Cutting Health Care Costs- The Pay-for-Response Model

A March 6th piece in the New York Times by op-ed contributor Samuel Waksal proposes a very interesting way to eliminate waste in the health care industry and medical costs in this country.

Waksal says that while the United States spends $2.6 trillion per year on health care, the most in the world, we see no better medical outcomes than any other country. According to the Waksal, this has a lot to do with the fact in addition to paying high prices for effective treatments, individuals and insurers are also paying for drugs that aren't working. This is especially prevalent among cancer drugs, which have different effects on different people because every cancer is unique to the patient. For one patient, a treatment with a certain drug, even targeted for a very specific cancer might greatly reduce morbidity, while the same drug is utterly ineffective on another patient. But, both patients pay the same amount.

Under Waksal's pay-for-response model, the drug companies would only get paid if the drug was shown to be effective. The criteria for "effective" would have to be ironed out by the FDA, but the principle is that patients shouldn't be paying for drugs that might work, they should be paying for results. Waksal says that this would encourage drug companies to figure out the reasons why a certain drugs works on some people, but not others. As it stands now, drug companies expend a minimum effort but charge the maximum competitive price.

I personally think that this is a great idea. High drug prices are a major contributor to outrageous healthcare costs in this country, and the idea that a drug company would charge as much as they do for "cutting edge treatment" with an ambivalent guarantee that it works sometimes. If drug companies can show that a drug works in some proportion of patients and has limited adverse side-effects, they take it to market. This model would require drug companies to be more meticulous because if they recommend it to a patient and it doesn't work, that's money they've lost. Waksal is the founder and CEO of a Kadmon Corporation, a biotech company. As a business insider, I trust his assessment that this could benefit patients as well as drug developers.

As much as this is intended for a national audience, I think that this is also a piece intended for legislators. We're looking for a solution for the healthcare crisis. Many people, especially young people like me, are uninsured, and insurance premiums remain high because healthcare costs remain high. I think that this is the kind of thinking that's going to bring solutions.

Of course, the only way to put a model like this into place would involve government intervention into the marketplace, which will outrage free market loyalists. Plus, I don't imagine that drug companies will volunteer for this model because it cuts into their profit margins in the short term. However, I think in this case, government intervention to establish a mutually beneficial model, like the one Waksal, suggests might be well justified if it produces results.