Securitized health care loans key to accessing the best treatments

We live in a time of extraordinary scientific discoveries and medical breakthroughs. In the past two years alone, scientists and drug innovators have developed cures and therapies for certain types of cancers, hepatitis C and several rare diseases. More potentially life-saving treatments are on the horizon. Soon diseases like ALS, Duchenne muscular dystrophy and pancreatic cancer — all veritable death sentences today — are likely to be cured.
Tragically for many sufferers, those cures and therapies will remain out of reach because of their prohibitive cost. This is already a big problem today. Take, for instance, the therapy for hepatitis C virus. The treatment is highly effective — more than 90% of patients are believed to be cured with only six to eight weeks of new drug combinations. But at a list price of approximately $84,000, it's expensive. Treating the 2.7 million Americans with chronic HCV would cost $227 billion, and treating all 180 million sufferers worldwide would cost more than $15 trillion. Despite the clinical and public-health advantages of universal treatment, the cost has limited patients' access to this therapy.
Another example is Glybera, a gene therapy that treats the highly rare disease lipoprotein lipase deficiency. The treatment recently went on sale in Germany with a price tag of nearly $1 million. The benefit from Glybera may last for the patient's remaining lifetime, but the cost must be paid upfront.

Some might call this extortionate, but bringing a drug to market is expensive and drug companies — and their investors — need to earn a reasonable return to justify their costs.
There is, however, a practical solution: consumer health care loans. Much like a home mortgage or student loan, HCLs allow patients to spread or amortize the cost of drugs and curative therapies over many years. Such loans would improve access to the best health care for a much wider population of patients.
POOLING HEALTH CARE LOANS
HCLs are not a new concept, but the reality is that creditors currently view them as too risky; hence, such financing is in short supply and patients have limited options. In a new article in Science Translational Medicine titled “Buying Cures vs. Renting Health: Financing Healthcare via Consumer Healthcare Loans,” my co-authors — MIT Sloan's Vahid Montazerhodjat and Dana-Farber Cancer Institute's David M. Weinstock — and I propose the use of securitization, a financial engineering technique that involves pooling many different loans and converting them into securities that investors can purchase. Investors would be, essentially, financing the cost of potentially life-saving therapies for many patients, and earning a financial return on their investment.

Securitization in this instance has a lot of benefits. It helps patients by providing them with affordable access to therapies and cures. It helps biopharmaceutical companies by rewarding them for the substantial investments in R&D they make to develop the therapies. And it helps insurance companies by encouraging patients to put some of their own money on the line to pay for experimental therapies that are not yet the standard of care.
From an investment perspective, securitized HCLs could also be quite profitable. Based on our numerical simulations and statistical models, a hypothetical diversified fund of HCLs would generate annual returns of 12%. For comparison, over the 10-year period from January 2006 to December 2015, the Standard & Poor's 500 Index saw a compound annual return of only of 7.3%. Securitized HCLs have another advantage: They are not likely to be highly correlated with the stock market. This makes them very attractive to a variety of investors, including pension funds, mutual funds and life insurance companies.
BREAKTHROUGH INCENTIVE
HCLs could also speed the pace of innovation. If drug companies are able to recoup the investments they make in scientists, laboratories and costly clinical trials, they have a much greater incentive to develop breakthrough therapies rather than small incremental advances.

To be sure, it's appropriate to raise concerns about using financial engineering techniques in health care — especially as securitization figured prominently in the recent global financial crisis. Although this powerful tool is actively used in many markets today and plays a critical role in financing mortgages, student loans and consumer credit, securitization can still be abused if proper protections are lacking. Regulatory oversight, including risk-retention requirements for HCL-securitization issuers and risk transparency for HCL investors, is essential to the creation of sustainable HCL-funding markets.
To argue that securitization is simply “too risky” without a reasonable alternative is to condemn desperate patients in need of change in the status quo. Imagine you or a loved one suffering from and dying of a terrible disease just because the cure is unaffordable. Heartbreaking. And — with the proper financing — unnecessary.
Considering the extremely large burden of certain diseases for which cures already exist, and the many breakthrough therapies that are sure to come over the next decade, developing more efficient financing methods is now a matter of life and death. Taking action is no longer a choice. It is a necessity.