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Arnold: ‘Independent Body, Not the Payer or Drug Company, Should Decide the Value of a Drug’

A panel discussion held by the Wall Street Journal Health Forum addresses value-based pricing mechanisms.

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Our health care system pays for drugs whether they work or not, so the idea of paying for a drug based on its efficacy makes sense — particularly for drugs that lack competition.

That’s because pharmaceutical benefit managers, or PBMs, don’t have the negotiating leverage to lower costs for drugs that don’t have competitors in their class.

Arnold Ventures Co-Chair John Arnold made that point at a recent panel discussion held by the Wall Street Journal Health Forum. He praised the PBM industry for lowering the costs of drugs that are in a competitive class, but noted it doesn’t do as well of a job for the drugs that are a monopoly in their class.

“Where the PBM model is not effective is when it tries to apply the ideals of a competitive market in a market that’s not competitive,” Arnold said. And that leads to the two questions: What other tools can the industry have to address that situation, and who should decide the value of the drug?

Arnold was joined by Michael Sherman of Harvard Pilgrim Health Care in a discussion of what it would take to move toward a value-based pricing system. When asked by Wall Street Journal journalist and moderator Stefanie Ilgenfritz who should decide the value of the drug, there was broad support among the audience and panelists for some type of independent body.

“Optimally, you don’t want this agency to be funded by payers or by manufacturers. You want it to be funded by a completely independent party,” Arnold said. “There is a fear that government and health care gets politicized very quickly, and that’s why the structure of it has to be done right. It has to have separation from the politics of the federal government.”

Arnold added that a quasi-government approach is the right answer in the long term. Until then, the industry needs tools and mechanisms like ICER to access this information. Sherman agreed with the third-party approach, adding that it’s needed to keep prices and premiums from going up, something that can lead to people foregoing insurance.

So what’s the right legislative fix, Ilgenfritz asked?

“There’s not the one idea that solves everything. The question is, as we have this political window open in 2019, how ambitious does Congress get on some type of legislation?” Arnold said.

He said a comprehensive package should improve competition, remove bad incentives that steer patients toward higher price drugs, and help determine the value of drugs that are unique in their class.

Watch the full panel conversation here.