Insurers and politicians have been complaining that Sovaldi—Gilead’s new cure for hepatitis C—costs too much at $84,000 per treatment.
But that complaint, while accurately reflecting short-term financial incentives, perversely misses the real point. In the long-term, the real budget-buster for the U.S. healthcare system is the cost of managing and treating chronic conditions such as diabetes, Alzheimer’s, and hepatitis C (which is the most common chronic bloodborne infection in the United States, according to the CDC). If pharma companies can produce straightforward cures for these chronic and costly syndromes, the long-term financial picture of the healthcare system looks much better.
Moreover, Sovaldi is almost certainly productivity-enhancing, substituting a one-time drug treatment for labor-intensive long-term medical management of a chronic disease. As the illustrative calculation below shows, the productivity gains could be significant.
That’s a big deal. The U.S. healthcare system is on a long-term unsustainable path, gobbling up a larger and larger share of the nation’s skilled workforce to care for an aging population. Policymakers should encourage and reward drug companies that come up with innovative and effective cures for chronic diseases, rather than punishing them.
Illustrative calculation: In earlier work, we have described a concept called gross medical productivity—that is, a measure of how many labor hours of health care workers are needed to produce the same clinical outcomes for a given population. Over the past decade, the gross medical productivity of the health care system has fallen sharply, as the number of health care workers rose by 23%, much faster than the 9% increase in the size of the U.S. population over the same stretch.
Let’s do an illustrative calculation showing how drugs such as Sovaldi can help reverse the trend and boost gross medical productivity. Assume that Americans infected with hepatitis C require 5 extra hours a year of medical attention, on average. That includes all the patients receiving liver transplants and medication, averaged against infected people who are receiving no care at all. With roughly 3 million Americans infected, that means an extra 15 million hours of work for healthcare workers.
So suppose that sustained treatment could reduce the number of infected hepatitis C patients from 3 million down to 1 million. That means 10 million fewer person-hours per year (2 million x 5 person-hours per year), which translates into a corresponding increase in productivity.
