Newly activist couple shells out $7.2M to test pay-for-performance drug pricing

Laura and John Arnold

Good news for pharma executives who'd like to make pay-for-performance reimbursement deals: A Houston-based foundation is shelling out $7.2 million to a variety of organizations to fund research into the concept and field pilot projects testing particular deals.

As The Wall Street Journal reports, the Laura and John Arnold Foundation has put its money behind several projects aiming to root out causes of runaway prices and experiment with ways to link prices with patient outcomes. The idea is to "help balance the market so that people can have access to drugs at a sensible price," Kelli Rhee, VP of venture development for the Arnold Foundation, told the WSJ.

Memorial Sloan Kettering Cancer Center's Peter Bach captured the largest share of that funding, with $4.7 million for a three-year project designed to test value-based pricing arrangements. Bach, who heads up the cancer hospital's Center for Health Policy & Outcomes, has been a vocal critic of fast-rising cancer-drug prices. Last year, his center rolled out the Drug Abacus, an online interactive calculator designed to show how drug prices might vary if pegged to their effectiveness.

It's exactly this sort of information that the Arnold Foundation wants to publicize, to better link pricing to a drug's value to the healthcare system.

"We've recognized drug companies need a financial incentive to find cures and improve treatments, and at the same time, patients should have access to information that tells them how well a drug works and how it compares to others on the market," Rhee told the WSJ.

Though the foundation formed in 2008, it has only recently turned its attention to the healthcare field. It first got into the drug-pricing realm last year with a $5.2 million grant to the Institute for Clinical and Economic Review, which has been evaluating new drugs' cost-effectiveness. The Boston-based group weighs clinical data and health system costs against a drug's list price, much as cost-effectiveness agencies in other countries do. Drug regulators in the U.S. aren't allowed to consider cost when making approval decisions, and Medicare is not allowed to directly negotiate pricing. 

ICER has made headlines with some of its determinations: Though it deemed Novartis' ($NVS) new heart failure drug Entresto and Novo Nordisk's ($NVO) Tresiba as priced on par with their benefits and outcomes, it called the new generation of PCSK9 cholesterol-fighters overpriced at $14,000-plus per year, and figured that GlaxoSmithKline's ($GSK) new asthma med Nucala should be discounted by more than 60% to reflect its actual value.

The value calculus in cancer varies widely, too, Bach says. "There are drugs that don't make much sense given how much they cost, given their small benefits," he said last year. "There are drugs that can cost up to $10,000 a month that provide, at the median, a few weeks or less than a month of additional life, but with substantial toxicity."

The Arnolds' new grants come amid a hot debate about rising drug prices on one side and pharma innovation and profits on the other. Several drugmakers CEOs see value-based pricing as a way out of that debate, because such deals would ensure that payers don't foot the bill for expensive drugs that don't work, but do cover treatments--pricey or otherwise--that deliver value to patients and to the healthcare system at large. Gilead ($GILD), for instance, has argued that its hep C drugs are fairly priced because they prevent costly long-term complications of the disease, such as liver transplants and cancer.

Novartis CEO Joe Jimenez

Novartis CEO Joe Jimenez has been one proponent of performance pricing, and his company has been pushing payers to try the concept with its heart failure drug Entresto. The new med, approved last year, prevented hospitalizations and other complications in clinical trials, so theoretically would save the healthcare system money down the line. Two big payers recently signed up: Cigna ($CI) and Aetna ($AET).

Amgen ($AMGN) has also successfully negotiated a value-based deal on its PCSK9 drug Repatha. Harvard Pilgrim Health System's rebates on the med will fluctuate according to patient results; hitting certain LDL targets will lead to lower rebates, and vice versa. The California-based drugmaker is working on some follow-up pay-for-performance plans, too.

As the WSJ notes, besides the Bach-led project, the foundation is handing out funding to the Center for Evidence-based Policy at Oregon Health and Science University, which will experiment with ways to tie Medicaid reimbursements to improved patient health; Brigham and Women's Hospital in Boston, to study federal incentives for drug development and their relationship, if any, to higher prices; and the National Academy of Sciences and the Institute of Medicine, to develop drug-access policy recommendations.

- see the WSJ story (sub. req.)

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