andrew described.

LO: That’s one of the reasons I’m so excited about this financing. Without it, financing ends up being a tremendous roadblock. But with the right kind of financing, it actually ends up accelerating our ability to treat these patients.

JENA: So what are the barriers? What are the challenges to implementing this sort of subscription model?

LO: Really the challenges are cultural. Many health plans are not set up to be part of subscription models. So we’re gonna need to see changes in certain state legislation to allow state Medicaid plans to engage in these kinds of contracts. Certainly the state of Louisiana was a pioneer, but other states have followed suit. And so I suspect that it’s just really a matter of time.

There are some challenges this proposal has to overcome. For one thing, who determines the subscription fee? And what about the nearly 30 million Americans who don’t have any health insurance? They’re left out of this picture entirely. These issues don’t mean that the subscription model won’t work. The problems it aims to solve are just really complicated. One solution isn’t going to fix everything. But innovative ideas like this one get us closer.

LO: What I think will drive all of these innovations is need. Once we start getting gene therapies for more common treatments then we’ll have no choice but to think more seriously about these payment models because the healthcare system cannot deal with a broad gene therapy for a large indication like macular degeneration or heart disease. But those gene therapies are on their way.

Dr. Fyodor Urnov, the geneticist I spoke with last week, also sees CRISPR having a much broader impact on the horizon.

URNOV: Many of the medical advances that we have today that are widespread did not start as big endeavors to make a huge impact. Statins are a great example.

Over 200 million statin prescriptions are filled in the U.S. each year. They’re used to lower cholesterol and reduce the risk of heart disease and stroke. But they didn’t start out that way. The scientists who developed statins in the mid-1980s were hoping to cure a genetic disease called familial hypercholesterolemia, where people have persistently high cholesterol levels. It’s not a rare disease, but the most serious form of it is.

URNOV: And the pharma companies that were building these statins said, “Aha, this works in genetic heart disease, could it work in common heart disease?” And guess what, it did. And then they said, “Wow, this is doing such good to the patients that I’m wondering if we can just give it as a preventative measure.” And that’s what happened. So, as more and more examples of CRISPR’s safe and effective use for these rare diseases come to light, then I’m really hopeful that pharma will realize that CRISPR potentially could be deployed in diseases that are a lot more prevalent, and say, “Thank you rare disease community for showing us the path for how to address a much bigger killer.”

LO: Why the price of a drug is so high that certain patients are going to die because they can’t afford it — those are not economic questions; those are ethical questions.

That’s economist Andrew Lo again.

LO: We need to have a national, all-stakeholder conversation about these various life-saving therapeutics and how we’re gonna be able to afford them. We need to have that conversation sooner rather than later.

In the case of sickle cell disease, we need to have that conversation now; as I mentioned at the top of the episode, the CRISPR-based treatment that cured Jimi Olaghere is now up for F.D.A. approval. And the ethical questions around its affordability are compounded by the fact that sickle cell disease affects mostly Black and African American people, who experience higher rates of poverty in the U.S. — and have a long history of being mistreated or overlooked by our medical system. If our drug financing landscape doesn’t change, the cure will remain out of reach for many patients who need it.

OLAGHERE: It weighs significantly on me, this survivor’s guilt that you feel because I’ve obviously talked to a lot of people that have sickle cell and even have friends that have sickle cell that will never get to experience this, and in a way that kind of detaches you from them. You know, a lot of people reach out to me, particularly in the sub-Saharan parts of Africa, where only God knows how soon this is gonna get there, messaging me about how they can get access to something like this — not just for themselves, but to even save their children.

Sickle cell disease is also a good reminder that this economic puzzle is not an American issue — it’s a global issue.

OLAGHERE: What comes next, in an ideal world, would be really the globalization of this technology. If every American, the a hundred-thousand-plus that suffer from the disease, get cured, we haven’t even touched a fraction of the population that suffers from this disease. I know it’s gonna be difficult. Obviously it’s no small feat, but I feel like there are a lot of smart people working on it.

Imagine a future where organizations and governments across the globe collaborate to eradicate sickle cell disease everywhere — like they pledged to do with polio, 33 years after an American scientist developed the first successful vaccine. Imagine a future where the world comes together to eradicate all genetic diseases. That future is still a fantasy. But, as far as technology goes, the pieces to make that possible are coming together — and maybe even some of the economic pieces, too. Do you think we’ll get there in our lifetimes? Ever? I don’t know. But we have to try.

That’s it for today. I’d like to thank my guests this week, Jimi Olaghere, Andrew Lo, Gaurav Singal, and Fyodor Urnov. And thanks to you, of course, for listening. Let me know what you thought about this two-part episode. I’m at bapu@freakonomics.com. That’s B-A-P-U at freakonomics.com.

We’ll be off next week, but back in two weeks with an all new episode.

VENKATARAMANI: The replacement player situation gave us this really interesting natural experiment where you had people that wouldn’t have been in the N.F.L. otherwise play a couple games.

In 1987, the N.F.L players association held a strike. Thirty years later, my friend Atheen and I did a study that used that strike as a natural experiment to try to figure out: is playing professional football good or bad for your health?

VENKATARAMANI: That survival advantage is not actually something that materializes when you have a more fair comparison.

We’ll talk about our findings and also, some other unconventional ways you could try to answer this question. That’s coming up in two weeks — on the next episode of Freakonomics, M.D.

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Freakonomics, M.D. is part of the Freakonomics Radio Network, which also includes Freakonomics Radio, No Stupid Questions, and People I (Mostly) Admire. All our shows are produced by Stitcher and Renbud Radio. You can find us on Twitter at @drbapupod. This episode was produced by Julie Kanfer and Lyric Bowditch. It was mixed by Eleanor Osborne. Our executive team is Neal Carruth, Gabriel Roth, and Stephen Dubner. Original music composed by Luis Guerra. If you like this show, or any other show in the Freakonomics Radio Network, please recommend it to your family and friends. That’s the best way to support the podcasts you love. As always, thanks for listening.

URNOV: I wish I’d written down what you just said.

JENA: You know, it’s gonna be on the podcast, so you don’t have to worry about that. We’ll have a transcript.