A critical component of our work to improve health care in the United States involves finding ways to address the rising cost of pharmaceutical drugs.
Spending on prescription medications has reached
record highs in recent years, prompting individuals to skip vital treatments
and making it difficult for governments to meet their Medicaid obligations.
In 2016, we expanded our portfolio of investments in this area and funded new research and pilot
projects. These efforts are intended to help reduce the financial barriers that can make it difficult
for patients to obtain the medicines they need without destroying incentives for innovation in drug
development. The research projects are focused on analyzing how regulatory policies and programs
impact drug pricing, drug development, and patients’ access to medication. The pilot projects will
test new drug pricing and purchasing models that take into account a drug’s value to patients—that
is, how well it works and how much it costs relative to existing alternatives.
Two of our grantees in pharmaceutical pricing made important contributions this year by
publishing research that identified key cost drivers in the dysfunctional pharmaceutical market and
by producing reports for new drugs that specify value-based price benchmarks.
The Program On Regulation, Therapeutics, And Law (PORTAL) at Harvard University issued a
widely cited report stating that the alarming increase in drug prices is due primarily to brand-name
drugs, which are protected by patent rights awarded at the time of Food and Drug Administration
(FDA) approval. An exclusivity period, combined with a variety of business and legal constraints
that target generic drug manufacturers, limits competition that could otherwise help to reduce
prices. The report also found that there is no link between a drug’s research and development costs
and the price set by the manufacturer. Instead, the researchers found prices are primarily based on
what the market will bear.
In addition to identifying the causes of rising prices, the PORTAL team outlined a number of
short-term strategies to correct the problem. These include “enforcing more stringent requirements
for the award and extension of exclusivity rights; enhancing competition by ensuring timely generic
drug availability; providing greater opportunities for meaningful price negotiation by governmental
payers; generating more evidence about comparative cost-effectiveness of therapeutic alternatives;
and more effectively educating patients, prescribers, payers, and (policymakers) about these choices.”
The report, published in JAMA, is helping to inform the debate over drug pricing, as is the work of
the Institute for Clinical and Economic Review (ICER).
ICER is an independent, trusted source of information about pharmaceutical drugs. It is producing
public reports on new medicines that have the potential to significantly change patient care and
health system budgets. Since the beginning of 2015, ICER has issued eight reports covering 26
drugs. Each report, produced near the time of a drug’s FDA approval, includes a full analysis of the
drug’s comparative effectiveness, cost-effectiveness, and potential budget impact. In addition, ICER
uses transparent methods to calculate for each new drug a value-based price benchmark anchored to
the real benefits the drug delivers to patients. The ICER reports offer important insights into how
well a drug works and for which patients, and how it compares to other drugs that are already on the
market. This provides a transparent, objective basis for price negotiations and coverage decisions.
According to a study of 99 national and regional payers conducted by a health care consulting
firm, 58 percent are using ICER reports as an independent source to validate internal analyses and
determine affordability. Payers have said that the ICER reports have allowed them to negotiate
lower prices for drugs targeting high cholesterol and multiple myeloma.
ICER Reports Address Four Key Questions:
- How well does the drug work?
- How much better is it than what is already available?
- How much could it save?
- How much would it cost to treat everyone who needs the drug
Reports are developed with input from patients, doctors, drug makers, and others.
In addition to our support for PORTAL and ICER, we are funding researchers at Memorial Sloan
Kettering Cancer Center to study, pilot, and evaluate value-based payment structures for specialty
drugs that link a drug’s price to evidence of how well it works and for which patients. The team is
also analyzing other payment models and policy proposals that have the potential to reduce patient
Another investment is our grant to the Center for Evidence-based Policy at Oregon Health and
Science University in support of its efforts to analyze the prescription drug development pipeline,
the regulations that govern Medicaid drug purchasing, and best practices for alternative purchasing
models. The center will work with states to design a set of pilot programs to test alternative purchasing
models that tie Medicaid reimbursement to improved patient health and promote sustainable state
We are also funding the National Academy of Sciences Institute of Medicine to conduct a study
examining patients’ 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