Problems of innovation, access and delivery in the domain of pharmaceuticals still exclude billions of people from the health benefits that advanced medicines can provide. This article turns the spotlight on the Health Impact Fund as an initiative that could systematically and sustainably address these problems
The Health Impact Fund: a Mechanism to Improve Access, Innovation and Delivery of Medicines
by Thomas Pogge*
Director of the Global Justice Program and the Leitner Professor of Philosophy and International Affairs at Yale University
Despite much heralded advances in health and well-being over the past twenty years, there remain significant disparities in access to lifesaving medicines globally. About 30 percent of the world’s population still lack access to essential medicines. In addition, no adequate and effective treatments exist for the numerous neglected diseases that disproportionately affect the poor. Indeed, only 1% of therapies introduced between 1975 and 1999 targeted these diseases, despite the fact that they affect over one billion people globally.
Such gaps are a direct result of the misaligned incentives present in the current pharmaceutical innovation system. Drug development is currently incentivized and rewarded through the exorbitant mark-ups that innovators, protected by patents from market competition, can charge for their products during their early years on the market. Given very high economic inequality globally and increasingly also within countries, innovators find that the profit-maximizing prices for their pharmaceuticals make these products unaffordable to a substantial majority of the world’s population. As a result, many poor people, even in the more affluent countries, suffer or die because they cannot afford medicines whose marginal cost of production and distribution is quite low. Moreover, innovators shun research on diseases concentrated among the poor because they will not be able to recover their R&D costs from mark-ups on new products in such an area.
The existing system presents three major problems. First, R&D is focused on drugs that are conceived to be the most profitable, rather than on those that would lead to the most cost-effective improvements in health. Second, profit-maximizing prices prevent much of the world’s poor from purchasing even the medicines medicines we have available so long as they are still under patent. Third, even when a treatment is priced affordably, there remain gaps in access due to the “last mile” problem – that is, the challenge of ensuring that available medicines are of good quality as well as accessible to and correctly used by the people who need them. These three problems exclude billions of people from the health benefits that advanced medicines can provide.
Incomplete Solutions to An Access to Medicines Crisis
Two decades ago, lawyers in Geneva included in an international trade treaty an agreement on intellectual property (IP) rights that has had a massive impact on medical treatment for individuals suffering from many of the world’s deadliest diseases. One effect of this Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was to apply standards for patents developed in the world’s most industrialized countries to any country intent on joining the World Trade Organization (WTO). Member countries must grant 20-year product patents on pharmaceuticals, for instance, and must ensure that corporations owning such patents can price their products without fear of competition.
Before TRIPS, IP rights were only enforced domestically. Many industrialized countries were members of international organizations and signatories of agreements that required a specific level of IP protection. Yet, none of these organizations had enforcement mechanisms and the consequences of not respecting these IP norms rarely affected other aspects of international commerce. Further, many least developed countries had only weak IP protections, or none at all. India, for example, had seven-year process patents that generic firms there were typically able to circumvent by finding a different process for manufacturing the drug.
Realizing the impact the TRIPS agreement was having on access to medicines, the World Trade Organization in 2001 issued the Doha Declaration, which provided flexibility for member states to rescind the patent protection guaranteed by TRIPS when needed to protect public health. However, patent owners simultaneously lobbied their governments to increase the legal protection for their proprietary rights in the drugs used to treat these diseases. They did so through agreements now often referred to a TRIPS-plus. Pressure continues to mount on many countries to extend patent terms, agree to data exclusivity, or agree to other measures that indirectly increase the cost of pharmaceuticals. This has had a disastrous impact on access to essential medicines.
A number of initiatives have responded to the global health crisis resulting in part from a lack of access to medicines caused by the TRIPS and TRIPS-plus agreements. Beyond the usual declarations, working papers, conferences, summits, and working groups, these initiatives include inter-governmental initiatives such as UNITAID; governmental programs such as the US President’s Emergency Plan for AIDS Relief; and public-private partnerships such as the Global Alliance for Vaccines and Immunization and the Global Fund to Fight AIDS, Tuberculosis and Malaria. They also include attempts to foster new drug development such as the Drugs for Neglected Diseases Initiative, the Institute for One World Health, and the Novartis Institute for Tropical Diseases; and various prizes and advance market commitments (AMCs).
While improving the situation relative to what it would otherwise be, these efforts are not sufficient to secure access to medicines for the poor. Few expect that sufficient resources will be devoted to neutralizing the cost imposed on the worldâs poor by the globalization of 20-year patents and none anticipate that such billions will reliably and efficiently be spent year after year. As a result we turn to a more systemic solution to address the global health crisis. Involving institutional reform, such a systemic solution is politically more difficult to achieve but also politically much easier to sustain once achieved. It also preempts the huge and collectively inefficient mobilizations required to fund the many stopgap measures listed above, which can at best only mitigate the effects of structural problems they leave untouched.
A Market Solution for Market Problems
The Health Impact Fund (HIF) is an initiative that could systematically and sustainably address the three problems of innovation, access and delivery in the domain of pharmaceuticals. Using a pay-for-performance mechanism, the HIF would align the incentives of pharmaceutical firms with the needs of public health, while also allowing these firms to fulfil their responsibility to investors to maximize profit. Pharmaceutical firms would be given the option to register new medicines with the HIF. By registering, a firm would agree to provide the drug at cost price worldwide. In exchange, the firm would be rewarded, during the first eight or ten years that its new product is on the market, according to the actual measured health impact of the drug. As all registered products would be competing for a fixed pool of annual funding, the greater the health impact created by a firm’s product, the greater would be its share of the reward pool that year. Since registration with the HIF would be optional, firms would be able to decide for each product whether the current patent system or the HIF would be more profitable. Firms would be more likely to register products that have relatively low profitability in the current system, but that would potentially have a high health impact (e.g. effective treatments for neglected diseases). As a complement to the current patent regime, the HIF would thus help lower prices, increase access to medicines, and enable pharmaceutical firms to bring significant benefits to patients while earning a profit.
The Health Impact Fund (HIF) offers pharmaceutical firms an opportunity to register any of their products for a share of fixed annual reward pools for each of the first eight or ten years on the market. Each pool will be divided according to the health impact that the various registered products have achieved during the year. To exemplify, if all registered products saved twenty million “Quality-Adjusted Life Years” (QALYs) in a given year, then a registered product that had saved two million of these QALYs would receive ten percent of this year’s reward pool. In exchange, firms would have to sell their registered products at the lowest feasible cost of manufacture and distribution and to offer royalty-free open licenses for generic production following the reward period. In its mission to encourage the development of new medicines for the poor, the HIF depends on funding commitments from countries and other partners
Since firms will be rewarded based on health impact assessment, it is important to discuss how health impact will be measured. The most important characteristic for measurement of health impact is that it must be consistent across countries and diseases in order to accurately compare and reward drugs. Furthermore, there must be some way of calculating the difference in health benefit between the new drug and the status quo. While the merits of several measurement metrics can be debated, it is important to realize that an ideal metric does not exist and that any payment based on measurement and therefore performance is better than the present system in which reward and health impact are barely correlated. It is crucial for the success of the HIF that the measurement system be designed to ensure that firms are incentivized to deliver health improvements and not game the system (i.e. capture rewards without producing outcomes). If there is margin for gaming, firms may be tempted to manipulate the process by exaggerating the benefit of the product. Doing so would stray from the end goal of increasing overall health benefit.
It is important to realize that the HIF will measure real world outcomes. Both the current system and the HIF use health outcome measurement to determine drug revenue. The current system (exemplified by NICE) uses data from clinical trials to estimate the health benefits of a drug. However, health benefits determined in clinical trials often do not reflect real health impact. There are many reasons for this. For example, patients included in a study have to meet certain characteristics that may not represent the entire population. Furthermore, patients in clinical trials are more closely monitored than they would be in the real world. Most importantly, a pharmaceutical innovator has conflicting incentives with regard to patients likely to derive little or no benefit from some product: incentives to exclude such patients from its clinical trials and yet to include them in its marketing efforts. These differences will lead to differences in outcomes. The HIF model addresses this concern by allowing for adjustments based on evidence of how the drug is used in practice and what the outcomes are.
A Solution for Innovation, Access, and Delivery
As mentioned before, there are three major problems with the current system: innovation, access, and delivery. The HIF addresses all three of these problems. Through the HIF model, firms will find it profitable to develop medicines to treat even the poor because reward will be based on health impact and marginalized populations are where the greatest health impact is waiting to be realized. The HIF will thus incentivize development of medicines for previously neglected diseases which, despite their large disease burden, have received little investment due to their unprofitability in the current innovation system. The HIF will also ensure that, when beneficial drugs are developed, they are made widely accessible to patients. The HIF would facilitate increased access to drugs by requiring that they be sold globally at cost price. The HIF would also create incentives for manufacturers to engage in facilitating the appropriate distribution of their products, as well as reducing other non-price barriers to access and rational use, since improved (appropriate) use will increase the rewards they earn. Thus, firms would be incentivized to ensure that drugs actually reach patients and are effectively used, thereby tackling the last mile problem. Thus the HIF will address the three biggest challenges of the pharmaceutical industry 1) incentivizing innovation for currently neglected diseases 2) improving access to life saving and life improving medications 3) addressing the last mile problem.
Importantly, the HIF does not act as a charity for the developing world but rather a system that benefits patients, pharmaceutical firms, and citizens on a global scale. In a time when we have seen significantly reduced global health spending due to the Great Recession and other economic setbacks, it is important to look for sustainable solutions that use the current resources more efficiently. The HIF is one such solution. The HIF would direct research towards the medicines that promise the greatest health gains and would offer those products at the same low cost to all patients. This would benefit patients regardless of their location and wealth. Firms would benefit financially from doing social good through a financing scheme that makes developing high-impact medicines profitable. Citizens, who support governments through tax payments, would benefit from the HIF because it supports efficient spending and results in lower costs for registered products. Ultimately the HIF is a market solution for market problems.
World Health Organization. 2004. The World Medicines Situation. Geneva: World Health Organization. http://www.who.int/medicines/areas/policy/world_medicines_situation/en/
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* This piece received substantial research support from Narmeen Haider, Jake Hirsch-Allen and Zain Rizvi.
Thomas Pogge is the Director of the Global Justice Program and the Leitner Professor of Philosophy and International Affairs at Yale University. Having received his Ph.D. in philosophy from Harvard, Thomas Pogge has published widely on Kant and in moral and political philosophy, including various books on Rawls and global justice. In addition to his Yale appointment, he is the Research Director of the Centre for the Study of the Mind in Nature at the University of Oslo and a Professorial Research Fellow at the Centre for Applied Philosophy and Public Ethics. Pogge is also editor for social and political philosophy for the Stanford Encyclopedia of Philosophy and a member of the Norwegian Academy of Science. With support from the Australian Research Council, the UK-based BUPA Foundation and the European Commission (7th Framework) he currently heads a team effort towards developing a complement to the pharmaceutical patent regime that would improve access to advanced medicines for the poor worldwide (http://www.healthimpactfund.org) and toward developing better indices of poverty and gender equity.