$1,000 genome a BAD idea?

So postulates Ezra Klein, policy wonk extraordinaire, in the Washington Post.

Klein worries that cheap sequencing could harm the health insurance industry:

"Those with a clean genomic result might go for a cheap catastrophic plan, while those with a high risk of developing pricey illnesses will opt for more comprehensive insurance…….The result would be, in insurance terms, an 'adverse-selection death spiral,' as the healthy opt out of expensive insurance, the sick opt into it, and premiums spin out of control."

Klein also argues that cheap sequencing guarantees an eventual individual mandate.

I call bull-feathers to all the above. Here's my reasoning:

-Our genome is not our pre-destination. (especially what epigenetics research keeps telling us).

-I suspect that even if it were, our health care costs have more to do with our behaviors than our pre-disposition. (Does someone's pre-disposition to Alzheimer's have a greater cost than their really bad diet and sedentary behavior resulting in diabetes?)

-You'd have to believe that treatment guided by sequence is a bad thing, because someone who lives longer ultimately costs more. If you've read any of the early impact stories from clinical sequencing, you see how detecting and treating childhood genetic diseases have the opposite and hugely positive impacts - both in terms of lives and $$$.


As for Klein's point about the necessity of individual mandates: Like a good wonk, Klein intends to see everything in healthcare in black or white - you're either fully covered, or you're not. I've argued for a long time that health insurance should be broken into 2 products "everyday, regular health insurance," and "catastrophic care insurance."

Everyday insurance is targeted towards things like broken bones, torn ACLs, delivering babies, or even diabetes treatment. Some would want to just pay "everyday" costs out of pocket, but if not, this insurance product would be VERY affordable, and the 'free rider' problem would be minimized.

The bulk of healthcare costs are driven by "catastrophic care." (I think the stat is that more than half of healthcare spending is for the last 6 months of life, or something equally eye-popping.)

If you're convinced that your predisposition to Alzheimer's means you don't have to worry about cancer, then you need not buy catastrophic insurance (likewise if you had neither predisposition), but I think most would buy some form of catastrophic insurance.

No matter, even with future health clarity driven by genomics, most would want at least one of the 2 insurances, greatly mitigating the adverse selection problem and obviating the need for an individual mandate.

My biotech experience as a patient (Genzyme's Carticel)

I've been away for a bit because I have undergone some knee surgery (as detailed on my personal blog, fwiw.)

Turns out, the surgery represents a new involvement for me in biotech: as a patient.

The surgery involved the harvesting of a chondryle cartilage sample. The sample was sent to Genzyme, which is growing up autologous replacement cartilage (i.e. Carticel.)

The journey so far has been illuminating. Here's a few observations from my experience, as related to the business of biotech and medicine, admittedly based upon my own n=1.

1) The health care rationing system in the US works. Carticel is both expensive ($20-40k) and rarely prescribed (~10,000 patients in ~ 10 years). From my experience there was very effective screening to get to the point of electing this treatment option. I definitely had the feeling from both the physician and insurance company sides that this treatment was well-rationed, and my financial obligation is significant.

2) Traditional comparative healthcare stats don't tell the whole story. Carticel is only available in the US, UK, and Germany (as far as I can tell online), so relative to all other comparable countries (France, Japan, etc.) I represent a huge expense, though this procedure only improves my quality of life, not longevity. In the non-Carticel countries I'd be a 40-year old dealing with early onset osteo-arthritis, whereas my goal (post treatment) is to return to my triathlon-competing, baseball playing self. Is the USA a better place if I can run again? No, but my world is, and to me, my treatment is a good investment (that is, a co-investment with my insurance company.)

The flipside of this investment is that the total financial investment probably equates to about 1 full-time job (say $50k between physical therapists, insurance admin, medical procedures, etc.) Pundits freak out about how health care represents 18% of our GDP, but I'm not certain that it is bad for the economy in this way.

3) Delivery via diffused specialists is the best approach to healthcare. State-driven (or, if you like "socialized" medicine) has an inherent bias towards centralization and generalization. It is believed that economies of scale improve health care economics, and that specialists - when necessary - should be centralized to maximize utility. (Made up example: in western Canada, it is better to concentrate heart specialists at say the province level in, to better triage cases and avoid duplicating equipment. Also, if the province needs say 8 heart surgeons, it is better to concentrate the 8 surgeons, rather than diffusing them broadly, leading to oversupply in some areas and undersupply in others.)

Since developing my knee symptoms, I haven't had any interactions with my GP, or been in any of the local hospitals, nor do I expect to do so. My x-rays were in my specialists' office, my MRI through a standalone operation, and surgery in an out-patient center. Each were under competitive pressures not present in the centralized model. My experience suggests to me that specialization should be encouraged, whereas the current trend is increased regulation to reduce specialization. (Best example: regulators and larger hospitals using "Certificate of Need" regulations to eliminate or reduce the competition by specialists. (Nutshell example: group of local heart surgeons try to open a stand-alone heart center, which studies show deliver better results at lower costs (due to specialization.) Large existing hospital refuses to "sign" the certificate of need certifying that the area needs this medical facility, thus defending their existing capacity and reducing competition.)

This practice is in effect cartelization, and ALWAYS leads to higher consumer costs.

4) As if this weren't already a given among readers of this blog, but biotech treatments such as Carticel represents the tremendous innovation and value in the US biotech industry. My therapy was impossible ~15 years ago (and, I suspect, will be obsolete 15 years from now due to advances in stem cell therapies). The research and development that resulted in the Carticel product was wholly US-based, and really could only happen in the USA.

 As I understand it, Carticel R&D began as a spin-off from Genzyme's R&D in hyaluronic acid (which itself resulted in the Synvisc (knee lubricant) product.) Genzyme got involved in hyaluronic acid R&D as a result of their interest in winning NIH funding in this area, which would finance the construction of Genzyme's first lab.

I can only guess at the cost of Carticel R&D, but it is highly likely that this was a high-risk investment by Genzyme, far beyond the risk-tolerance of large pharma companies. This was also only possible through access to the large and lucrative US health care markets and the relative availability of risk capital to fund Genzyme's R&D (though both VC and public markets). (As is the risk-tolerance of Genzyme's management team.)

I just don't believe that Carticel could have been developed in any state-driven health care system or anywhere else but the USA. (Though 2 German companies have engineered successor technologies.)

(The counter argument is that through US R&D funding and high health care prices other countries get a free-ride on USA-based R&D. It's true, but the R&D financial investment required is typically based only on sales in the US market.)

5. The health care financial model works here in the US. Genzyme trades @ 4.4X sales, while the median of the 3 largest hospital companies trades at .4X sales, suggesting that my (roughly ) $50k total cost (to me, revenue to others) might create $138k in shareholder value. (Blended 60/40 to yield a 2.77 (Yes, there are problems with this approach in the abstract, but the example is illustrative.)

To someone worried about the cost of US healthcare, I represent $50k of value destruction - i.e. $$ that can't be saved from the system. Truth is, the earnings (or, in the case of this analysis, revenues) represent capital creation, especially if the recipients (i.e. healthcare providers) can further leverage the capital.

In contrast, in state-driven systems like the NHS in the UK, there is no equity value from patient spending - a patient spending is an operating cost, and unlike in the US, these operating costs can not be leveraged to fund further R&D, or other investment uses of the cash flow, such as seeding new ventures.

As part of the Carticel therapy I'll have another operation in a few months to implant the lab-grown replacement cartilage. I'll be sure to post additional thoughts as they occur.