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Photo by Julio Cortez/The Associated Press

Houston — The Laura and John Arnold Foundation (LJAF) today announced $7.2 million in grants for research and pilot projects aimed at addressing the rising cost of pharmaceutical drugs and reducing the financial barriers that can make it difficult to obtain life-saving treatments. The research projects will focus 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.

Funding commitments include:

  • $4.7 million to Memorial Sloan Kettering Cancer Center to support the Evidence Driven Drug Pricing Project. The three-year initiative, led by Peter Bach, 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. Dr. Bach and his team will 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 to support a 15-month project that will include two phases. First, 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. In the second phase, the Center will work with participating states to design a set of pilot programs. The pilots will test the feasibility and effectiveness of 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 grant will fund a yearlong project led by Aaron Kesselheim and Jerry Avorn to evaluate the effectiveness of federal regulatory programs designed to incentivize innovation in drug development. Dr. Kesselheim, Dr. Avorn, and their team 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 Food and Drug Administration’s (FDA) fast-track approval pathways.
  • $200,000 to the National Academy of Sciences Institute of Medicine to support a two-year research project that will 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.

These grants follow a $5.2 million commitment to the Institute for Clinical and Economic Review (ICER) announced in July of 2015. ICER is producing public reports on new drugs that have the potential to significantly change patient care and health system budgets. Each report, released near the time of a drug’s FDA approval, includes a full analysis of its comparative effectiveness, cost-effectiveness, and potential budget impact. ICER is also using transparent methods to calculate for each new drug a value-based price benchmark anchored to the actual benefits the drug provides to patients.

In addition, LJAF has committed $318,000 to Johns Hopkins Bloomberg School of Public Health to conduct policy research that will aid in the development of fair pricing solutions for highly effective and expensive specialty drugs.

“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 explained. “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.”

Spending on prescription drugs has reached record highs in recent years. According to one report, more than a half-million patients had medication costs in excess of $50,000 in 2014, a 63 percent increase over the previous year in the number of people paying that amount. Rising prices are one of the reasons private insurance companies have sought rate hikes of 20 to 40 percent. Individual patients have skipped vital treatments, and governments have been compelled to shift funding from other budget areas in order to meet their Medicaid obligations.

LJAF conducted an extensive analysis on drug pricing and purchasing structures in the United States and found that several key factors contribute to the dysfunctional market. First, drug companies have almost no competition. Patent and exclusivity protections allow them to monopolize the sale of treatments, and the approval process for generic drugs is significantly backlogged. In addition, some brand-name drug makers create “pay-for-delay” arrangements with the makers of competing generics to purposefully postpone the generic drugs’ entry into the market.

A second major factor is that payers, such as Medicaid, Medicare, and private insurance companies, have virtually no power to negotiate drug prices. They typically have very little information about a drug beyond what is provided by the manufacturer. Further, in many cases, they are required by law to purchase certain drugs regardless of how effective they are.

Patients and physicians face this same obstacle — they don’t have access to objective information needed to compare the efficacy and cost of different treatment options.

LJAF is working to help establish a balanced, financially sustainable pharmaceutical market that allows individuals to obtain essential medicines and promotes transparent, evidence-based drug-pricing frameworks, without compromising incentives for drug development.

“By funding multiple research groups working in overlapping areas of policy and drug economics, the Laura and John Arnold Foundation is creating the infrastructure to test new approaches to pricing and payment that can increase patient access and rationalize the approach to pricing from an industry and policy perspective,” Dr. Bach explained.

The grants are part of LJAF’s growing portfolio of investments aimed at increasing value in the nation’s health care system. Other investments in this area are focused on reforming the fee-for-service payment model for physicians and hospitals, empowering patients to make informed decisions about their health, and disseminating evidence-based treatment strategies across entire health care systems.