Can the Netflix model help curb healthcare costs?

Television subscription services like Netflix and Hulu make money because while it costs each provider millions to make a television show or movie, each new stream costs little or nothing. New York Times contributor Tina Rosenberg claims another product can work in a similar fashion: medicine.

The U.S. has seen steadily rising healthcare costs during the last few years, spurred in a large part by exploding drug costs. Ms. Rosenberg says in an op-ed for The New York Times that executives at these pharmaceutical companies have blamed everyone else in the supply chain, and the federal government has done little to bring costs down.

However, she says there is proof that the Netflix model can work in medicine. In 2015, Australia signed a deal with Gilead, AbbVie, Bristol Myers Squibb and Merck to receive unlimited hepatitis C medicine for five years in exchange for $1 billion Australian dollars (about $766 million USD). The payment guarantees the drug companies get large profits, while Australian citizens can obtain hepatitis C treatment for an affordable price.

Two U.S. states — Washington and Louisiana — have begun to make similar deals with pharma companies. Louisiana received responses from AbbVie, Merck and a Gilead subsidiary in bidding that closed Feb. 28. The state's health chief has said she hopes to have contracts with one or more companies and begin providing patients with medicine by July 1, Ms. Rosenberg says.

"The Netflix model is an example of delinkage: pricing schemes that decouple rewards for pharmaceutical innovation from a drug's price," Ms. Rosenberg writes. "Even with good profits assured, pharmaceutical companies are hesitant about schemes like the Netflix model; they're wary of doing anything that could put a crack in a system that has served them well, and hope to ride out public anger at high prices."

While rising costs have been an issue for some time, the difference now is that the public has taken more notice and has expressed outrage over the situation, Ms. Rosenberg writes.

"Australia said we're not going to settle for 10 percent coverage. We're going to find a way to 100 percent. If other governments were to follow that course of action, they'd get results, too," Suerie Moon, PhD, director of research at the Global Health Center of the Graduate Institute of Geneva in Switzerland and lead author on a study of Australia's drug program, told Ms. Rosenberg.

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