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An Innovative Approach to Pricing Drugs Can Accelerate the Eradication of Diseases

BCG’s Analysis of Hepatitis C Cures Reveals That a Payer Licensing Agreement Is More Advantageous—For Patients, Payers, and Pharmaceutical Companies—Than the Current Approach

SAN FRANCISCO—Achieving the full societal benefits of curing chronic or life-threatening diseases will remain an elusive goal unless the pharmaceutical industry changes its economic model, according to new report by Boston Consulting Group (BCG). The report, titled Aligning Economic Incentives to Eradicate Diseases, was recently released.

The study recommends that the industry replace its current economic model, which calls for charging by treatment at the time of care, with a licensing model that is based on the entire affected population. BCG’s new approach, the payer licensing agreement (PLA), is analogous to models used by major software and media companies. When BCG tested the PLA against the current economic model for cures for the hepatitis C virus (HCV), the analysis showed that the PLA could achieve the following:

  • Triple the number of patients treated and cured within two years
  • Reduce the number of liver-related deaths by some 60%
  • Reduce the total cost to payers by approximately 30%, because patients would be treated much earlier—before the disease progresses to more costly stages
  • Provide higher and more predictable revenues and profits to pharmaceutical manufacturers

“Current economic models in the pharmaceutical industry are well designed to manage diseases, not cure them,” said Jean-Manuel Izaret, a BCG senior partner and coauthor of the study. “The solution is to price the cures on the basis of the total population rather than individual patients.”

BCG’s epidemiological and economic modeling of HCV treatment, performed in collaboration with the Center for Disease Analysis, showed that, in every market tested, patients, payers, and pharmaceutical companies would do better under a PLA.

The PLA Solves a Frustrating Dilemma

The authors chose HCV as their test case because the disease remains a global crisis. Despite the introduction of innovative cures in 2013, more than 90% of the world’s infected population (71 million) remains uncured, a far cry from the World Health Organization’s target of eradication by 2030.

“There are many barriers to curing this population, but the dilemma created by current pricing models is one of the biggest,” said Dave Matthews, a BCG principal and study coauthor. The dilemma results because a high price per patient makes treating everyone prohibitively expensive while an affordable price is too low for pharmaceutical companies to earn back their investments.

“Switching to a population-based model such as the PLA not only makes the cure affordable, but also creates strong motivation to identify, diagnose, and treat as many patients as possible before the license expires,” Matthews explained.  

Looking Beyond HCV to Curing Other Diseases

HCV serves as a robust test case, but BCG views the PLA as an attractive model for other cures as well. “We are convinced that the PLA model could be beneficial from health care, social, and economic standpoints as pharmaceutical companies bring other cures to market,” said Mark Lubkeman, a BCG senior partner and one of the study’s coauthors.

A copy of the article can be downloaded here.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About Boston Consulting Group

Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with offices in more than 90 cities in 50 countries.

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