Health as an investment: we must rethink how we view health spending (Guest blog)


Guest blog post by Prof. Mauro Marè, Professor of Public Economics University of Tuscia and Luiss Business School

It’s time to change accounting rules to allow a paradigm shift in how we treat certain health  investments – the case of advanced therapies.

Health spending is a fundamental investment in countries’ economic and social sustainability. It promotes the value of human life and growth, helping to build resilience against crises. However, our health systems are not set up to reward investment. Accounting conventions take a distinctly short-term view, limiting spending today that could deliver strong economic and social dividends in the medium and long term.

The recommendations of the EU Health Coalition, a multi-stakeholder initiative mapping the future of healthcare in Europe, feature a strong call to rethink on how we classify certain expenditures to allow for new financing and funding models. Innovation has the potential to change medicine for good, but only if we shift out mindset to keep up.

Let’s explore how this could work in the case of “advanced therapy medicinal products”, a class of therapies that is changing the paradigm for how several severe diseases are being treated.

Key points

  • Health is an investment: spend today to gain benefits over time
  • Advanced therapies are characterised by higher upfront costs in the short term
  • Benefits accrue to individuals, health services and the economy over multiple years
  • Accounting conventions limit innovative approaches to financing fair access to advanced therapies
  • A group of companies and stakeholders has developed a new solution to how and when costs and benefits are accounted for

Advanced therapy medicinal products (ATMP) – treatments based on genes, tissues or cells – can dramatically transform patient outcomes, sometimes with a single intervention. These are fundamentally different to traditional medicines in multiple ways. For example, they are much more complex and costly to develop and produce but can be a one-shot solution for patients rather than an ongoing treatment regimen used to manage chronic conditions over several years or decades.  

ATMPs incur significant costs in the short term, with future benefits spread over a longer time horizon. The usual economic and accounting evaluation is not suitable for advanced therapies. The flow of direct and indirect benefits, including increases in productivity and tax revenue, and cost savings ranging from lower consumption of healthcare resources to reduced burden on families, accrue over many years. To an economist, this is the standard definition of an investment.

The mismatch between traditional short-term accounting practices in health spending and long-term benefits of ATMPs must be addressed. This is essential if we are to realise the potential of the 60 new treatments anticipated in the coming decade and ensure fair access to innovation.

Updated economic and accounting evaluations

Current budgetary procedures are based on the principle of economic accrual (expenditure commitments, not cash budget). The budgetary rules provide that the total cost of a medicine (therapy) is fully accounted for within the budget of the year of administration of the therapy, based on defined expenditure commitments. This expenditure can also be settled and paid in subsequent years, but its total amount must be charged in the year in which the accounting obligation arises.

This is an important barrier for the application of any annuity payment models that would allow the national health system to spread the cost of the advanced therapies over time, along with the benefits (outcome based), to pay for value. Thus, we need to build a budget accountancy scheme compatible with annuity payment models, one that can align ATMP payments to the benefits of the therapy.

Today’s accounting criteria are the result of a compromise and are an accounting convention. They are of our own collective invention, and we can change them if it suits our changed circumstances and priorities. The time has come to review and update the current conventions in response to the evolution of technologies and social development. There is precedent for adapting accounting norms in this way. In 2010, the European System of Accounts (ESA) – the system of national and regional accounts used by EU members – acknowledged that "research and development expenditure" and "military expenditure" are “investment in nature, so they are recorded as gross fixed capital formation and no longer as current expenditure”.

Finding solutions, together

That is why the #VITA[1] working group[2] brought together pharmaceutical companies specialised in ATMP to explore solutions that allow fair and ready access to innovation by all potentially eligible patients. Together, this group has proposed a solution which would introduce multi-year payment systems based on results. For example, the cost of the drug would be deferred over several years and the health service would pay the individual instalments only if the therapy works.

The group also proposes new accounting approaches that provide for treating ATMPs in a manner similar to amortisation for capital expenditure. In the model proposed by #VITA, the undertaking of the expenditure commitment of each installment must take place in the financial years in which payments are expected to be arranged, according to the contractual deadlines. This is precisely how investment expenditures are treated. For ATMPs, it would mean not charging the budget with the full cost of the upfront therapy, as is the case for current expenditures.

However, for this solution to be implemented, changes to the accountancy rules are needed. This is a paradigm shift which we need to start implementing together, both at the European level and in individual Member States. It would allow health services to spend and account for the real value of the benefit of these therapies (thus charging the budget only for the expenditure corresponding to the benefit obtained) and to broaden access to highly innovative therapies to the largest possible number of potentially eligible patients.

The world is changing. COVID-19 has highlighted that healthcare is a fundamental investment in countries’ economic and social sustainability, and it has reminded us of the value of human life and the contribution of good health to growth.

Medical science has moved on and will change lives – and health systems – if we are ready to adapt. It’s time accounting systems used by health systems are updated to treat health as an investment.

[1] #VITA (Valore ed Innovazione delle Terapie Avanzate) is a group of pharmaceutical companies specialised in the ATMP sector that, with the involvement of various reference stakeholders, aims to promote an interest group for the Value and Innovation of Advanced Therapies (#VITA). In 2022 #VITA members are: Bristol Myers Squibb, Gilead Sciences, Janssen, Pfizer, PTC Therapeutics, Roche, and Vertex.

[2] #VITA Working Group, coordinated by Avv. Rosanna Sovani (Partner of LS CUBE Studio Legale) is composed by Prof. Mauro Marè (Professor of Finance Science University of Tuscia and Luiss Business School), Prof. Americo Cicchetti (Catholic University and Director of ALTEMS), Prof Anessi Pessina (Professor of Business administration, University Cattolica del Sacro Cuore; Director of the Center for Research and Studies on Health Management – Cerismas), Prof. Giorgio Alleva (Professor of Statistics at Rome Sapienza University and former President of the Italian Statistical Institute) and Avv. Paola La Licata (Partner of LS CUBE Studio Legale).