Drug Costs

Why John Arnold Is Wrong About Drug-Pricing Reform

September 12, 2019 2:16 pm

In a recent column at Health Affairs, billionaire activist and former Enron executive John Arnold argued it is “time for Congress to go all in on drug-pricing reform.” Arnold recommends enacting patent reform, implementing reference pricing (like the International Pricing Index), and using measures to ensure drug prices “cannot exceed their clinical benefit.”


In his opening paragraphs, Arnold also repeats the claim – so often used by organizations funded by his foundation – that taxpayer dollars are responsible for American pharmaceutical innovation.


We have addressed this argument several times – see here and here. Former Tufts University School of Medicine Dean Dr. Michael Rosenblatt also took on this claim in a recent Boston Globe op-ed. Dr. Rosenblatt explains some lawmakers and advocates “prefer to believe that federally funded scientists development medicines on their own … Nothing could be further from the truth. … This early work is essential, but it’s only the beginning of long, arduous, and highly risky process that is the domain of private sector companies.”


In addition to embracing reference pricing, Arnold argues federal lawmakers should “create an inflationary rebate in Medicare Part D, which would require manufacturers to pay additional rebates to the program if their prices rise faster than inflation.”


A new paper by the Information Technology and Innovation Foundation (ITIF) explains how efforts like this to limit drug company revenues will affect private sector innovation. It notes, “Academic studies consistently show that a reduction in current drug revenues leads to a fall in future research and the number of new drug discoveries” and concludes, “the biopharmaceutical industry is one of America’s leading sectors in terms of funding research and employing researchers. Public policy should try to encourage its growth and protect its competitiveness.”


Arnold’s assertion that Congress must enact policies to ensure drug prices “cannot exceed their clinical benefit” clearly is a pitch for the Arnold-funded Institute for Clinical and Economic Review (ICER). We have documented here and here how ICER is lobbying state lawmakers to embrace its work. Arnold obviously wants Congress to utilize ICER’s model as well.


Oddly, however, Arnold’s pitch for ICER comes with a critique of Novartis’ Zolgensma, which treats spinal muscular atrophy in babies and toddlers. Arnold argues drugs like Zolgensma will “make employer insurance more costly, reduce workers’ wages, wreak federal and state budgets, and drain family budgets.” 


Here is what ICER President Dr. Steven Pearson said about the treatment, however: “Zolgensma is dramatically transforming the lives of families affected by this devastating disease, and given the new efficacy data for the presymptomatic population, the price announced … falls within the upper bound of ICER’s value-based price benchmark range.”


That’s a fair assessment given that a single dose of Zolgensma is a cure.


ICER’s model does not always work, however – it has admitted as much. And the fact that it often ignores input from patients and their families is troublesome.


For that reason, and so many others, federal lawmakers should be wary of Arnold’s pitch for it.