The research, led by MIT Sloan Professor Andrew W. Lo, suggests securitized consumer healthcare loans (HCLs) may be a "practical remedy" to help combat drug increasing drug prices.
What are HCLs?
HCLs are the mortgages of large healthcare expenses – helping spread out the cost of drugs and therapies over many years, making them more affordable.
Lo explained that HCLs are financed through securitization, “the process of putting a large number of loans from different consumers into a single financial entity and then having that entity sell ownership interests and bonds to investors.”
According to Lo, securitization’s benefit is that large amounts of capital can be raised from investors who don't traditionally invest in the underlying loans that the entity holds.
"This is an instance where financial engineering could benefit the entire ecosystem," added Lo. "It helps patients by providing them with affordable access to therapeutic drugs and cures. It helps biopharmaceutical companies by enabling them to get paid back for the substantial investments in R&D they make to develop the therapies in the first place. And it helps insurance companies by linking payment to ongoing benefit."
Unfortunately, securitized HCL funds could be abused in the same way that mortgage-backed securities funds were abused. So, according to Lo, the market has to be tightly regulated “with an eye toward preventing the kind of excesses that occurred in the U.S. residential real estate market in the recent financial crisis.”
However, the proposal is only meant to be a stop-gap measure. “In the long run, health insurers ought to be paying for these therapies, but they currently can't easily afford them,” said Lo. “However, with a change in legislation that we describe in our paper, health insurers can make use of HCLs and cover these cures as well.”