J. Scott Applewhite/AP Photo
John Arnold, then head of the hedge fund Centaurus Advisors, testifies before the Commodity Futures Trading Commission in Washington, August 5, 2009.
At age 38, Texas billionaire John Arnold decided to step away from high finance. Arnold had quickly climbed the ranks at scandal-ridden Enron, where he scored an $8 million bonus in 2001—the very year lower-level employees’ pensions and 401(k) plans were obliterated in the wake of the energy trading company’s collapse. He emerged unscathed from the fallout, and used his bonus to start a hedge fund that made him the youngest billionaire in the U.S.
By 2012, his net worth had ballooned to $3 billion, but Arnold decided his life needed new meaning. “I started thinking more about giving the money away than making more of it, that was really the signal to me that I want to be spending my time on the other side of the table and I’m physically and mentally and emotionally exhausted with trading natural gas,” he recalled in a podcast interview. Arnold and his wife turned their full attention to their charitable foundation, and chose to focus their energy on overlooked social issues in order to maximize their impact. After surveying the many market failures in the health care system, the couple took on drug pricing reform as one of their pet projects.
Since 2016, Arnold Ventures has poured tens of millions into nonprofits, think tanks, and research institutions.
Nearly ten years later, the Arnolds’ foundation, Arnold Ventures, has spent over $100 million on the cause to lower prescription drug prices. It’s difficult to overstate Arnold Ventures’ centrality in this fight. The group bankrolls Patients for Affordable Drugs, the most prominent patient advocacy group fighting for drug pricing reform, which regularly testifies in Congress and funded a six-figure ad blitz this past summer on the need for drug pricing regulation. On Capitol Hill, Arnold Ventures helped influence legislation by paying a political consultancy firm to speak to policymakers about lowering drug prices. And since 2016, the group has poured tens of millions into nonprofits, think tanks, and research institutions for data and polling, and advocacy around the high cost of drugs. “I think without them, there wouldn’t be a drug pricing fight,” said Priti Krishtel, the co-executive director of Initiative for Medicines, Access & Knowledge, a group that receives money from Arnold Ventures to develop policy recommendations for patent reform.
But in terms of spurring national legislation, Arnold Ventures has come up short. In 2019, the group helped shape H.R. 3, a bill that would have capped prescription drug costs and allowed Medicare to negotiate prices. But the bill died in the Senate. This year, Congress modeled the drug pricing provisions in the Build Back Better Act after H.R. 3, but the bill was ultimately watered down in order to win over Big Pharma–funded Democrats.
While H.R. 3 would have capped the prices of up to 50 prescription drugs per year to 120 percent of the average cost of those drugs in five foreign countries—among many other significant reforms—the current deal in the Build Back Better Act permits Medicare to negotiate on only up to ten per year to start (gradually rising to 20) of the more expensive drugs that have been on the market for at least nine years, with no international reference point.
The reforms also restrict the monthly out-of-pocket cost of insulin to $35, cap out-of-pocket costs for seniors to $2,000 a year, and punish companies for raising prices faster than the rate of inflation, but those compromises are meager consolation prizes for the reforms promised in H.R. 3. “I just asked Sen. Bernie Sanders how he feels about the prescription drug pricing deal Democrats announced today and he offered a one-word answer: ‘Complicated,’” said journalist Rachel Cohrs in a November 2 tweet. John Arnold quote-tweeted the tweet, and said, “Yep.”
Ultimately, substantively lowering drug prices has failed because of the pharmaceutical lobby, which has fought every proposal tooth and nail, despite the public’s overwhelming support for reform. While Arnold Ventures has spent $101 million to lower drug prices, the pharmaceutical industry spent more than twice that amount lobbying Congress this year alone. And like Arnold Ventures, the industry funds its own patient advocacy groups, which remain conspicuously silent about drug prices. The Crohn’s & Colitis Foundation, for example, receives significant funding from the manufacturer of Humira, a drug used to treat Crohn’s disease that costs upwards of $84,000 per year. Unsurprisingly, the foundation made no statement on the reforms included in H.R. 3, although the bill’s price cap would have saved their members thousands of dollars.
In terms of spurring national legislation, Arnold Ventures has come up short.
But there are many ways to go up against Big Pharma, and while Arnold Ventures’ money has invariably moved the needle, several people involved in the drug pricing fight who spoke to the Prospect described how Arnold’s background and political outlook limit the scope of reform his foundation seeks. Arnold Ventures positions itself as a “nonpartisan” group, and its capitalist underpinnings ensure it never supports reforms that would dramatically change the pharmaceutical system and its profit structure. “They take a more tweaking but not uprooting approach,” said Chuck Collins, the director of the Program on Inequality and the Common Good at the Institute for Policy Studies.
Arnold Ventures’ desire to be seen as a bipartisan arbiter can undermine the effectiveness of the policies it supports, said some of the researchers, experts, and Arnold Ventures grantees who spoke to the Prospect. (Notably, most of the sources spoke on background, because they’ve received funding from Arnold Ventures or fear professional retribution given the group’s power.)
In the crafting of H.R. 3, for example, the Arnold-funded political consulting group Waxman Strategies, run by former Rep. Henry Waxman, was involved in a policy change that weakened the bill, sources said. The existing plan for drug pricing reform had proposed penalizing pharma companies that failed to comply with Medicare price negotiations through compulsory licensing, which would have allowed another manufacturer to make the company’s patented drug. But Speaker Nancy Pelosi, in a draft of H.R 3, swapped the compulsory licensing plan for binding arbitration—a method allegedly supported by Arnold Ventures that would have allowed a third party to determine a drug’s price. Oddly, the plan made the arbiter the Government Accountability Office, a research organization with no experience in arbitration or expertise in the prescription drug market.
After progressive pushback, Pelosi ultimately replaced binding arbitration with an excise tax for manufacturers that refused to negotiate, a compromise between the party’s leftmost faction and centrists like the Arnolds.
In the lead-up to the fight over Build Back Better, Arnold Ventures poured even more money into Waxman Strategies, funneling over $1.4 million between 2019 and 2022, compared to the $711,000 prior to H.R. 3’s introduction in 2019. John Arnold has vocally supported including H.R. 3 provisions in Build Back Better, but it’s unclear exactly how Waxman Strategies wielded its influence. A spokesperson for the House Ways and Means Committee said that the committee did not work closely with Waxman during the reconciliation process, and that Waxman most likely spoke to “rank and file members who are trying to understand the big picture about why drug pricing reform is needed.” A Waxman representative didn’t specify whom the group worked with, but emphasized that Waxman merely presented analyses on drug pricing reform to legislators without pushing any policy in particular. “We did provide a range of potential options to legislatures,” said managing director Kirsten Maynard, adding that Waxman doesn’t lobby for Arnold Ventures. “We don’t prioritize policy options. We say, ‘Here’s a menu, and here are menu items one, two, three, and four.’”
Unlike H.R. 3, Arnold Ventures’ vision for Build Back Better lines up fairly closely with that of progressives, as made clear in John Arnold’s November 2 tweet. But usually, the group’s desire to be seen as bipartisan is a strange strategy in a cause as polarizing as drug pricing reform. “In health care in general, it’s really hard to do things in a bipartisan way when one entire political party is not interested,” said Laura Packard, the founder of the nonprofit Health Care Voices. “Whether it’s lowering prescription drugs or filling the Medicaid gap, all of these things are in the Build Back Better bill because Republicans had no interest in doing it in any other way.”
And by pitching itself as the reasonable, nonpartisan voice in the drug pricing cause, Arnold Ventures can overpower progressives advocating for the most-needed structural changes, like the government using its authority to revoke a manufacturer’s patent. “It’s important that [congressional leadership] has a respectable, very serious person saying, ‘We didn’t listen to them about compulsory licensing or excise tax,’” said Alex Lawson, the executive director of Social Security Works. “There’s always a role for someone to be the person next to the leadership so they can be like, ‘We didn’t listen to the grassroots person.’”
Ultimately, substantively lowering drug prices has failed because of the pharmaceutical lobby, despite the public’s overwhelming support for reform.
ARNOLD VENTURES DOES MAKE a strange partner for progressives. Apart from its work with drug pricing, the group has funded aerial police surveillance in Baltimore, and has poured tens of millions into overturning public employees’ pensions—a grim echo of Enron’s collapse. That’s not the only way Arnold has carried his background into his philanthropic work. According to several people familiar with Arnold Ventures, the group operates like a venture capital firm, identifying investments without significant existing funding, spending heavily for an outcome, and then withdrawing funding suddenly.
Like an investor, John Arnold remains deeply involved in Arnold Ventures’ giving. In 2019, he and his wife consolidated all their funding into an LLC in order to centralize the group’s decisions and facilitate its political advocacy work. The fund’s grant-giving process itself reflects the Arnolds’ involvement. Arnold Ventures' staff pitch the proposals directly to the board—consisting of John Arnold, his wife Laura Arnold, and President Kelli Rhee—and outline what kind of “return” Arnold Ventures would see for their investment, a source said.
Other major foundations, like George Soros’s Open Society Foundations, tend to give smaller grants without as much oversight, and donate across the ideological spectrum. But Arnold Ventures, unsurprisingly, prefers to stay in the ideological center. Several Arnold grantees said that Arnold Ventures gives them ample freedom regardless of their politics, but other researchers described Arnold Ventures’ apparent discomfort working with more leftist groups, which pressures researchers to bend to the group’s capitalist worldview and back incremental, rather than fundamental, change.
Apart from its structure, Arnold Ventures focuses mainly on data and research over grassroots organizing—a strategy some experts think hampers reform. Even though Arnold Ventures funds Patients for Affordable Drugs, political ads, and other media efforts, few members of the public fully understand the cause for high drug prices, limiting collective action. According to a Kaiser Family Foundation poll, 70 percent of Americans think high drug prices are due to the cost of research and development, a popular misconception stoked by Big Pharma.
According to Priti Krishtel, the lack of grassroots activism around drug pricing reform is not the fault of Arnold Ventures, but the result of a complicated health care system that disguises who is to blame for high drug prices. “It’s like by design, there are layers and layers and layers of actors and policy. It definitely takes more wonky people to start to unwind that, too,” she said. “I’m used to working in other countries where the movement is sort of led by networks for patients at the grassroots level, and I don’t see that in the U.S.”
Ultimately, Arnold Ventures’ shortcomings point not necessarily to the failure of drug pricing reform, but to the failure of a system that allows one opinionated billionaire to shape national legislation. “It’s great when a progressive-minded billionaire funds something that actually moves the agenda, but from a democracy standpoint, we should be alarmed that so few people have so much power,” said Chuck Collins. Without reforming special-interest lobbying and banning pharmaceutical ads, the American public will continue to be left out of the discussions on drug prices. “Basically, we’re all being played in an intra-billionaire squabble,” Collins said. “The titans are going to be facing off and we’re going to be looking up at their gladiator fights.”
