Yes, the fund would have a fixed disbursable pool available for innovation funding each year. The amount would be based on either the current level of private spending on pharmaceutical R&D or at a set percentage of GDP for each participating government to contribute.
We already have substantial sources of funding for medicines in the form of healthcare budgets, divided amongst direct grant and indirect funding through drug purchases. This funding comes from taxpayers, employers and insurers.
Innovators apply for a remuneration right, the same way they do for patent today and receive a remuneration right entitling them to a payment from the fund reflecting the health impact of their innovation (instead of a monopoly right).
The remuneration right fund will have a focus on health impact (much like prizes and rewards) but it will entitle the innovator to several years of remuneration, like a patent, except that the information will be open for other innovators to build upon.
Remuneration rights will optimise innovation towards health impact: ensuring the most relevant diseases are targeted while also drive healthcare costs down.
Heath impact will be measured in quality-adjusted life years Quality-Adjusted Life Year (QALY) or Disability-Adjusted Life Year (DALY) which are used by institutions like the National Institute for Health and Care Excellence (NICE) and the WHO. The measure of health impact will be adjusted to ensure fair repartition of capitals (e.g. orphan diseases).
Australian government (e.g. Hep C deal) and companies such as Spotify, already use this model. Read more of the similarities between remuneration rights and Spotify in details here.
Millions of people do not have access to medicines because of the high prices charged to recoup the costs of research. With an increase in the price of medicines, and a decrease in the therapeutic benefits associated with new innovations: the trajectory of the current financing of pharmaceutical R&D system is unsustainable. Governments or health care providers will not be able to afford to buy medicines for their citizens at this rate.
Pharmaceutical research and development has delivered some of the greatest achievements of the modern age, eradicating sources that have terrorized humanity for generations and improving the health and quality of life of billions. But it is increasingly clear that the system by which we finance this progress is broken. Around the world millions lack access to the medicines they need to survive and thrive and the source of the problem is several folds. First, the trajectory of the current financing of pharmaceutical R&D system is unsustainable, and Governments or health care providers will not be able to afford to buy medicines for their citizens at this rate. Second, drugs are often just too expensive, preventing millions of people from getting access to the treatment they need. Third, innovation is inefficiently incentivised, resulting in not getting new drugs for the illnesses we face. Notably, research is often slowed by legal disputes and licensing restrictions and a disproportionate amount of resources are used on areas with limited health impact. The patent system is at the cause of these tensions, as high prices for drugs are necessary to fund research and development.
Why is the trajectory of the current system is unsustainable?
Pharmaceutical research and development (R&D) in a context of rising prices combined with an aging population, demographic growth and falling therapeutic benefit make for an unsustainable system. The past decades have seen an increase in the price of medicines, and a decrease in the therapeutic benefits associated with new innovations.1 Projections suggest these trends will continue. The system for funding R&D is broken, and heading for catastrophe. It is therefore imperative to take action before the price of healthcare becomes completely unsustainable, and the number of new medicines dwindles. Governments will not be able to afford to buy medicines for their citizens at this rate.2 Such an outcome would not only spell disaster for state budgets and ordinary citizens, but also for pharmaceutical companies’ profits. Bankrupted healthcare providers will no longer be able to purchase from pharmaceutical companies if prices rise indefinitely. Everyone has a stake in changing the system to preserve both rewards for innovation and access to medicines.
Why do millions of people cannot get access to the treatments they need?
Millions of people do not have access to medicines because of the high prices charged to recoup the costs of research, and many urgent health problems go without treatments because of the lack of a profitable market. The World Health Organisation (WHO) estimates that around a third of the world’s population does not have access to medicines.3Affordability, a combination of price, cost and availability of funds, is a primary concern.4 If this particularly affects those living in poorer countries, governments of wealthier countries have also become unable to meet the rising costs of new medicines. Consequently, millions of people go without treatment or experience delays. See more details and estimates in our White Paper, section .
Why is innovation inefficient and money for R&D poorly allocated? Why aren’t we getting the medicines for the illnesses we face?
The distribution of R&D does not reflect actual health needs we face on a global scale. Because financial incentives for innovation are tied to the market, unprofitable but important areas of health are neglected; simultaneously, profitable but relatively insignificant areas in terms of health impact are heavily invested in. Additionally, there are structural blockers to research, such as patent disputes and licensing restrictions which unnecessarily delays and hinders us from receiving the most cutting edge innovation
The patent system produces the tension between access and innovation
These failures in access are a natural consequence of how we fund and incentivize medical innovation. Today, innovators are awarded a monopoly right on their inventions - a patent - which affords them exclusive marketing rights over the resulting product. As the research and development of new drugs is an extraordinarily expensive endeavor, the final prices innovators set on drugs are often very high in order to recoup costs, even though the actual drug itself may be relatively cheap to produce. As innovators are only paid through the final sale of the drug, prices must be high to cover these research costs. Necessarily, these high prices limit the number of people able to access the drug. If the current trends in prices and innovation continue, these problems will worsen over the coming years and become untenable. It is therefore essential that we find solutions to them now.
Rabah Kamal and Cynthia Cox “What Are the Recent and Forecasted Trends in Prescription Drug Spending?” Peterson-Kaiser Health System Tracker; “Health Spending Explorer” Peterson-Kaiser Health System Tracker; “A Look Back at Pharmaceuticals in 2006: Aggressive Advertising Cannot Hide the Absence of Therapeutic Advances”; “New Products and New Indications in 2016: A System That Favours Imitation over the Pursuit of Real Progress.”
[return]Frost, Reich, and others, Access, p. 2; “Delivering on the Global Partnership for Achieving the Millennium Development Goals”, p. 43.
[return]Grants are a push funding mechanism: they fund research upfront. Grants are the most suitable mechanisms for early stage research and funding is not tied to specific outcomes, allowing exploratory work. With no incentive to translate research into a marketable product grants have little to do with access or impact based innovation.
Grants are a push funding mechanism: grants fund research upfront.1 Currently, grants are widely used for funding medical R&D, and are uncontroversial. Even strong opponents of the current system agree that grants should continue to operate as a funding mechanism.2 Grants are the most suitable mechanisms for early stage research, as information remains open for others to build upon and funding is not tied to specific outcomes, allowing exploratory work. Among the many proposals to improve the current state of medical R&D, few proposals concern improving the grants system, which also suggests that this funding mechanism is working reasonably.3
However, despite their great advantages as a funding mechanism, grants have little to do with access or impact based innovation.
With a priority on early stage exploration, grants provide no incentive to translate research into a marketable product. Further development is usually undertaken subsequently by commercial firms who then patent the results.4 This makes grant funding far removed and poorly suited to dealing with the problem of access.
With regards to health impact, grant funding does provide a significant boost to innovation, but does not exert strong incentives regarding health impact because grants are provided upfront, and it is very difficult to predict health impact before the research is transformed into a marketable product. It might also be undesirable for all funding to be directly tied to health impact: we need basic exploratory research, and grant funding is excellent at resourcing this. Though grant funding will remain, its functioning is only distantly related to the problems of access and impact-based innovation.
Ravvin, “Incentivizing Access and Innovation for Essential Medicines”, p. 115.
[return]Stiglitz, “Economic Foundations of Intellectual Property Rights”, p. 1724; Love and Hubbard, “The Big Idea”, p. 1553.
[return]An exception is the recent development of direct government grants to small and medium companies, especially in developing economies, for R&D and capacity building. See Paul Cunningham, Abdullah Gök, and Philippe Laredo, “The Impact of Direct Support to R&D and Innovation in Firms.”
[return]Hollis and Pogge, The Health Impact Fund: Making New Medicines Accessible for All, p. 102; Ravvin, “Incentivizing Access and Innovation for Essential Medicines”, pp. 115-116.
[return]No. The blockchain is of little relevance here.
The fund would be governed by an independent body and be independent of electoral politics and political faction. Much of the political infrastructure required is already in place as it maps onto the independent structure of the patent office and other governance designs that have been proposed in the past such as the Health Impact Fund (HIF).
In order to represent a viable alternative to the patent system, remuneration rights must be politically feasible. Fortunately, much of the political infrastructure required for a remuneration rights system is already in place, including the fund’s governance structure and the relationship between the fund and governments. This means there are few significant barriers to a transition to a remuneration rights system.
The fund would be governed by an independent body. Stakeholder participation would be important to ensure that all states are willing to join the remuneration rights fund.1 Transparency would also be vital, to create trust in the operating of the fund. Ultimately, the most important feature of the governing body would be its impartiality. One way of achieving this would be to make governance independent of electoral politics and political faction. Another might be to separate the performance of health impact assessment from the establishment of guidelines for the same.2 This would minimise the discretionary function of health impact assessment and reduce the risk of external influence being exerted.
Specific governance designs have already been proposed by previous proposals operating along similar lines to a remuneration rights fund, see White Paper, section 5.2.2. Our proposal builds upon these previous models. Such designs would need to be considered carefully in a feasibility study.
We have also considered the issue of international cooperation, see White Paper section 5.2.3.
The Remuneration Rights Fund would decide which innovator to pay. The fund identifies who to pay using to a great extent the same system as patents today. The level of remuneration received from the fund would reflect the health impact of the innovation (rather than grant market exclusivity).
The Remuneration Rights Fund would decide which innovator to pay. The Remuneration Rights fund would be governed by an independent body of which governance is independent of electoral politics and political faction. Governments would pool existing contributions into the fund, which would then have a fixed disbursable pool available for innovation funding each year. Once governments deposit their funds, they would no longer have control over the allocation of the monies, ensuring the independence and transparency in the operating of the fund as well as its impartiality. A funding body would be established to manage the remuneration rights funds.
The fund identifies who to pay using to a great extent the same system as patents today. We already determine who owns innovations. This process is central to the patent system, and could be substantially reappropriated under a remuneration rights system. Remuneration rights would be examined and issued much like patents, but new medical discoveries would be given remuneration rights, rather than patents.
In fact, remuneration rights cover the same sorts of innovation as patents, and would be delimited in the same way. To qualify for a remuneration right, innovators would have to prove that they were the originators of a particular medicine or treatment in the same way they currently do when applying for patents.
The level of remuneration received from the fund would reflect the health impact of the innovation (rather than grant market exclusivity) A remuneration right does not grant market exclusivity, and opens access to the information behind the innovation instead. In exchange, the Remuneration Right entitles innovators to be paid based on the impact of their innovation on health. More specifically, each year, the disbursable funds in the remuneration rights fund would be divided up among the holders of remuneration rights, in proportion to the health impact they created. Where innovators build upon the ideas of others, a portion of their remuneration right would be set aside like a royalty, to be delivered up to the originators of the relevant innovations. Health impact would be estimated using a predetermined and transparent metric. There are several examples of these metrics today, like the Quality-Adjusted Life Year (QALY) or Disability-Adjusted Life Year (DALY), which are used by institutions like the National Institute for Health and Care Excellence (NICE) and the WHO. A new agency (or department, such as the Food and Drug Administration), separate from the remuneration right fund, would be established to carry out the healthcare impact assessment that would be the basis for awarding funds.
20 years as per current patents. [This is something open to adjustment]
Within the remuneration rights model, anyone would be free to build on the work of others. In a similar fashion to royalties in the patent system, follow-on innovators would be liable to pay a proportion of their own remuneration rights payments to those whose work they built upon.
Protecting the privacy of this information is essential and privacy will be protected – even more so than today. All data work will take place under standards and practices at least as good as today.
Collecting data to track both the use and efficacy of medicines is part of the current medical system. It will be even more important in the new system because we want the incentives to make medicines tied directly to health impact – which means we need to measure health impact. Protecting the privacy of this information is essential and privacy will be protected – even more so than today. The key point is that for the new system to work we just need information about the overall efficacy and usage of a drug – how many people in total used it and how effective it was on average. This means we don’t need to store individual patient level data. In addition, all data work will take place under standards and practices at least as good as today.
No, that wouldn’t happen. In fact this risk is higher today with a monopoly patent system. To see why, consider that unreliable black market production happens only when a) people struggle to get access because of price b) illicit alternatives can be provided much cheaper c) those alternatives have credibility. However, in the fund system it will be next to impossible to provide illicit alternatives that are cheaper and credible because under the fund drug prices will be low, and close to the cost of production with top quality manufacturers competing to supply at these prices. Without the inflated prices of a patent monopoly there will be no opportunity for illicit black market supply.
If you include your health in your wealth then the answer is yes: millions more people, especially poorer people will have access to medicines that can heal them. Today it is common for medicines to cost tens of thousands or hundreds of thousands of dollars for a course of treatment when the medicines themselves only cost a tens or hundreds of dollars to make with the result that only the rich can afford them.
If you are just talking about monetary wealth: the answer is less clearcut. The current proposal may lead to payout to innovators that is more closely linked to health impact (rather than e.g. marketing) which could be more equal.
We propose to use the criteria of access and innovation to evaluate possible funding mechanisms. Several other factors for assessing funding mechanisms have been proposed, many of which fall within the remit of either access or innovation such as health impact/public health impact, delinking, dissemination and innovation incentive.
See also the funding mechanisms document in answer to this question.
We propose to use the criteria of access and innovation to evaluate possible funding mechanisms:
Several other factors for assessing funding mechanisms have been proposed.
Some of these criteria fall within the remit of either access of innovation:
Other criteria do not fall within this remit, but are being treated in this project as part of a separate workstream:
Further proposed criteria are not covered by access or innovation, but seem peripheral:
There are also other proposed criteria which merit further investigation, as they are neither encompassed by access or innovation, nor peripheral to our project:
Renwick, Brogan and Mossialos also present criteria for ranking funding mechanisms, but the criteria are specific to the antibiotic context.18
Hecht, Robert, Paul Wilson, and Amrita Palriwala. “Improving Health R&d Financing for Developing Countries: A Menu of Innovative Policy Options.” Health Affairs (Project Hope) 28, no. 4 (2009): 974–85. doi:10.1377/hlthaff.28.4.974.
Hoffman, Steven J., and Karen So. “Assessing 15 Proposals for Promoting Innovation and Access to Medicines Globally.” Annals of Global Health, Tropical Medicine in the Era of Global Connectivity, 80, no. 6 (2014): 432–43. doi:10.1016/j.aogh.2015.02.004.
Stiglitz, Joseph E. “Economic Foundations of Intellectual Property Rights.” Duke Law Journal 57, no. 6 (2008): 1693–1724. doi:10.2307⁄40040630.
“Research and Development to Meet Health Needs in Developing Countries: Strengthening Global Financing and Coordination.” Report of the Consultative Expert Working Group on Research and Development: Financing and Coordination. World Health Organisation, 2012. http://apps.who.int/iris/bitstream/10665/254706/1/9789241503457-eng.pdf?ua=1.
Renwick, Matthew, David M. Brogan, and Elias Mossialos. “A Systematic Review and Critical Assessment of Incentive Strategies for Discovery and Development of Novel Antibiotics,” 2015. http://eprints.lse.ac.uk/64852/1/Mossialos_systematic_review_and_critical_assessment1.pdf.
Affordability, a combination of cost and availability of funds, is a key driver of access to medicines, and as such is included in all theoretical frameworks. Other drivers of access include use, drug quality and availability.
Access To Medicines (ATM) ‘is defined as having medicines continuously available and affordable at public or private health facilities or medicine outlets that are within one hour’s walk from the homes of the population’.1 There are a number of ways of thinking about what drives access to medicine. Firstly, theoretical models seek to enumerate the drivers of access at a high level. While not based directly on evidence, to the extent that these models agree, we can be fairly confident that the factors raised have some relation to access. Secondly, empirical evidence shows the factors which bore a causal relation to levels of access in particular contexts. Such evidence tends to refer to specific interventions, which are often examples of factors raised in the theoretical literature. While empirical evidence is messy because of the difficulty in proving causation, it is also an essential testing ground for neater theoretical models.
Affordability is a key driver of access, and as such is included in all theoretical frameworks.2 Affordability is a combination of price, cost and availability of funds.3 In other words, it refers to the relationship between a medicine’s financial components and the medicine purchaser. These purchasers are usually either individuals or governments. Affordability is related to the funding mechanisms used to incentivise medical innovation, in that intellectual property rights cover the price of R&D via the sale of products. This means that drug prices are higher than the price of manufacture under this mechanism.
It is important to note that it is also possible that lower prices can decrease access in particular circumstances, or have other negative side effects. For example, low prices could lead to overuse and the development of resistance, as the case of artemisinin-based combination treatments (ACTs) for malaria illustrates.4 Lower prices for medicines reduce the incentives to register, market and promote drugs, as happened in the case of magnesium sulphate for the treatment of pre-eclampsia and eclampsia.5 This evidence suggests that there is an optimal price for a medicine which depends on the wider institutional and economic factors at play. Bearing such contextual variation in mind, affordability remains a key driver of ATM.
However, ATM is not a single-factor issue, and models have tended to focus on affordability at the expense of other key drivers.6 As Frost and Reich point out, ‘most instances of inadequate access are not single-failure problems… Rarely can access problems be solved simply by providing more money’.7 The findings of Chaudhuri, Goldberg and Jia support this idea, and in a study of quinolones in India found availability to be just as important as affordability.8 This is reflected in theoretical frameworks, which all include multiple drivers of access.
Frost and Reich framework ‘is based on four A’s: architecture, the organizational structure and relationships for access; availability, which emphasizes the supply components of access; affordability, the cost issues for various players; and adoption, which includes demand factors and acceptance’.9
Peters et al. put medicine quality at the heart of their framework, with geographic accessibility, availability, financial accessibility, and acceptability of services as the additional elements of access.10
Bigdeli et al. use a simpler model of equitable access, affordability, appropriate use.11 Wirtz et al. enumerate five core challenges to essential medicines policies, including access: financing, affordability, quality, use and ‘missing medicines’, or medicines which are not developed because there is not a sufficient profit incentive to do so.12 This missing medicines factor indicates the relationship between access and innovation: where no drugs are developed, there can be no access. However, it is more common to treat access and innovation as separate but interlocking problems, than to enumerate innovation as one of the drivers of access.
To summarise the factors which have been considered as drivers of access:
Solutions to the access problem need to address at least these factors. The implementation of solutions would also require testing and empirical work to account for the context specific nature of access.
Bigdeli, Maryam, David H. Peters, Anita K. Wagner, World Health Organization, and others. “Medicines in Health Systems: Advancing Access, Affordability and Appropriate Use,” 2014. http://apps.who.int/iris/bitstream/10665/179197/1/9789241507622_eng.pdf.
Chaudhuri, Shubham, Pinelopi K. Goldberg, and Panle Jia. “Estimating the Effects of Global Patent Protection in Pharmaceuticals: A Case Study of Quinolones in India.” American Economic Review 96, no. 5 (2006): 1477–1514. doi:10.1257/aer.96.5.1477.
Peters, David H., Anu Garg, Gerry Bloom, Damian G. Walker, William R. Brieger, and M. Hafizur Rahman. “Poverty and Access to Health Care in Developing Countries.” Annals of the New York Academy of Sciences 1136, no. 1 (June 1, 2008): 161–71. Doi:10.119…
Wagner, Anita K., Amy Johnson Graves, Sheila K. Reiss, Robert LeCates, Fang Zhang, and Dennis Ross-Degnan. “Access to Care and Medicines, Burden of Health Care Expenditures, and Risk Protection: Results from the World Health Survey.” Health Policy 100,…
Xu, Ke, David B. Evans, Guido Carrin, Ana Mylena Aguilar-Rivera, Philip Musgrove, and Timothy Evans. “Protecting Households from Catastrophic Health Spending.” Health Affairs (Project Hope) 26, no. 4 (2007): 972–83. doi:10.1377/hlthaff.26.4.972.
See Frost, Laura J., Michael R. Reich, and others. Access: How Do Good Health Technologies Get to Poor People in Poor Countries? Harvard Center for Population and Development Studies, 2008. https://www.cabdirect.org/cabdirect/abstract/20103004633.
“Delivering on the Global Partnership for Achieving the Millennium Development Goals.” United Nations, MDG Gap Task Force, 2008. http://www.who.int/pmnch/knowledge/topics/mdggapreport/en/.
The WHO estimates that around a third of the world’s population does not have access to medicines. Given the complexity of the topic, an order of magnitude estimate is more appropriate than a point estimate. In 2017, the WHO said that 1.5 million deaths could be prevented annually if vaccination coverage improved, providing a lower bound to our estimate of 1.5 million.
The WHO estimates that around a third of the world’s population does not have access to medicines.1 There are no comprehensive statistics on how many people die as a result of a lack of access to medicines, so the best that can be done is to look at estimates and assertions in particular fields. It is important to remember that a death may be preventable through some means that is not related to drugs, and that drugs may be inaccessible for some reason other than high pricing enabled by monopoly patent rights. Given the complexity of the topic, an order of magnitude estimate is more appropriate than a point estimate.
A useful yardstick for estimating the number of deaths from lack of access is the number of deaths in total each year. According to the Global Burden of Disease Study, in 2015 11.3 million people in total died from communicable diseases; 39.8 million died from noncommunicable diseases; and 4.7 million died of injury.2 That is a total of 55.8 million deaths in 2015.
A number of sources give assertions on how many deaths are preventable (through health interventions and healthcare as well as through drugs access). Africa Renewal Online states:
‘Approximately 1.6 million Africans died of malaria, tuberculosis and HIV-related illnesses in 2015. These diseases can be prevented or treated with timely access to appropriate and affordable medicines, vaccines and other health services.’3
In a similar way, the WHO assert:
‘5.9 million children under the age of 5 years died in 2015. More than half of these early child deaths are due to conditions that could be prevented or treated with access to simple, affordable interventions.’4
Such claims are only somewhat helpful. Not only are they not backed up with evidence; the numbers also include deaths preventable from ‘other health services’ and ‘interventions’. This means that the number of deaths caused by lack of access to drugs will be smaller than the numbers given here.
The most helpful statistic on deaths preventable by access to drugs is the WHO estimate that in 2008, 8.8m children died from vaccine-preventable illnesses.5 In 2017, the WHO said that 1.5 million deaths could be prevented annually if vaccination coverage improved.6 Although these statistics are also not backed up with evidence, there is an obvious sense in which vaccine-preventable illnesses are preventable directly through access to medicines. These figures thus give us a lower bound to our estimate of 1.5 million.
The number of people who die through lack of access to medicines must then number in the millions: vaccine coverage alone would prevent more than a million deaths annually. It also seems probable that the number of people who die through lack of access will be less than tens of millions. The overall annual global mortality is 55.8 million, and it seems unlikely that more than a fifth of deaths are preventable through access to drugs. ‘Millions’ rather than ‘tens of millions’ is the most plausible order of magnitude.
“WHO | Immunization Coverage.” WHO. Accessed September 11, 2017. http://www.who.int/mediacentre/factsheets/fs378/en/.
“WHO | Measles.” WHO. Accessed September 11, 2017. http://www.who.int/mediacentre/factsheets/fs286/en/.
“WHO World Health Organization: Immunization, Vaccines And Biologicals. Vaccine Preventable Diseases Vaccines Monitoring System 2017 Global Summary Reference Time Series: DIPHTHERIA.” Accessed September 11, 2017. http://apps.who.int/immunization_monitoring/globalsummary/timeseries/tsincidencediphtheria.html.
“Dying from Lack of Medicines | Africa Renewal Online.” Accessed September 11, 2017. http://www.un.org/africarenewal/magazine/december-2016-march-2017/dying-lack-medicines.
“Global, Regional, and National Life Expectancy, All-Cause Mortality, and Cause-Specific Mortality for 249 Causes of Death, 1980–2015: A Systematic Analysis for the Global Burden of Disease Study 2015.” The Lancet 388 (2016): 1459–1544.
“GBD Compare | IHME Viz Hub.” Accessed September 11, 2017. http://vizhub.healthdata.org/gbd-compare.
“WHO | Children: Reducing Mortality.” WHO. Accessed September 11, 2017. http://www.who.int/mediacentre/factsheets/fs178/en/.
“WHO | Estimates of Disease Burden and Cost-Effectiveness.” WHO. Accessed September 11, 2017. http://www.who.int/immunization/monitoring_surveillance/burden/estimates/en/.
“Delivering on the Global Partnership for Achieving the Millennium Development Goals.” United Nations, MDG Gap Task Force, 2008. http://www.who.int/medicines/mdg/MDG08ChapterEMedsEn.pdf.
Frost, Laura J., Michael R. Reich, and others. Access: How Do Good Health Technologies Get to Poor People in Poor Countries? Harvard Center for Population and Development Studies, 2008. https://www.cabdirect.org/cabdirect/abstract/20103004633.
Data on the costs of the patent system is difficult to locate and highly approximate. The monetary costs of the patent system might come in various forms: the deadweight losses of non-marginal pricing, the extra money spent on marketing (which is also an inefficiency), the extra money spent on litigation. Estimates for deadweight losses range from $3bn- $100bn depending on the areas covered and source.
Data on the costs of the patent system is difficult to locate and highly approximate. It is also important to note that the counterfactual (i.e. the money and lives that would have been expended without the patent system) is very hard to estimate.
First, let us consider the monetary costs of the patent system. This might come in various forms: the deadweight losses of non-marginal pricing, the extra money spent on marketing (which is also an inefficiency), the extra money spent on litigation. A number of rough estimates have been made in this area.
Most estimates have focused in particular on deadweight losses resulting from non-marginal pricing. Hollis provides a good summary of this literature:
‘Guell and Fischbaum (1995), using highly aggregated data, claim that the scale of deadweight loss in the US drug market is on the order of $3bn- $30bn annually; in a more detailed paper (1997) the same authors estimate deadweight losses of $5bn on $8bn of sales, which indicates very large DWL [deadweight loss] for the market overall. Baker and Chatani (2002) construct a very rough estimate for DWL of $5bn - $20bn annually for the US. Globally, the DWL is certain to be many times this figure, because in many markets, drug insurance is unavailable and so consumers are more price-sensitive.’1
Later, in 2004, Baker estimated that the annual deadweight loss was around $25 billion, and would exceed $100 billion by 2013. Baker noted that these figures are roughly equivalent to the total amount the industry spends on R&D.2
There are also some estimates on the costs of marketing under the patent system. Baker noted that industry figures suggested that the amounts spent on marketing and on R&D were roughly equivalent.3 This is roughly consistent with Barton and Ezekiel’s citations, which place the proportion of money spent on marketing between 60% and 200% of R&D expenditure.4
Kinsella has undertaken back of the envelope estimates for the overall administrative and legal costs of the patent system in the US. Kinsella’s estimates are based on the entire patent system, rather than just medical patents. He originally estimate the cost of patents to be $31 billion in 2007,5 revising this to $42 billion in 2010.6 US Patent Office data suggests that between 2008 and 2012, pharmaceutical and medicines accounted for around 4% of all patents.7 This would suggest that the overall cost of medical patents according to Kinsella’s estimates could be between $1.3 and $1.5 billion.
To put these financial costs into perspective, it is worth considering the monetary benefits that the pharmaceutical industry creates. PhRMA estimates that in 2015 $58.8 billion was spent on R&D by the pharmaceutical industry, and that 4.4 million jobs (direct and indirect) are provided by the industry.8
We have not been able to locate data on the number of people who have died as a result of not being able to afford patented medicines which they would have been able to buy at marginal cost. Nor have we been able to locate figures on the health benefits produced by the patent system.
Baker, Dean. “Financing Drug Research: What Are the Issues?” Washington, DC: Issue Brief, Center for Economic and Policy Research, 2004.
“Costs of the Patent System Revisited | Mises Wire.” Accessed September 8, 2017. https://mises.org/blog/costs-patent-system-revisited.
Barton, John H., and Ezekiel J. Emanuel. “The Patents-Based Pharmaceutical Development Process: Rationale, Problems, and Potential Reforms.” JAMA 294, no. 16 (2005): 2075–2082. doi:10.1001/jama.294.16.2075.
“What Are the Costs of the Patent System? | Mises Wire.” Accessed September 8, 2017. https://mises.org/blog/what-are-costs-patent-system-0.
Hollis, Aidan. “An Efficient Reward System for Pharmaceutical Innovation,” 2005.
“Patenting By Geographic Region (UNITED STATES, ALL REGIONS), FRACTIONAL COUNTS Breakout By NAICS Industry Classification, CY 2008 - 2012 Utility Patent Grants Distributed By Year of Grant.” Accessed September 11, 2017. https://www.uspto.gov/web/offices/ac/ido/oeip/taf/naics/stc_naics_fg5/usa_stc_naics_fg.htm.
“2016 Profile: Biopharmaceutical Research Industry.” PhRMA, 2016. http://phrma-docs.phrma.org/sites/default/files/pdf/biopharmaceutical-industry-profile.pdf.
Manufacturers would have license and royalty free access to any innovation registered with the remuneration rights office. This would expand the opportunities for manufacturers whilst ensuring high quality production at competitive prices.
Not solely but affordability is a major factor which determines the extent to which a funding mechanism increase access to medicines; long with geographic accessibility, availability, acceptability of services, adoption, appropriate use. Read more.
Yes, access to medicine leads to more lives saved each year, at the exception of medicines misuse or overuse which can lead to antimicrobial resistance as well as recreational or substance abuse problems.
The overall annual global mortality due to lack of access to medicines is 55.8 million, and it seems unlikely that more than a fifth of deaths are preventable through access to drugs. The number of people who die through lack of access will be less than tens of millions. Vaccine coverage alone would prevent more than a million deaths annually. Therefore ‘Millions’ rather than ‘tens of millions’ is the most plausible order of magnitude.
Under remuneration rights, R&D will be remunerated separately from the sale of drugs which will lower prices. The model will also provide incentive to create and distribute drugs to maximise health impact. By moving away from expensive, poorly distributed and medicines skewed towards the needs of the richest markets remuneration rights model will increase access to medicines.
Moving away from a patent system to a remuneration rights model will increase access to medicines. Under the patent system, the only source of income is through the sale of the final drug, meaning the price of this must reflect both the costs of manufacture, which are low, and R&D costs, which are high. Consequently, only those with sufficient resources can access the drugs produced, and there is a strong incentive to develop marketable, but not necessarily impactful, drugs. There are also few incentives for pharmaceutical companies to distribute their drugs widely beyond the affluent markets that can afford them.
Under remuneration rights, there will be two payment streams: one for the R&D costs and one for the manufacture; which also means that R&D will be remunerated separately from the sale of drugs. The key of this model is that in exchange for a Remuneration Right for R&D, access to information has to be open so that price of manufacture can fall closer to competitive price. In fact, open information and lack of market exclusivity would encourage competition in manufacture, which would lower drug prices without threatening innovation. Moreover, remuneration rights are allocated in proportion to health impact rather than market profitability. A new incentive is then created to research medicines for conditions affecting the largest number of patients rather than those able to afford care. This would increase the number of medicines available, as well as lower the cost of each individual unit. Companies creating medicines in a remuneration rights based system would also have an incentive to distribute their medicines as widely as possible (provided that the medicine has a positive health impact for the recipients).
Neither, within the remuneration rights health impact will be the priority. The incentive will be to focus on medical which can save most lives or improve life quality the most. This outcome is detached from the purchasing power of the end user.
Yes, The most common form of standardisation is the Quality Adjusted Life Year or QALY. An alternative metric, more common in global health, is the Disability Adjusted Life Year or DALY.
Health impact is usually measured using some form of cost-effectiveness analysis (CEA). The origins of this idea go back several hundred years,1 but the idea first began to be thought about in health in the 1960s and 1970s. By the 1970s and 1980s, CEAs began to appear in major medical journals.2 There are several reasons for this interest in measuring health impact. Rising costs of healthcare made the trade-off between resources and health outcomes more acute.3 The ‘epidemiological transition’, which reduced the death rate amongst older people without improving life expectancy at birth substantially, also rendered raw life expectancy too blunt a tool to measure health progress.4
Cost effectiveness analysis in health entails measuring the consequences of an intervention, adjusting the consequences according to some measure of utility, and then dividing the costs of the intervention by the weighted consequences.5
There are many ways of conducting a CEA. In its most basic form CEA can be used without adjusting the consequences at all. Under this form of CEA, one simply divides the cost by the number of lives saved, or of cases diagnosed, or of some other unit used to describe the consequences.6 The problem with this approach is that it then hard to compare between interventions: is $100 for a successful hip replacement more or less effective than $100 for a cancer diagnosis? Because of this drawback, it is now more common to standardise when using CEAs.7 The most common form of standardisation is the Quality Adjusted Life Year or QALY.8 This metric assigns a year of perfect health the value 1, and death the value 0. All states of health short of perfect health can then be measured on this scale, which functions as a weighting reflecting the health-related quality of life of the outcome.9 An alternative metric, more common in global health,10 is the Disability Adjusted Life Year or DALY. This also adjusts the value of a year of life, but using the severity of particular disabling health outcome as a weighting.11
There are also alternative approaches to measuring health impact besides CEA:
Cost-consequence analyses do not allow for comparison between times and places, which is essential to evaluating health impact. CUA is a subset of CEA. CBA enjoyed early popularity and solid economic theoretical grounding, but it has now become less popular.14 This is in large part because of the technical difficulty associated with converting health outcomes into monetary terms.15
It has now become widely accepted in the academy that cost-effectiveness analysis be used to asses health interventions.16 Policy makers in the US are still sometimes resistant to CEA, which has been more successful academically than politically.17 But in many other countries, CEA is a well-established technique for assessing health impact and making policy decisions. In Europe, Canada and Australia cost-effectiveness is used in setting prices for pharmaceuticals.18 NICE is perhaps the most famous example of cost-effectiveness analysis being employed in health care.19
Neumann, Peter J. Using Cost-Effectiveness Analysis to Improve Health Care [Electronic Resource]: Opportunities and Barriers. Oxford Scholarship Online. New York ; Oxford: Oxford University Press, 2005. https://ezproxy-prd.bodleian.ox.ac.uk/login?url=http://dx.doi.org/10.1093/acprof:oso/9780195171860.001.0001.
Murray, Christopher J. L. Summary Measures of Population Health [Electronic Resource]: Concepts, Ethics, Measurement and Applications. Ebook Central. Geneva: World Health Organization, 2002. https://ezproxy-prd.bodleian.ox.ac.uk/login?url=http://ebookcentral.proquest.com/lib/oxford/detail.action?docID=284707.
Drummond, Michael. Methods for the Economic Evaluation of Health Care Programmes. 3rd ed. Oxford Medical Publications. Oxford: Oxford University Press, 2005.
Gold, Marthe R. Cost-Effectiveness in Health and Medicine [Electronic Resource]. Ebook Central. New York: Oxford University Press, 1996. https://ezproxy-prd.bodleian.ox.ac.uk/login?url=http://ebookcentral.proquest.com/lib/oxford/detail.action?docID=679610.
Both the Quality-Adjusted Life Year (QALY) or Disability-Adjusted Life Year (DALY), which are used by institutions like the National Institute for Health and Care Excellence (NICE) and the WHO to decide whether or not a medicine is cost-effective. But no measurement is perfect and it is possible to adjust them in order to fit the remuneration right model fairly and accommodate all scenarios, including rare diseases.
Positive encouragements can be non-pecuniaire (intellectual curiosity; to social incentive or financial such as natural market forces or push-pull mechanisms such as public funding through grants, IP and prizes. While they all incentivise innovation to an extent, they also all have disadvantages. Public funding and prizes suffer from lack of information; IP solves the information problem by introducing deadweight loss. A mix of incentives is therefore likely to be the most appropriate solution across the board.
Incentives can be conceptualised in two ways, as positive encouragements, and as positive encouragements minus negative hindrances. Encouragements are things like financial rewards and respect. Hindrances are things like bureaucracy, legal restrictions, and closed access to information. While conceptualising incentives as encouragements minus hindrances is more comprehensive, it is also a less standard approach. Here, incentives will be considered as encouragements.
Some incentives are non-pecuniary. These range from personal incentives, like intellectual curiosity; to social incentives, like respect; right up to altruistic incentives, like the benefit of others. Then there are pecuniary or financial incentives. Of all the kinds of incentive, financial ones have been most written about in economic literature, are the most accessible to policy makers, and are plausibly the most important incentives. Without the money to cover the costs of innovation, it seems likely that personal, social and altruistic incentives would not be sufficient to generate the level of innovation required by society.
Focusing in on financial incentives, natural market forces provide some stimulation to innovation. People will pay for things they value, and some people have money. Moreover, because imitation is not costless and does not happen immediately, the first innovator in an area will have a market advantage for a time.1 There are also particular market conditions which can protect innovators’ profits. For instance, encryption and trade secrecy prevent competitors from accessing an innovator’s work, while network effects can create a de facto monopoly.2
However, market forces alone usually offer insufficient financial incentives to innovation. On the one hand, there is the problem of competition. The costs of the initial innovation as an idea or piece of research are born by the innovator alone. Their competitors only have to bear the costs of replication, which can be very low. This puts innovators at a disadvantage and makes investment in innovation less attractive.3 On the other hand, there is the problem of efficient supply. The price of a product excludes some would-be consumers, who cannot afford it. With physical goods, this can be efficient if it saves resources or frees up the good for another consumer. With information goods which are nonrival, depriving a consumer of access is never efficient.4 The efficient price of a pure information good, where the marginal cost is zero, would be nothing. This is the only way to ensure efficient access. ‘However, the efficient competitive price, zero, will not cover the costs of developing the software, and therefore the market will not work.’5 The problem of efficient supply is more fundamental than that of competition: the former erodes profits, while the latter sets profits to zero. Where information goods are concerned, these problems mean that market forces alone do not provide sufficient incentives to innovation.
A number of incentive mechanisms have been devised to solve this problem and ensure that there are sufficient incentives to innovate. Often such mechanisms are characterised as ‘push’ or ‘pull’ mechanisms, in that they provide direct or indirect incentives to innovate.6 All mechanisms which are currently in use incentivise innovation to some extent, in that they do pay out financial rewards to innovators. However, they stimulate different kinds of innovation to differing extents. Besides, there is the problem of the counterfactual: we do not know how much more or less innovation would have occurred under different incentive mechanisms. Here we shall consider the main incentive mechanisms in use today: public funding via grants, intellectual property (IP), and prizes.
Public funding through grants is a push incentive which stimulates innovation by selecting and funding projects upfront. In a world of perfect information, this would be the most efficient mechanism for incentivising innovation. The fundamental problem for public funding through grants is that in reality we do not know which innovations will be valuable in advance. This lack of information makes public funding less efficient, though it is still considered one of the best ways of incentivising basic research.
Intellectual property is ‘[t]he only fundamentally new incentive scheme of the past 400 years is intellectual property.’7 IP, including copyright and patents, is ‘an exclusive right to market an invention for a fixed time period.’8 In effect IP creates a temporary monopoly, and so creates a deadweight loss. ‘Deadweight loss occurs when people are excluded from using the good even though their willingnesses to pay are higher than the marginal cost.’9 This is the main inefficiency of IP as an incentive to innovation. One solution to the problem of deadweight loss is price discrimination, whereby a producer sets different prices according to the willingnesses to pay of different groups. However, because of arbitrage and pressure from those paying higher prices, this is an imperfect solution.10 A system which could provide the same incentives as IP without deadweight loss would be superior. Moreover, IP incentivises profitable innovation, innovation which has a market. This means that it offers a poor incentive to innovate in areas where the market is predominately poor - including neglected diseases.
The other main incentive to innovation besides public funding and IP is prizes. ‘Prizes were eclipsed by patents during the Industrial Revolution, but they have never vanished as an incentive mechanism.’11 Prizes have the same advantages as IP without deadweight loss, as they delink the price of the product from the profit gained. However, the efficient functioning of prizes as incentives depends on the observability and verifiability of either social value or cost.12 Otherwise, the prize may be set higher or lower than is efficient. Unfortunately, both social value and cost are difficult to measure, so as with public funding there is an information problem. In economic literature, ‘social value’ is sometimes used to mean consumer surplus.13 However, in the case of healthcare, a metric which includes health outcomes as well as consumer surplus would be more appropriate. These two factors would only coincide if all individuals had equal resources and were perfectly rational. Given that this is not the case, metrics of social impact like QALYs may be more appropriate for setting prizes for healthcare innovation. These metrics are also hard to evaluate, but arguably less so than consumer surplus or costs.
Public funding through grants, IP and prizes all incentivise innovation to an extent. They also all have disadvantages. Public funding and prizes suffer from lack of information; IP solves the information problem by introducing deadweight loss. A mix of incentives is therefore likely to be the most appropriate solution across the board. However, the suitability of an incentive mechanism in a specific context depends on numerous factors.
Firstly, the nature of innovation in question influences which incentive will be most powerful. For instance, it may be that when innovation is both sequential and complementary, strong IP actually inhibits innovation.14
Secondly, the environment in which innovation takes place can determine the appropriate incentive. An example of this is the relationship between IP, innovation and GDP. IP’s influence on innovation is nonlinear: increased IP in countries with relatively low or high IP in the first place increases innovation, but in other cases it decreases innovation. Moreover, GDP’s influence on the relationship between innovation and IP is also nonlinear. For countries with high levels of IP, increased IP stimulates innovation - but only provided that GDP is sufficiently high. This means that blanket IP regulations like TRIPS are unlikely to be optimal either globally or for individual countries.15
Finally, the social impact of the innovations in question influences the appropriate incentive mechanism. One of the advantages of IP is that users pay for innovation, rather than the general public.16 While this may be appropriate for luxury goods, it is highly undesirable in healthcare, where making the sick pay is generally regarded as immoral. As Scotchmer puts it, ‘Whereas wealthy benefactors and governments can indulge in basic science and curiosity-driven research, a research agenda driven by patents is hostage to the market and to consumer sovereignty. The consumers who are sovereign are those with resources.’17 In the case of healthcare, this creates huge inequality and leads to preventable death.
Bessen, James, and Eric Maskin. “Sequential Innovation, Patents, and Imitation.” The RAND Journal of Economics 40, no. 4 (2009): 611–635.
Dalton, Max. “Should You Fund Research into Tropical Diseases?,” n.d. https://docs.google.com/document/d/1Jmp1LQEem9E29ynSrqYrkiCsFFMrvyZLPqPl3Itdaak/edit?usp=sharing&usp=embed_facebook.
Gallini, Nancy, and Suzanne Scotchmer. “Intellectual Property: When Is It the Best Incentive System?” Innovation Policy and the Economy 2 (2002): 51–77.
Hecht, Robert, Paul Wilson, and Amrita Palriwala. “Improving Health R&d Financing for Developing Countries: A Menu of Innovative Policy Options.” Health Affairs (Project Hope) 28, no. 4 (2009): 974–85. doi:10.1377/hlthaff.28.4.974.
Hudson, John, and Alexandru Minea. “Innovation, Intellectual Property Rights, and Economic Development: A Unified Empirical Investigation.” World Development 46 (2013): 66.
Moser, Petra, and Alessandra Voena. “Compulsory Licensing: Evidence from the Trading with the Enemy Act.” American Economic Review 102, no. 1 (2012): 396–427. doi:10.1257/aer.102.1.396.
Scotchmer, Suzanne. Innovation and Incentives. Cambridge, Mass. ; London: MIT Press, 2004.
With monopoly rights, profits are tied to units sold, not the innovation’s impact. Consequently, when those in need do not provide a profitable market, for example through poverty or low usage rates, monopoly patents fail to incentivise medical innovation.
See also the funding mechanisms document in answer to this question.
Monopoly patents combined with consumer choice do incentivise innovation - but not in relation to cost-effective health impact. With monopoly rights, profits are tied to units sold, not the innovation’s impact. Consequently, when those in need do not provide a profitable market, for example through poverty or low usage rates, monopoly patents fail to incentivise medical innovation.
Let us consider how monopoly patents incentivise innovation. Patents, like any financial incentive, drive innovation through profit. Under monopoly patents, profit is made through the markup on the medical products sold. So profit is determined by use in a monopoly patent system. We might think that this system works quite well: monopoly patents incentivise the kind of innovation that consumers want and so will pay for. We might well think that innovation that consumers will buy must be useful, and so represents the ‘right’ kind of innovation.
In the case of healthcare, however, the right innovation is the innovation with the greatest health impact. This means that for monopoly patents to stimulate the innovation required, there needs to be a link between consumer choice and health impact. Unfortunately, this is not the case. There are a number of theoretical reasons supporting this claim, as well as empirical evidence suggesting that current R&D does not in fact target the most impactful areas.
The theoretical reason that consumer choice is not linked to health impact is that wealth is distributed unequally, and health and poverty are associated. As Scotchmer puts it, ‘Whereas wealthy benefactors and governments can indulge in basic science and curiosity-driven research, a research agenda driven by patents is hostage to the market and to consumer sovereignty. The consumers who are sovereign are those with resources.’1 Patents stimulate the innovation that wealthy consumers are willing to pay for, and not the innovation that sick consumers need. This means that consumer choice is not directly linked to health impact. Firstly, the poorer you are the more likely you are to be in ill health. Secondly, diseases are distributed differently between rich and poor populations, meaning that the poor have different medical needs to the rich. Finally, where cost-effectiveness is concerned, the opportunities for health impact are often especially high in resource poor settings, where general levels of health are poorer and cheaper basic interventions can have a large impact. This compounds the problem.
The association between health and poverty is not the only reason for arguing that profit tied to consumer choice might not to relate well to health impact. There are medical reasons that some drugs should be used as little as possible. Antibiotics are a good example of a class of drugs which as a society we wish to conserve. But tying profit to end use gives the manufacturers of antibiotics an incentive to sell as many pills as possible, regardless of the risk of resistance.
Let us take an example. Imagine how profitable a cure for the common cold would be. Millions of people in rich countries every year would buy it from their local pharmacy. It would make their lives a little bit better; perhaps it would create marginal productivity gains too. Now imagine how profitable a cure for a rare disease affecting 1000 children a year. Without treatment the children will die; with treatment they will live full and happy lives. But there are only 1000 of them. Even if this treatment were sold at a very high price, it would not make as much money for the producer as a cure for the common cold. As a society, we would wish to save the lives of the 1000 children, rather than stop the runny noses of few million people. But as a rational, profit-maximising firm, the cure for the common cold wins hands down. This is a stylised example, but it illustrates the fact that consumer demand does not correlate perfectly with health impact. It is therefore an imperfect way of incentivising innovation.
There is also empirical evidence that the innovation currently undertaken under the monopoly patent system is not strongly related to health impacts. On the one hand, innovation is failing to tackle problems of high potential health impact. Over a billion people live with one or more neglected tropical disease.2 However, ‘only 1% of new chemical entities commercialized’ were ‘relevant for tropical diseases’ in 2006.3 In 2010, ‘Only about 1% of all health R&D investments were allocated to neglected diseases.’4 And ‘[i]n 2013, public and private investment for R&D in 34 neglected diseases was $3·2 billion, of which pharmaceutical corporations only contributed $401 million. The latter amount represents only 0·8% of total industrial R&D spending of $51·2 billion in 2014’.5 Monopoly patents do not offer a sufficient incentive to undertake innovation in these areas, because the people affected by neglected diseases are mostly poor. In a system where profit is tied to use, drugs to cure these patients will not be developed.
On the other hand, recent innovation stimulated by monopoly patents is targeting some areas of lower potential health impact. R&D is expensive, and making a small change to existing drug may well be cheaper. Provided that a drug can be sold legally and to a sufficient extent, it is profitable to make it, even if it does not represent any incremental improvement on existing drugs. In 2005, Love and Hubbard claimed that ‘probably one-half to two-thirds of the R&D investments were directed towards projects of almost no medical significance’.6 And ‘[a]n analysis of 1345 new medicine approvals in Europe revealed that no real breakthroughs occurred between 2000 and 2014; only 9% of new medicines offered an advance, and 20% were possibly helpful’.7 Statistics on R&D into neglected diseases shows that monopoly patents do not sufficiently incentivise research into the diseases of poor patients. These figures are evidence of the opposite trend: monopoly patents may over-incentivise innovation where markets are wealthy, regardless of the limited health impact incurred.
Like any financial incentive mechanism, IP incentivises innovation based on profit. However, as a mechanism it generates profit in relation to use. The more people buy a drug, the more profit the producers make. In healthcare generally, it is thought that making the sick pay for their treatment is inequitable, so we might object to this incentive mechanism a priori on ethical grounds. Where health impact itself is concerned is the fact that IP only stimulates innovation where there is a profitable market for the medicine in question. This means that it offers a poor incentive to innovation in areas where the market is predominately poor. That is an economic way of stating the case: another way of putting would be that where sick people are poor, monopoly rights offer no incentive to discover the drugs they need. Profit is necessary to stimulate innovation, but there is a choice about what we tie profit to. IP ties profit to use, which does not relate well to health impact. If there were an alternative way to generate profit for innovation, which related profits to lives saved rather than pills sold, many lives could be saved.
Bigdeli, Maryam, Bart Jacobs, Goran Tomson, Richard Laing, Abdul Ghaffar, Bruno Dujardin, and Wim Van Damme. “Access to Medicines from a Health System Perspective.” Health Policy and Planning 28, no. 7 (2012): 692–704.
Love, James, and Tim Hubbard. “The Big Idea: Prizes to Stimulate R&(and)D for New Medicines.” Chicago-Kent Law Review 82 (2007): 1519.
“Promoting Innovation and Access to Health Technologies.” Report of the United Nations Secretary-General’s High-Level Panel on Access to Medicines, 2016. https://static1.squarespace.com/static/562094dee4b0d00c1a3ef761/t/57d9c6ebf5e231b2f02cd3d4/1473890031320/UNSG+HLP+Report+FINAL+12+Sept+2016.pdf.
Scotchmer, Suzanne. Innovation and Incentives. Cambridge, Mass. ; London: MIT Press, 2004.
Røttingen, John-Arne, Sadie Regmi, Mari Eide, Alison J. Young, Roderik F. Viergever, Christine Årdal, Javier Guzman, Danny Edwards, Stephen A. Matlin, and Robert F. Terry. “Mapping of Available Health Research and Development Data: What’s There, What’s Missing, and What Role Is There for a Global Observatory?” The Lancet 382, no. 9900 (2013): 1286–1307. doi:10.1016/S0140-6736(13)61046-6.
Gallini, Nancy, and Suzanne Scotchmer. “Intellectual Property: When Is It the Best Incentive System?” Innovation Policy and the Economy 2 (2002): 51–77.
Wirtz, Veronika J., Hans V. Hogerzeil, Andrew L. Gray, Maryam Bigdeli, Cornelis P. de Joncheere, Margaret A. Ewen, Martha Gyansa-Lutterodt, et al. “Essential Medicines for Universal Health Coverage.” The Lancet 389, no. 10067 (2017): 403–76. doi:10.1016/S0140-6736(16)31599-9.
According to one estimate, ‘’Total global investments in health R&D (both public and private sector) in 2009 reached US$240 billion. Of the US$214 billion invested in high-income countries, 60% of health R&D investments came from the business sector, 30% from the public sector, and about 10% from other sources (including private non-profit organisations). Only about 1% of all health R&D investments were allocated to neglected diseases in 2010.’
According to one estimate, ‘’Total global investments in health R&D (both public and private sector) in 2009 reached 240 billion dollars (US). Of the US$214 billion invested in high-income countries, 60% of health R&D investments came from the business sector, 30% from the public sector, and about 10% from other sources (including private non-profit organisations). Only about 1% of all health R&D investments were allocated to neglected diseases in 2010.1
We have reviewed the main studies since 2000 on the cost of drug development, all of which concern US drugs.1 These studies present widely divergent estimates, ranging from less than 100 million dollar2 to over 2 billion dollar.3 These figures vary because of the assumptions that are made after reviewing the most decisive assumptions, suggest which assumptions are most appropriate, it seems likely that the average cost of drug development is around $1 billions.
Patent monopolies are incompatible with a truly free market because there is a prohibition from duplicating an idea or approach or method. The remuneration right model resembles more a free market mechanism because it provides freedom to build on top of other innovators ideas, while the ‘demand’ cap is set at the measurement of health impact.
Yes, this is a fair assumption based on the validity, reliability and wide use of health impact assessment today.
Though the remuneration rights model would likely cost billions of dollars to transition to and implement, much of this would be offset thanks to the benefits of the new system. While a feasibility study should cost such a transition fully, the sponsors of the 2011 MIPF bill estimated that the scheme would reduce the cost of drugs in the US by more than 250 billion dollars.1 This would more than cover the proposed $80 billion cost to implement the fund.
No, this won’t happen – in fact it will increase incentives for innovation. The proposal has research and innovation funding increasing substantially in several scenarios and guarantees that in all scenarios funding will be at least as high as today.
No, on the contrary, it will increase opportunity and motivation for entrepreneurship. The combination of equal or higher levels of resourcing combined with a freer, more transparent market will make it easier for startups and entrepreneurs to enter and thrive.
The main difference for innovators lies in the source of profit, which will come from remuneration rights fund rather than from the healthcare buyers. While profit will remain the same, the type of medicines produce may however shift. Since profit is tied to health impact under the remuneration right, the nature of products developed to maximise profit is expected to be redirected towards maximising health benefits as well, while profit will remain identical.
Innovators file for remuneration rights instead of patents and are paid annually from the fund. As producers of information, innovators would file for a remuneration right. They would then be entitled to a share of the remuneration rights funding pool for a fixed period of time. Payments would be made annually. The payments to the rights holder would be proportional to the usage and health benefits of the treatment. As consumers of information, innovators would also have unrestricted access to research and information on all innovations registered with the remuneration rights office. This would reduce duplication and accelerate cumulative research.
Investors get returns from R&D that delivers health impact. In parallel, investors’ returns will shift towards R&D which produces the most health benefits and continue to receive returns on investments in pharmaceutical R&D. The only difference is that the most successful investments would be in the innovations which produce the most health benefit, rather than in the innovations which sell best.
Pharmaceutical shareholders continue to receive profits, gain increased certainty, and reduce reputational risk. In consequence of the above, pharmaceutical companies would remain profitable businesses, but their profits would be tied to health impact rather than to pure sales. Shareholders would still receive these profits. Furthermore, the structure of the remuneration rights fund would deliver greater certainty to investors about the long-term revenues available to the industry.
We believe this will create more jobs because a) more innovation b) more access to medicines at cheaper prices will improve the wellbeing and health of the workforce and put more money in their pocket to spend on other things.
We believe this will lead to the creation of more companies as it will level the playing field and make it easier for SMEs to enter and compete in the pharmaceutical sector. It will also spur innovation and startups in the medical tech sector.
No, because the incentive to create medicines will be tied to health impact health impact and because health impact will be measured: remuneration rights are expected to bring more stability. By monitoring medicines effectiveness and illness spread, medicine demand will be more predictable while the current patent system is tied to sales, marketing and market demands, which makes it more volatile.
Shareholders continue to receive profits from pharmaceutical companies and Investors get returns from R&D that delivers health impact at a level at least equal to what it is today.
Pharmaceutical companies would remain profitable businesses, but their profits would be tied to health impact rather than to pure sales. Shareholders would still receive these profits which would be at least equal (or superior) to today. Furthermore, the structure of the remuneration rights fund would deliver greater certainty to investors about the long-term revenues available to the industry.
Similarly, investors continue to receive returns on investments in pharmaceutical R&D. The only difference is that the most successful investments would be in the innovations which produce the most health benefit, rather than in the innovations which sell best.
Yes. Although profits would no longer be tied directly to health impact instead of sales, there would be an incentive to market effectively. Under the remuneration rights, competing manufacturers would use marketing to increase their market share (instead of awarding monopoly and exclusive marketing rights to innovators as it is the case under the current patent system). Ultimately, marketing undertaken by manufacturers would increase and with it the use - and therefore the health impact - of innovations.
Trade secrecy would not be affected by remuneration rights. Manufacturing or industrial secrets and commercial secrets which which provide an enterprise a competitive edge are not within the scope of our model (or the patent system).
This is a debate between Hubbard and Love on the one hand and Hollis and Pogge on the other. Hubbard and Love support a mandatory system, while Hollis and Pogge propose a voluntary one.
The following table represents the arguments made by these parties about each option:
| Advantages | Disadvantages | |
|---|---|---|
| Non-voluntary | Likely to gain more support from consumers of medicines1 | Politically unattractive to innovators2 Requires full overhaul of the system3 |
| Voluntary | Inbuilt adjustment mechanism for payment levels4 Firms will focus on high-impact low-profitability drugs5 Only needs to be efficient in its own right to be successful, rather than a comprehensive solution6 It expands innovators’ ability to make money, and so is attractive to them7 |
More expensive as rewards need to be competitive with patents8 The problems of the patent system remain where innovators choose the patent system9 |
First of all, it is worth noting that of course the disadvantages of one system could be listed along with the advantages of the other, and vice versa. The table presents evaluations as they were made by the respective authors, without attempting to duplicate measures.
A number of particular observations can be made. For example, the claim that a voluntary system would have to compete with patents is only partially true. In the case of Type III drugs which currently have next to no market, a voluntary system would provide the only possible route, and so the reward levels under the patent system would be irrelevant. Another individual point is that of course, one could regard expanding innovators’ capacity to make money as a disadvantage, given the huge profits currently reaped by the pharmaceutical industry.
However, it seems that these detailed points are dominated by the current lack of evidence on the technical feasibility of a remuneration rights fund. Given this situation, it seems clear that a pilot is needed. It would seem unwise for such a pilot to be compulsory, given our evidential uncertainty about the practicability of either system. It also seems highly likely that an optional fund would be much more feasible to implement politically. Therefore, regardless of the ultimate theoretical benefits of voluntary or non-voluntary systems, for the purposes of this project, a non-voluntary system is the only feasible option.
Hollis, Aidan, and Thomas Pogge. The Health Impact Fund: Making New Medicines Accessible for All. Incentives for Global Health, 2008. http://healthimpactfund.org/wp-content/uploads/2015/12/hif_book.pdf.
Love, James, and Tim Hubbard. “The Big Idea: Prizes to Stimulate R&(and)D for New Medicines.” Chicago-Kent Law Review 82 (2007): 1519.
A reasonable ballpark figure for current global expenditure on all medicines from all funding sources is 1 trillion dollars. One estimate for 2015 put the figure at $1 trillion,1 and another for 2016 at 1.1 trillion dollars.2 In 2017, 1 trillion dollars is likely to be an underestimate. Forecasts suggest that by 2020, global expenditure on medicines will rise to 1.4 trillion dollars.3
Manufacturers would have license and royalty free access to any innovation registered with the remuneration rights office. This would expand the opportunities for manufacturers whilst ensuring high quality production at competitive prices. Manufacturers would still be subject to extensive quality control, so drug quality would be maintained.
Under remuneration rights, there will be two payment streams, meaning R&D costs are remunerated separately from the sale of drugs. Most importantly, remuneration rights are allocated in proportion to health impact rather than market profitability, a new incentive is created to research medicines for conditions mainly affecting the poor. Open information and lack of market exclusivity also encourage competition in manufacture, and companies creating medicines would also have an incentive to distribute their medicines as widely as possible.
The trajectory of the current system suggests they are decreasing. Rising prices combined with an aging population, demographic growth and falling therapeutic benefit make for an unsustainable system. The past decades have seen an increase in the price of medicines, and a decrease in the therapeutic benefits associated with new innovations.1 Projections suggest these trends will continue.
