Pharma's Experiment With India's Borrow And Treat Model

When a 52-year-old Indian cart-seller of plastic toys was hospitalized because of a cardiac condition the first time, his family decided against going through with the treatment. They simply could not afford the costs involved.

But the second time round, when he was back in hospital, Arogya Finance, which offers medical loans to the "traditionally un-bankable" in India, ensured that he could not only go through with the required procedure but also need not be plunged into poverty after paying for his treatment. The vendor could repay Arogya in small monthly instalments.

Pharmaceutical companies are closely monitoring examples such as these as they link up with firms like Arogya to experiment with unique financing schemes in both the drugs and devices segment in India. Importantly, the trend appears set to spread to other Asian markets and potentially pockets of the developed world too.

Typically, under such financing schemes, patients can stagger payment of the actual therapy cost over a specified period via equal monthly instalments (EMIs) – along the lines of similar schemes for consumer durables.

The chief of a US drug firm in India explained that there is a difference between the "ability" and "willingness" to pay for novel therapies and that more and more firms have begun to recognize the nuances.

"EMI schemes define the ability to pay much better and willingness to pay is about whether you are really convinced about the therapy. If you combine both well you get much better results. People have begun to understand this and you'd probably see more of such efforts," he told Scrip.

Optimal reach of such finance schemes for specialty products in a large and diverse market like India, some experts say, would require the involvement of large banks as well as non-banking financial companies.

Dr Ajit Dangi, president and CEO of Danssen Consulting and a former director general of the Organization of Pharmaceutical Producers of India, told Scrip that while India has a large under-banked population (only 40% of the population hold bank accounts, he notes referring to a Reserve Bank of India report) things have significantly improved recently after the Government's concerted efforts to incentivize the rural population to open bank accounts.

In addition, India's massive postal network, the largest in the world, should be roped in for medicine and healthcare financing, he adds.

Early Movers

MSD (as Merck & Co is known outside the US and Canada) was perhaps among the first drug firms to ensure that its hepatitis C therapy, interferon alfa 2b, can be accessed in India at "cash flow" levels that a patient, typically with average means, may possibly be comfortable with, though the arrival of sofosbuvir is believed to have seen a scale back of the initiative.

Others like Roche and Boehringer Ingelheim have also indicated that they are keen on financing models for their oncology products in India, while Medtronic offers financial assistance for its heart devices.

Roche said that with 80% of Indians paying out of pocket for healthcare, and cancer being the third-highest cause of mortality among non-communicable diseases currently, it recognizes that one of the key hurdles in access to optimal standard of care for cancer patients is the availability of funds.

It expects to launch a pilot program with a leading financial institution in India to create a financing option for Herclon (trastuzumab) as a part of its "The Blue Tree" patient support initiative.

"The aim is to reduce the monthly cash outflow and increase flexibility as much as possible for the applicant. We hope that such an offering will greatly increase access to treatment," Roche told Scrip.

More recently Dr Reddy's Laboratories linked up with Arogya to roll out a financing initiative for its hepatitis C therapy, Resof (sofosbuvir). Arogya finances up to 100% of the drug cost in this case and the maximum tenure allowed is 36 months, with the maximum loan up to INR200,000 ($3,009). Resof is priced at INR 20,000 for a 28s pack.

Jose Peter, co-founder and CEO of Arogya Finance, a unique social healthcare venture, said that currently most of the expensive treatments reach only 10-20% of patients who could benefit from the therapy, mainly because of challenges in awareness, availability and affordability.

"While all these issues need to be addressed, affordability is the single most important aspect in the decision-making process of the patient and the doctor/care giver," Peter, a former CFO of the retail finance firm, Tata Motor Finance, told Scrip.

Arogya also noted how millions of Indians are unable to pay out-of-pocket for medical emergencies and often money is borrowed at high interest rates or is organized by selling personal assets or simply ignoring much needed medical attention. This, it estimates, leads to 40m people falling into poverty every year.

Arogya says it has taken a step to bridge this gap by offering loans at reasonable terms to those who lack formal income proof, in the process creating a "lifeline" for people pushed into poverty as a result of unexpected health shocks. It uses innovative risk assessment tools that allow it to finance people outside the formal banking system and its business model is structured in a way, that it directly pays the medical bills of an individual to the hospital or the healthcare service provider.

Close to 800 patients across four regions and 10 Indian states have so far availed themselves of Arogya's services.

Such financing alternatives also trump the much publicized tiered pricing model, according to Peter. The latter he argues is "very good on paper" and starts off very well, but has not really been able to penetrate and scale.

"It ends up with everyone getting the lowest price in the market."

Reliable People

Peter also highlighted some interesting trends that the Arogya model has seen.

Critically, payback is almost certain in the case of such medical loans.

"Our limited experience shows us that these are a very reliable people, although many people feel and think otherwise. About 90% of collections happen automatically, without our intervention; may be a little telephonic intervention. I see no reason why this cannot scale….it's just that somebody needs to be successful first."

The Arogya model, he said, is also moving beyond Indian shores. Financing efforts under Medtronic's successful 'Healthy Heart for All' initiative is now available in a "limited manner" in the South East Asian region.

"In the Philippines, we ran a pilot in Manila; there are conversations going on about a similar one in Malaysia. They are talking about doing something in the US," Peter said.

Launched in 2010 in India, the Healthy Heart for All initiative provides financial assistance to implant heart devices such as stents, pacemakers and heart valves by partnering with hospitals. More than 100 Indian hospitals are part of Medtronic's access initiative that includes screening camps and patient counselling, besides financial assistance.

The initiative is said to have screened more than 100,000 patients, treating over 14,000 and disbursing in excess of 500 loans.

Gilead Model

Some experts, however, believe that a hybrid approach, including the "Gilead model", is the way forward to improve access to breakthrough, pricey therapies in the developing world and point to the limited impact microfinance firms can have in moving the access needle.

Last year Gilead entered into licensing deals with several India-based firms including Cipla, Zydus Cadila, Hetero, Strides, Ranbaxy and Mylan Labs to develop sofosbuvir and the single tablet regimen of ledipasvir/sofosbuvir for distribution in 91 developing countries.

Dilip Shah, secretary general of the Indian Pharmaceutical Alliance, which represents leading domestic firms, says that a combination of both government financing and the "Gilead model" is the way forward in India.

"For the rich, one can add co-payment as the third element for access to expensive medicines," he told Scrip.

He does not favour debt-financing for breakthrough pharmaceutical products and believes that it would leave patients at the "mercy" of the patent holder.

"How can a government abdicate its responsibility to a private commercial entity?"

Micro finance companies can help, Shah added, but he noted that they do not resolve the issue of access and affordability, given their limited reach.

Others note how naysayers accuse pharma of profiteering and appeal to it for "compassion and understanding" while doing "precious little" themselves to control spiralling costs across the spectrum of health care.

They underscore that medicine prices are a small subset of and directly proportional to the overall health care costs and that multinationals in India are caught between "a rock and a hard place" because this rationale makes little sense in an out-of-pocket market.

"That is why financing schemes were deemed as a clever way to encourage caregivers to buy these medicines whose prices cannot be reduced for a variety of reasons such as reference pricing and parallel trade," an industry pundit with a foreign firm told Scrip.

He also referred to how Gilead is probably the first company to break this paradigm with Sovaldi and hoped that many others follow the lead and that financing schemes "do not end up becoming the way forward" in India.

The industry pundit also believes that debt-financing schemes for breakthrough drugs are not a win-win for stakeholders and merely address the "symptoms" without addressing the "malaise." He had some radical suggestions to "build" access by reducing the cost of medicines, including pressurizing governments around the world to de-regulate and liberalize the health sector, reducing patent life and devising new ways to incentivize pharma R&D.

"The more the sector is opened up to market forces, the quicker we will see prices fall and service improve. Until then, we can only hope to come up with cleverer financing options for prices that are, in the long run, unsustainable," he maintained.