While the obvious win with precision medicine is ideal care, theory states that it also can make care much cheaper and easier to access. It makes sense; if you don’t need an expensive guess-and-check process to cure a disease and can simply follow a rules-based regimen, it will likely be fundamentally cheaper. We therefore classify precision medicine as an enabling technology of disruptive innovation— a sophisticated solution that simplifies a problem such that a lower cost business can deliver it.
This is tougher to understand in light of recent events in healthcare spending. New precision “miracle” drugs are becoming more rare, so when novel, ultra-effective drugs come out, it’s a big deal. In 2013, Gilead Sciences made headlines with their groundbreaking new drug sofosbuvir—branded Sovaldi in the U.S.—which cures Hepatitis C with stunning efficacy. By most indications, it completely fits the bill for precision medicine: it’s causally targeted, reliable, uses biomarkers for diagnosis and prescription, causes few side effects, and has a high barrier to viral adaptation. For a disease that has stubbornly resisted eradication and counts 150 million hosts worldwide (including a resurgent 3.2 million in the U.S.) this was a tremendous breakthrough.
The downside? Sovaldi is priced at $1000 per pill. For a 12-week regimen, the treatment effectively costs payors $84,000 (or more) per patient. Even for a drug that works as well as Sovaldi, that’s a tough handful of pills for whomever is footing the bill.
Understandably, the grumblings of sticker shock eventually reached Capitol Hill and unleashed an overwhelmingly bipartisan response. A scathing Senate Finance Committee report highlighting Sovaldi showed that the rise in specialty drug pricing—particularly Hepatitis C drugs—was the cause of a robust 12.2% growth in prescription spending in 2014. Additionally, the report accused Gilead of pricing the drug so high that only 3% of the patients who could have benefited were able to access the drug. In this context, Sovaldi hardly seems like a disruptive innovation and it would seem to challenge our assertion that precisely effective treatments make care more affordable and accessible.
But a more careful application of disruption theory suggests that may be too simplistic. For one, precision medicine is only the enabling technology of disruption. The second element—a disruptive business model—is just as necessary. Disruptive business models are a new way of delivering on either an existing value proposition at lower cost (in this case, curing Hepatitis C) or addressing a new value proposition in such a way that more people can access it.
Before Sovaldi, the total average cost for Hepatitis C treatment was $65,000, but much higher for those with longer life expectancies. The relative cost of the old business model is still very likely high—and additive to the cost of taking Sovaldi. The diagnosis and treatment of chronic Hepatitis C is practiced by highly trained heptalogists or gastroenterologists, who must be involved because of liver complications associated with this debilitating disease. Additionally, outpatient, rehabilitative, and other costs associated with severe or end-of-life situations around Hepatitis C are substantial.
However, if a new business model were to emerge whereby the diagnosis and treatment of Hepatitis C was routinized so nurses or pharmacists with diagnostic machines could not only issue the drug but also diagnose and manage treatment, it is foreseeable that system costs would lower dramatically. In fact, such a model might be emerging in Egypt via pharmacies, where Gilead is issuing Sovaldi near manufacture cost. Additionally, mitigating the downstream costs of acute, episodic care in expensive general hospitals and moving treatment to outpatient or home settings is the hallmark of disruptive healthcare.
Therefore, it is shortsighted to think an expensive pill today can’t be an essential cog in the disruptive wheel tomorrow. The exact same computing performance that would have cost $8.3 trillion in 1961 (not a typo) costs $0.08 today. When the technology cost falls and eventually enables a new, lower cost business model, it dramatically reduces costs and can make a cure accessible to everyone. So while regulators debate the Senate Finance Committee’s report – and what to do about high drug pricing – they should keep the big picture in mind: technology that costs a lot today can fundamentally improve delivery and lower costs in the future.
