Born in Oslo: The Health Impact Fund

Thomas Pogge

The development of new medicines is currently driven by the reward of temporary market exclusivity. Protected from generic competition, innovators can mark up the price of new products and thereby recover their substantial research and development (R&D) expenses and also make a profit. But because these profit-maximizing mark-ups are typically many times larger than the cost of production, they also exclude a large proportion of the world’s population – including many in affluent countries – from advanced medicines. Millions suffer and die as a result. And millions more suffer and die because patent rewards do not make it profitable to research diseases concentrated among the poor.

The proposed Health Impact Fund (HIF) addresses these problems. Financed primarily by governments, the HIF would offer innovators the option — no obligation — to register any new medicine. By registering a product, the innovator would undertake to make it available worldwide, during its first decade on the market, at no more than the lowest feasible cost of production and distribution (as determined through competitive tenders submitted by generic manufacturers). The innovator would further commit to allowing, at no charge, generic production and distribution of the product afterwards (if relevant patents on the product remain unexpired). In exchange, the innovator would, during that first decade, share in the HIF’s annual reward pools that would be divided among registered products in proportion the health impact they achieve in the relevant year.

The HIF would sustain an ongoing competition among innovators that ranges over all countries and all diseases, with earnings tied to the health impact of registered products. Health impact can be measured in terms of the number of quality-adjusted life years (QALYs) saved worldwide, a metric already extensively used by private and state insurers in setting prices for new drugs. Taking as a benchmark the pharmaceutical arsenal before a registered medicine was introduced, the HIF would estimate how much this medicine has added to the length and quality of human lives.

Because registration is optional, the reward rate is bound to be reasonable. Taxpayers can anticipate that pharmaceutical innovators won’t profit excessively, because windfalls would attract new registrations which would drive down the uniform reward rate (money per QALY). Registrants can anticipate that a low reward rate would be self-correcting by slowing new registrations. Competition would ensure that registered products are rewarded at a rate that is profitable for innovators and maximizes the effect of the HIF.

The HIF will provide optimal incentives only if potential registrants are assured that the rewards will actually be there in the decade following market approval. Core funding of the HIF is therefore best guaranteed by a broad partnership of countries. If all national governments agreed to contribute just 0.01 percent of their gross national incomes (GNI), the HIF could commence with annual reward pools of USD 6 billion. At this funding level, the HIF would sustain enough new medicines to maintain a stable, predictable reward rate and would, through economies of scale, keep health impact assessment costs below 10 percent of the HIF budget. Realistically, partner countries may need to contribute more than 0.01 percent of GNI because some countries will initially decline to join the partnership. If the HIF were found to work well, its annual reward pools could be scaled up to attract an increasing share of new medicines.

If countries contribute according to their GNI, then most of the cost of HIF-funded R&D would be borne by affluent populations and people — just like today. Yet there would be two important differences. First, registered innovators would profit not from the mere sale of their product, but only insofar as it actually improves patient health; and patients would therefore be more likely to receive medicines that will actually improve their condition. Second, registered innovators would not need to exclude poor patients in order to profit from serving affluent ones; they would profit equally from serving all patients at the same low price.

The HIF would bring a permanent and immense threefold gain in global health. It would induce innovators to develop for HIF-registration products that can reduce the burden of disease most cost-effectively, thereby transforming heretofore neglected diseases into some of the most lucrative pharmaceutical R&D opportunities. It would take R&D costs out of the price of registered products, thereby dramatically improving access to advanced medicines. The HIF would also motivate registrants to ensure that their products are widely available, perhaps at even lower prices, competently prescribed, and optimally used. Registrants would be rewarded not for selling their products, but for making them effective toward improving global health.

The HIF is politically realistic. Governments would get budget relief through massive reductions in the cost diseases impose on the health care system and the wider economy. People in the pharmaceutical industry could sustainably fulfil their calling to protect humanity from the most damaging diseases. Innovators in developing countries would gain new opportunities to sharpen their teeth by researching local diseases where they are not far behind their more established foreign competitors. Generic firms gain the opportunity to submit tenders for manufacturing HIF-registered medicines for their registrants.

The HIF is also a model that could be replicated in other domains for innovations that bring substantial and measurable social benefits. Two obvious examples are agriculture and pollution. New plant varieties can bring substantial benefits in terms of higher nutrient yield and reduced need for polluting pesticides and fertilizers. But because such plants are heavily marked up during their patent period, they are used much less widely than would be economically efficient. Great collective gains could be realized by offering innovators the opportunity to license their innovation free of charge in exchange for payments, from public funds, tied to the actual gains this innovation brings in terms of increased nutrition and diminished use of pesticides and fertilizers.

Advanced clean/green technologies can dramatically reduce pollution and energy consumption. But many potential users of these technologies are discouraged by the high mark-ups innovators charge during the patent period. So they stick with older, cheaper technologies, and we all suffer the effects, for instance in the air we breathe. Again, it would make more sense to allow innovators to license any such patented technology for free in exchange for publicly funded rewards conditioned on the emissions it averts.

The general point seems simple, but its importance is immense: we must learn to reward innovations without deterring their use. The HIF would pioneer this idea. Transforming important innovations into public goods, it is itself such a global public good — funded by rich and poor countries all over the world and benefiting human beings everywhere.

The HIF proposal exemplifies a new, practical movement in academic philosophy, which leads philosophers to work closely with economists, jurists, political scientists, public health experts, psychologists, anthropologists, and of course policy makers. We believe that philosophy should not merely interpret and assess what is going on, but should also engage with the world and play a constructive role by providing ideas for change that are realistic and actionable as well as informed by and supportive of a larger moral vision of our common human future.

An important incubator for such work is a Centre of Excellence at the University of Oslo: the Centre for the Study of Mind in Nature (www.csmn.uio.no). Inaugurated in 2007 with generous funding from the Norwegian Research Council, it has made possible the development of several grand ideas that have gained international prominence in academia and beyond. On 25 August 2008, CSMN launched the HIF proposal in Oslo. Thirty months on, the proposal has garnered much political support and is now moving toward the pilot stage in which it will be field-tested by using health impact rewards in the introduction of one drug into one country. If all goes well, the next thirty months may see an international agreement to set up the HIF. You can follow its progress at www.healthimpactfund.org.

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