HIF on the Sanders prize fund bill

In their recent book on the Health Impact Fund,* Aidan Hollis and Thomas Pogge discuss a number of issues. This is what they say about S.2210 (110th Congress), Senator Sanders’ proposal for the Medical Innovation Prize Fund.

Page 105-106

Medical Innovation Prize Act of 2007

This bill, introduced in the US Senate by independent Senator Bernie Sanders, proposes a non-voluntary replacement for the existing monopoly patent system that would eliminate market exclusivity for patented products in favor of a government fund that would reward innovators for the health impact of their patented innovations.4 It is intended to impact the domestic US pharmaceutical market exclusively. The legislation establishs a Medical Innovation Prize Fund that would incentivize research into new medicines that improve health outcomes, especially in essential areas, and would expand access to new medicines by separating rewards for innovation from monopoly pricing. Patents would no longer serve to guarantee market exclusivity, but would instead be used only to determine eligibility for reward funds. Patent holders would be immediately forced to allow the open use and production of the patented innovations, and the patentee would be rewarded by the government according to the positive health impact of the innovation, much as in the Health Impact Fund. The distribution of prize payments to innovators would be made by a panel consisting of government officials and representatives of stakeholder groups according to the criteria of the incremental therapeutic benefit of a drug and access improvement as compared to the baseline of existing drugs and the degree to which the drug meets health priorities including global infectious diseases, neglected diseases, and rare diseases and conditions.

This proposal achieves a number of important advantages, going far beyond any of the other proposals considered here to address both problems of access and innovation. The prize fund would entirely replace the market monopolies granted by patents to new medicines, completely separating prices from drug valuation. The requirement that all patented medicines be immediately available for generic production is intended to allow prices to drop to the marginal cost of production, increasing access. The proposal also contains provisions for special payments to be made for drugs treating neglected diseases.

Despite these important advantages over the current patent system, the Medical Innovation Prize Act is problematic in some respects. The fact that it is a mandatory, comprehensive system for all pharmaceuticals, not just for those products which opt in, means that its implementation requires a substantial re-organization of the entire pharmaceutical industry, which is unlikely to be politically feasible. At the same time, its comprehensive approach would create problems for innovators developing drugs with relatively small measured health impact but which patients were willing to pay for. In such cases, a willing exchange between innovator and patient could be blocked, since the Act would require only small payments to the innovator, inadequate to incentivize the innovation. There are also questions regarding whether the act would be compliant with the TRIPS agreement.

The HIF has several important advantages over the scheme envisioned in the Sanders bill. The HIF does not aspire to be a comprehensive, mandatory system. Rather, it would provide an additional option that firms could choose selectively for products with large health impact but small profitability under the existing patent scheme. This makes it more attractive to pharmaceutical companies and to significant numbers of affluent patients and therefore easier to implement and to sustain. In addition, by allowing firms to maintain their exclusivity rights – but not freedom of pricing – for products registered with the HIF, the HIF has an advantage in creating fewer problems related to licensing. Finally, the HIF is clearly compliant with the TRIPS Agreement.

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* Aidan Hollis and Thomas Pogge, The Health Impact Fund, Making New Medicines Accessible for All, A Report of Incentives for Global Health, 2008