If you drew up an ideal solution to the high cost of health care, you’d probably strive for one that saves lives, saves money, and cures people, all without stifling incentives for further drug research.
In a recent TED talk I made the bold claim that such a win-win-win is not only possible, but also feasible right now.
Crafting such a solution starts with defining the problem. As a pricing consultant, when I hear a phrase such as “drug prices are too high,” I ask whether the real problem is the price or the model that created the price. Most people view high drug prices as a pricing problem, when in reality it is an access problem. As a pricing consultant, I also know that the right pricing model can increase access and enable new usage. So the question becomes: what should the new model be?
For the last five years I’ve studied one controversial example of high drug prices: the cure for the hepatitis C virus (HCV) launched in late 2013 at a price of $85,000 for a three-month treatment. The manufacturer earned billions of dollars from that drug, yet three alarming statistics stood out:
· 70 million people worldwide are still infected with HCV, and many of them don’t even know they carry it
· As of the end of 2018, only 10-15 percent of the world’s infected population had been cured
· HCV is not only highly contagious but deadly; data from 2017 show that it killed more people in the US than the next 60 infectious diseases combined, including HIV.
Without a new pricing model for HCV drugs, the World Health Organization’s goal of eradication by 2030 would be in jeopardy. So the search began.
The inspiration for a new pricing model often comes from proven approaches in other industries. There are a few industries that share the characteristics of blockbuster drugs:
· Long development periods at very high costs
· Negligible marginal costs
· Annual revenues as high as $1 billion per year for the manufacturer
· Relevant to a very large target group
One such industry already has an established pricing model that yields an enduring win-win-win for its manufacturers, intermediaries, and customers. But the price for unlimited access to its products doesn’t cost tens of thousands of dollars. It costs around $200 per year. That industry is video streaming on demand, and the blockbuster products are content such as the television comedies “Friends,” “The Office,” “Seinfeld,” and “The Big Bang Theory.”
Before you think I’m trying to be clever or facetious – or even worse, dismissive of a grave disease such as Hepatitis C – let’s look at some numbers. Netflix recently signed a five-year contract worth an estimated $500 million to stream re-runs of “Seinfeld.” It also paid $100 million for the rights to stream “Friends” in 2019. “The Office” was streamed for 52 billion minutes in 2018. HBO will reportedly pay over $1 billion to license “The Big Bang Theory” for its forthcoming service. In short, the stakes are huge.
The consumer prices for unlimited access to these popular and lucrative programs are so low because production companies license them to streaming companies on a per-population model, not person. Large software and tech companies successfully use similar models, a fact that gave me even more confidence that the model would work for pharmaceuticals as well.
I soon realized that the only way to get a per-population model considered – never mind implemented – would be to attract serious industry attention to it. Together with the Center for Disease Analysis, my team and I conducted independent research in 2017 to confirm that the model worked for drugs. My co-author Dave Matthews and I first made public reference to the “Netflix Model” in a presentation at the UCSF Global Health Economics Annual Colloquium in February 2018.
The response was better than we could have expected. “Netflix Model” soon became the shorthand for applying a per-population model to cures for infectious diseases. Other parties not only embraced the idea and published their own views. They also acted on it.
Theory became reality in the summer of 2019, when the US state Louisiana launched a version of the Netflix model for one HCV cure, and the state Washington struck a similar deal for another cure.
The Netflix Model for pharmaceutical products is simple to understand and easy to praise. But we must also understand that its adoption is urgent, and that it is also taking a long time. Part 2 of my series will explain in more detail how the Netflix Model creates the win-win-win for curative therapies that other pricing models cannot. Part 3 will describe the complex hurdles that must be overcome to accelerate wider adoption of the Netflix Model in health care.
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