High Costs of Stem Cell Therapy: Will Stem Cell Firms Share More Risk?

Stem cell therapies are likely to be quite costly because of high development expenses and potentially high usage, according to a new report from the University of California at Berkeley, which said that new “financial risk-sharing mechanisms” could be needed.

“The cost impact of the therapy is likely to be high, because of a therapy’s high cost per patient, and the potentially large number of individuals who might benefit from the therapy. This expense would put additional stress on the Medicare and Medicaid budgets, cause private insurance health premiums to increase, and create an incentive for private plans to avoid covering individuals eligible for a therapy,” the report said.

Entitled “Coverage, Cost-Control Mechanisms, and Financial Risk-Sharing Alternatives of High-Cost Health Care Technologies,” the October 2009 study was prepared for the California stem cell agency at a cost of $15,000 by Richard Scheffler, director of the Petris Center on Health Care at UC Berkeley, Brent Fulton, also of the center, and three other persons. The agency said it did not endorse the report's conclusions.

California lawmakers are currently considering legislation (SB1064) by Sen. Elaine KoutaminasAlquist, D-San Jose, aimed at ensuring the affordability of state-financed stem cell therapies and requiring more openness and transparency at CIRM.

Concerning coverage by private insurance, the report, said,

“Because private plans experience approximately 20 percent annual enrollee turnover, this gives them an incentive to avoid covering an individual eligible for a therapy, not only because of the high cost of the therapy, but also because future healthcare savings might benefit a different insurer. Risk adjustment and reinsurance programs, which compensate an insurer for covering an individual with above-average risk or high health care expenses, or both, could be used to mitigate this incentive.”

The study said,

“The development of new stem cell-based therapies could significantly improve and extend the lives of people with currently incurable medical conditions, such as diabetes, macular degeneration, osteoarthritis, and spinal cord injuries. However, there is concern that these therapies may not be affordable and accessible because of the high research and development costs, coupled with the uncertainty as to whether health plans will cover these therapies. This may result in these therapies not being developed at a rate that corresponds to their economic benefit.”

The final paragraph of the study said,

“To improve the likelihood that new stem cell-based therapies will be covered by health plans, financial risk-sharing mechanisms may need to be formulated. These may include stem-cell firms bearing some financial risk, particularly regarding the uncertainty as to whether the therapies will result in future health care cost savings because of potential to cure diseases and disabilities. Risk-adjustment and reinsurance programs, which compensate an insurer for covering an individual with above-average risk or high expenses, or both, could be used to reduce private insurers’ incentive to avoid covering individuals who might benefit from an expensive therapy. In turn, this will increase the new therapies’ affordability and access, and will help ensure that investors who fund therapy development will be compensated, resulting in a development rate that more closely corresponds to the therapies’ benefits.”

The California Stem Cell Report asked CIRM for a copy of the document, which is a public record. Don Gibbons, communications chief for the agency, said,

“Please note that CIRM commissioned the attached report to provide a background survey regarding reimbursement for medical therapies.  We are providing the report to you for information purposes only.  The report and its recommendations do not reflect the views of CIRM's management or the Board’s leadership. We had intended to post this report at the same time that we post the full economic impact study that is underway, which will be later this spring.”

Here is the report.

  Stem Cell Therapy Costs by DavidJensen