A Funder Targets the Country's Sick Pharma Marketplace. Will It Get Anywhere?

Remember last fall when hedge fund/pharma guy Martin Shkreli rocketed to the top of America's most-loathed list after buying the license to an antiparasitic drug used by AIDS patients and raised the price more than 5,500 percent? 

Shkreli, the (now ex) CEO of Turing Pharmaceuticals, is merely the poster boy for our country's messed-up drug marketplace. In other words, the problem isn't that a businessman raised the price of a 60-year-old drug by 5,000 percent; the problem is that he could.

The rising cost of pharmaceutical drugs is an important component of our country's healthcare overspending, according to the Laura and John Arnold Foundation. LJAF recently announced new initiatives to tackle the drug pricing crisis, funding some $7.2 million in research to study practices that might keep costs reasonable.

That strikes us as money well spentassuming the foundation is also thinking a few moves ahead to the political challenges of actually implementing cost-cutting measures, given the well-known clout of Big Pharma in Washington, D.C., and beyond.

We've all read about, personally known, or personally been one of the millions of Americans who face prescription drug expense hassles, including insurance companies that won't cover some or all of the cost of a particular drug. But drug costs affect everyone, even if you're not filling a prescription. They drive insurance rate hikes, strain budgets of government health insurance programs, and worst of all, leave patients unable to obtain needed medicines.

According to the Arnold foundation, more than 500,000 patients had medication costs above $50,000 in 2014. That's a surprising 63 percent increase over the previous year.

“There are major flaws in our drug-purchasing structures, and we must address these issues as part of the effort to improve patient health and manage the cost of care,” LJAF Vice President Kelli Rhee said in a press release.

LJAF's drug-price funding commitments include the following:

  • $4.7 million to Memorial Sloan Kettering Cancer Center to support the Evidence Driven Drug Pricing Project. The three-year project will research, pilot, and evaluate alternative, value-based payment structures for specialty drugs that link a drug’s price to evidence of how well it works and for which patients. They'll also analyze other payment models and policy proposals that have the potential to reduce patient costs.
  • $1.6 million to the Center for Evidence-based Policy at Oregon Health and Science University.  Researchers will analyze the prescription drug development pipeline, the federal and state regulations that govern Medicaid drug purchasing, and best practices for alternative purchasing models. A second phase will work with participating states to design a set of pilot programs to test alternative purchasing models that tie Medicaid reimbursement to improved patient health and seek to support sustainable state Medicaid budgets.
  • $748,445 to Brigham & Women’s Hospital in support of the Program On Regulation, Therapeutics, And Law. The yearlong project will evaluate the effectiveness of federal regulatory programs designed to incentivize innovation in drug development. Researchers will evaluate how policies have improved patient outcomes, reduced drug approval times, or led to more breakthrough discoveries. Researchers will analyze programs and incentives such as tax breaks, market exclusivity protections, and the FDA's fast-track approval pathways.
  • $200,000 to the National Academy of Sciences Institute of Medicine to examine patient access to effective and affordable therapies. Researchers will create a set of policy recommendations aimed at making it easier for patients to get the drugs they need at a sensible price, while also spurring the development of drugs that address critical health care needs.

According to Rhee: “These projects will help to identify sustainable, evidence-based drug-pricing solutions that target the root causes of the broken market and can serve as models for reform across the entire health care system.”

Those sound like valuable research avenues, but will they produce anything beyond incremental improvements to what the Arnold foundation calls a "broken market" controlled by the multibillion-dollar pharma industry's influence on government and policy?

LJAF, which has analyzed drug pricing and purchasing structures in the U.S., says the key factors that created the current dysfunctional environment include a lack of competition for drug companies, supported by patent and other protections that allow them to monopolize treatments. Also, it says, payers like Medicaid, Medicare, and private insurance companies "have virtually no power to negotiate drug prices."

Of course, there are some well known reasons that drug companies have the upper hand in our healthcare system. One is their enormous level of political influence. According to the Center for Responsive Politics, no industry has spent more since 1998 on campaign donations and lobbying than Big Pharma$3.2 billion. That's twice as much as Wall Street spent, and the drug industry has gotten a phenomenal return on that investment, while the rest of us have paid the price. As Wendell Potter has written: "The influence that Big Pharma has purchased by lobbying our nation’s legislators has an impact that touches virtually every American. Not only does it affect health insurance premiums, but it also impacts the solvency of our Medicare system, which was expanded in 2006 to include a prescription drug benefit."

A second reason the drug companies thrive while the rest of us are gouged is ideology. Conservatives in Washington have led the charge to bar the federal government from having more leverage in our healthcare system when it comes to negotiating drug prices. 

LJAF says its strategy is to address the root causes of problems, which is clearly necessary here. What's not clear is how to tackle the political and ideological obstacles to systemic reform of the pescription drug market.

It's no secret that we're big fans of the Arnold foundation, which thinks in big, bold ways. But there's a bit of a Pollyanna quality to its evidence-based policy funding, a fast-growing piece of its grantmaking. In many areas where American society is stuck, the problem is not the lack of evidence-based solutions; it's who has power— and drug prices are a prime example.

The foundations that move the needle in these areas don't commission studies that will sit on shelves. They mobilize for policy combat, investing heavily in advocacy and seeking fights they can win. The Arnold Foundation has done exactly that in some areas, like public pensions and criminal justice reform. Maybe its broad search for new answers through its evidence-based policy funding is a prelude to new battles that LJAF will take on in the years ahead. Let's hope so. 

Related: A Funder Seeks More Insights About Inequality. Will That Make a Difference?