Darius Lakdawalla is the Quintiles Chair in Pharmaceutical Development and Regulatory Innovation at USC Mann and director of research for the USC Schaeffer Center for Health Policy & Economics—a partnership between the Mann School and the USC Price School of Public Policy that ranks fifth in the world in the field.
A prolific scholar who is among the top 2% most-cited researchers, he recently co-wrote Valuing Health, published by Oxford University Press, which details his Generalized and Risk-Adjusted Cost-Effectiveness (GRACE) payment model. Lakdawalla developed GRACE with co-author Charles Phelps as a patient-centered way to value healthcare treatments. Here, he discusses what drives his research.
How would you describe the problems you’re working to solve?
For years, a big research interest of mine has been defining what’s wrong with the traditional economic theory of valuing health. The current model of cost effectiveness doesn’t accurately measure the value of treatments. It considers them less valuable for people with a lower quality of life when the opposite should be true. So the prices paid by insurance companies, governments and others for treating cancer, Alzheimer’s and other severe conditions are too low. To me, the issue is how do you reorient the healthcare system around the needs of patients?
How does GRACE address that?
We apply the economic concept of diminishing returns to account for the fact that it’s more valuable to treat severe illnesses than milder conditions. For example, somebody living in a 200-square-foot apartment derives more value from an added 500 square feet than someone in a massive mansion does. The same is true for health. Evidence suggests that people in very sick states—like needing a new liver—place more value on even modest improvements than do healthier people who, say, can’t run as many miles as they used to.
Are you optimistic that GRACE will be adopted widely?
The timing is propitious, since the Inflation Reduction Act says that the federal government can’t use traditional cost effectiveness to determine fair prices. So there’s a vacuum, and GRACE meets the criteria of the Inflation Reduction Act because it doesn’t discriminate against the disabled, aged or terminally ill.
What makes the center’s collaboration between the Mann and Price schools so notable?
The Schaeffer Center being a marriage of pharmacy and public policy schools is significant as the pharmaceutical industry has been the site of some of the most contested domestic policy battles in recent U.S. history. We’ve been at the center of that. Policymakers on both sides of the aisle pay a lot of attention to our findings and, over the past decade, our research has been cited in economic reports by presidents of both parties. That’s because we’re driven by science and not politics or ideology. We believe that policy can be improved based on science—and that should be of interest to everybody, regardless of party affiliation.