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Business of Pathways

Cell and Gene Therapies: Paying It Forward and Adjusting Payment Systems for the Age of Cures

Authored by

Sean McElligott, MS1; Ira Klein, MD, MBA, FACP2—Column Editor


1Market Access, Scientific and External Strategy, Janssen Pharmaceuticals, Titusville, NJ.

2Healthcare Quality Strategy, Strategic Customer Group, Janssen Pharmaceuticals, Titusville, NJ


Dr Klein owns stock in Johnson & Johnson and Aetna, Inc and is an employee of Janssen pharmaceuticals. Dr McElligott owns stock in Johnson & Johnson and is an employee of Janssen pharmaceuticals. 


J Clin Pathways. 2019;5(5):24-25. doi:10.25270/jcp.2019.06.00082


Cell and gene therapies represent the next frontier of pharmaceutical development, holding the promise of delivering potentially curative therapies for diseases that have limited treatment options. However, these advancements are only feasible through continued creativity and investment in basic research, development, and commercialization supported by payment and reimbursement that preserve appropriate incentives. Payment and reimbursement systems will need to evolve to match this latest era of pharmaceutical innovation.

Progress in the pharmaceutical industry is marked by breakthroughs in the science of understanding the ways to cure and treat specific diseases. These breakthroughs have largely benefited society and have been made possible through the alignment of market incentives to encourage investment in risky innovation that attempts to maximize human health. For example, in the antibiotics era, large-scale industrialization followed discovery to allow for much broader access and substantial benefits to society. The “miracle drug” of penicillin was able to be studied and produced in enough quantities, in part through investment by American pharmaceutical companies, to support the war effort and later the wider public.1,2 The development of statins further demonstrates the importance of incentives to encourage investment and payment systems to encourage broad access. In addition, the biologics era, with highly efficacious treatments for everything from cancer to psoriasis, has delivered more effective medicines through advancement of science at industrial scales. 

Cell and gene therapies now represent the next stage of pharmaceutical development and hold the promise of delivering potentially curative therapies for diseases that have limited treatment options. However, these gains for society were only feasible through continued creativity and investment in basic research, development, and ultimately commercialization supported by payment and reimbursement that assured appropriate incentives. Payment and reimbursement systems should evolve to match this latest era of pharmaceutical innovation. 

How Curative Therapies Are Disrupting the System

Cell and gene therapies are breakthroughs that necessitate an individualized care approach and require complicated production on a per-patient basis. These therapies represent significant hope for patients who have few options and may provide long-term remission or potentially a cure. This is a scientific and health paradigm shift that will also necessitate an equivalent modification in how these new breakthroughs are valued and ultimately paid for to ensure access to patients in need.

Preliminary analyses indicate that chimeric antigen receptor T-cell therapies and gene therapies are cost-effective even under relatively conservative assumptions. However, even though these analyses show that these therapies are worth paying for, concerns have been raised that the current reimbursement and payment systems are not equipped to handle these new therapies. “I think we need to have a serious discussion about how we’re going to pay for these treatments. They’re one-time, curative treatments, and so these are very different from what we’ve dealt with in the past….The payment systems that we’ve had in place really are not set up to deal with that,” said the Administrator for the Centers for Medicare & Medicaid Services, Seema Verma.3 Additionally, many of the payment solutions being discussed involve lowering upfront costs, changing how cures are valued, and other ways to mitigate short-term affordability issues. A more nuanced discussion is needed around appropriate payment and reimbursement systems that promote affordability, broad patient access, and future innovation. Focus on short-term affordability and lower up-front costs could have a deleterious effect on current investments in innovation for future curative therapies.

Precision Financing Mechanisms

The Massachusetts Institute of Technology’s NEW Drug development ParadIGmS initiative (MIT NEWDIGS) has already proposed several alternate payment mechanisms, or so-called precision financing mechanisms.4 These financing mechanisms are based on two principles, namely pay-for-performance and risk pooling to try and solve for issues related to payment timing (large upfront costs but longer-term benefits), product performance risk (uncertainty around efficacy at time of payment), and actuarial risk (payers encountering high cost, but rare/orphan cases). The recommendations are related to smoothing out the payment risks and explicitly deal with uncertainty and the misalignment of costs and benefits over time. These are useful discussions as the focus is on assuring that payment systems are constructed to deal with the underlying issues with the current payment system. 

We would also encourage the exploration of additional proposals, for instance, we believe that a risk-based loan contract that distributes payments over time, is indexed to a patient’s initial health status and expected treatment efficacy, and adjusts based on claims-based outcomes, may solve for both payment challenges (uncertainty and time) and may also permit transferability from one insurance plan to another. 

Value and Affordability

Finally, we would like to turn to the overall underlying issue of “affordability” for cell and gene therapies. By design, cost-effectiveness analysis determines whether an intervention is worthwhile investing in based on comparison to current treatments. Although cost-effectiveness analysis has some limitations, this method allows for determination of the “value” of an intervention. The incremental cost-effectiveness ratio is then compared to a cost-effectiveness threshold, which is nominally based on societies willingness-to-pay for a quality adjusted live year (QALY). Decision makers are faced with the unenviable task of having to set those thresholds that explicitly set the value of a life, ie, an intervention that is shown to be less than $150,000 per QALY is worthwhile, its incremental cost per QALY is below the threshold. Affordability under this scenario is a secondary consideration, as the cost-effectiveness analysis has determined that the intervention is a worthwhile investment. Therefore, it is imperative that payment and reimbursement systems have the capabilities to adjust to assure that investments are directed toward those interventions that have met these standards. Ad hoc adjustments based on “affordability” concerns may have unintended consequences. For example, new durable and curative therapies have been shown to be cost-effective but have been largely characterized as “unaffordable.” This may lead to efforts to reduce prices, which will improve the cost-effectiveness of the intervention, but may lead to future underinvestment in curative innovations as the relative incentives for investment in treatments will be higher than potentially curative therapies due to these efforts. 


Any rational innovator would seek investments that have the highest potential returns on investments, in this case, treatments over cures. However, as a society it is likely that consumers would prefer cures over treatments. It is therefore imperative that payment systems are organized to reward valuable interventions that align with society’s overall preferences rather than creating distortions to address short-term affordability concerns.


The newest innovations in cell and gene therapies mark a new era in medicine whereby durable remission, and potentially cures, are within reach for several diseases. These advancements are clearly beneficial and have been shown to be worthwhile through cost-effectiveness analysis. However, they present challenges to a health care payment system that historically has been created to pay for and incentivize disease treatment that typically align payments and benefits over time. Durable and curative therapies exacerbate the misalignment of costs and benefits, with costs being largely experienced up-front while benefits accrue over patients’ lifetimes. Proposals that attempt to adjust for short-term affordability issues by only reducing up-front costs run the risk of further distorting incentives away from investments in curative therapies toward less socially desirable treatments. It is in this context that payment systems should evolve such that they solve for both the current misalignment between up-front costs and distributed benefits while also maintaining the incentives for innovations that are curative, and potentially preventative. We look forward to a system that is aligned toward paying for health rather than paying for treatments of sickness.  


1. Antibiotics biotech firms are struggling. The Economist. May 4, 2019. Accessed June 5, 2019.

2. American Chemical Society International Historic Chemical Landmarks. Discovery and Development of Penicillin. website. Accessed June 5, 2019.

3. Minemyer P. Verma: CMS mulling outcomes-based ways to address expensive specialty drugs. FierceHealthcare. May 23, 2019. Accessed June 5, 2019.

4. Massachusetts Institute of Technology, Center for Biomedical Innovation. About MIT NEW DIGS. website. Accessed June 5, 2019.

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