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Abstract
Some 18 million people die annually from poverty-related causes. Many more are suffering grievously from treatable medical conditions. These burdens can be substantially reduced by supplementing the rules governing pharmaceutical innovation. Established by the World Trade Organization's TRIPS Agreement, these rules cause advanced medicines to be priced beyond the reach of the poor and steer medical research away from diseases concentrated among them. We should complement these rules with the Health Impact Fund (HIF). Financed by many governments, the HIF would offer any new pharmaceutical product the opportunity to participate, during its first 10 years, in the HIF's annual reward pools, receiving a share equal to its share of the assessed health impact of all HIF-registered products. In exchange, the innovator would have to agree to make this product available worldwide at the lowest feasible cost of manufacture. Fully consistent with TRIPS, the HIF achieves three key advances. It directs some pharmaceutical innovation toward the most serious diseases, including those concentrated among the poor. It makes all HIF-registered medicines cheaply available to all. And it incentivizes innovators to promote the optimal use of their HIF-registered medicines. Magnifying one another's effects, these advances would engender large global health gains.
Acknowledgements
This paper was presented as the Mahbub ul Haq Memorial Lecture on 7 September 2011 at the meeting of the Human Development and Capability Association in The Hague. Many persons have been contributing to the work on the HIF proposal. This ongoing collaboration is documented on the project website [www.healthimpactfund.org], which also offers free downloads of the first full statement of the HIF proposal (Hollis and Pogge Citation2008).
Notes
TRIPS stands for ‘trade-related aspects of intellectual property rights’. The TRIPS Agreement is Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization, signed on 15 April 1994. It took effect on 1 January 1995.
The figures show that average income in the top decile of humanity (10th) is nearly seven times the global average, while average income in the bottom quarter is 1/32 of the global average. One person in the top 10% has as much income, on average, as 221 people in the bottom quarter. (Percentages do not sum to 100.02% due to rounding.) The income data used here were kindly supplied by Branko Milanovic, Lead Economist in the World Bank's Research Department, in a personal email communication of 25 April 2010 (on file with the author). Milanovic is the leading authority on the measurement of economic inequality, and his published work contains similar albeit somewhat less updated information (see Milanovic, Citation2002, Citation2005, Citation2011). Wealth is even more unequally distributed than income: the poorest two-thirds of humankind have only about 3.3% of global private wealth (Keating et al., Citation2011, p. 3) versus 6% of global household income.
These opportunities are limited by parallel import problems, which involve the illicit importation of medicines from countries in which they are cheaper to countries in which they are more expensive. They are also limited by practices of reference pricing, where a national health system agrees to fund or reimburse only medicines whose domestic price is in line with its price in other countries.
Recent examples of such pressure are concerted efforts to wrest data exclusivity provisions from poor countries. Such legal provisions discourage market entry by generic firms even after patent expiration by assigning the patentee exclusive rights to the clinical data it initially submitted to obtain marketing approval. As a result, a generic firm cannot win marketing approval by simply showing that it has a bioequivalent product. Instead, it must bear the substantial—and socially wholly wasteful—expense of producing its own clinical data to show that the medicine is safe and effective.
A further problem with the analogy is that it fails to provide any rationale for limiting the duration of intellectual property to 20 years (or any other specific period). Libertarian and other defenses of the status quo are much more extensively discussed in Hollis and Pogge (Citation2008, pp. 51–69).
These two points are more fully discussed in Hollis Citation(2004).
Health impact can be measured in quality-adjusted life-years (QALYs) saved. The QALY metric has been refined over the last 20 years and is already extensively used in many contexts, including by public and private insurers for deciding which new drugs to cover (Phillips, Citation2009). Its basic idea is straightforward: giving a patient an additional year of life in good health is worth one QALY. Appropriate fractions of QALYs are awarded for additional years in less than good health and also for life-years in which patients are in better health than would otherwise have been the case. QALY awards for periods longer or shorter than a year are proportionately adjusted. A new medicine's impact is to be assessed relative to the standard of care patients would have received in its absence or before its introduction. For many poor patients, this would be no effective care at all. Assessments of health impact would draw on data gathered from clinical trials, pragmatic or practical trials, sampling of product use in different environments and demographic groups, audited sales data and correlation with global burden of disease data.
This amount is only 0.7% of current worldwide spending on medicines; but its health impact would be vastly larger. Funded at this level, the HIF is expected to support 20–30 new medicines at any given time, with two or three entering and two or three expiring each year. Lower funding levels would lose economies of scale in health impact assessment and would also lead to an excessively volatile reward rate (dollars per QALY), which would discourage registrations. If all countries participated, a contribution of 0.01% of gross national income would suffice to reach the initial $6 billion per annum. Realistically, a higher rate will be necessary. At a contribution rate of 0.03% of gross national income, the HIF would only need the support of China plus the USA, or of Brazil plus the European Union, to commence operations.
The costs of the HIF's own operation—which are mostly costs of health impact assessment—should be covered from registration fees rather than from the annual HIF budget. Overall, this comes out in the wash: if registrants cover these costs, then there is more money in the annual pools to be distributed to them. But at the level of individual registrants, there is an important difference. If operational costs are paid out of the annual pools, then the most successful medicines will contribute the most and medicines with little health impact will contribute little. Yet it is evidently undesirable to pay part of the cost of assessing weak and poorly promoted products out of the reward shares of innovators with really strong and well-promoted products. It makes more sense to avoid such cross-subsidization by making each innovator pay its own way: by making each innovator pay a fee that roughly covers the cost to the HIF of assessing its registered product(s). This cost allocation discourages innovators from registering products in which they have little confidence; and it also encourages any innovator to promote its registered products so as to enhance their health impact (because none of the extra reward due to better product promotion is lost to an increased contribution to operational expenses).
To ensure that the HIF is cost-effective relative to other public health expenditures, there should be a ceiling specified on the reward rate, a maximum dollar amount per QALY. With this ceiling in place, only a genuine miracle drug could by itself collect the full $60 billion. Still, if the reward rate ceiling is set at a generous level, then, given the escape options, registrations are bound to occur.
Creating a uniform regime for the international sale of goods, improving certainty and reducing transaction costs in transnational transactions; one of the most universally adopted international agreements.
Increasing international uniformity in technical regulations and product standards and working with developing countries to allow them to participate in standards-setting.
Establishing the International Telecommunications Union for purposes of unifying and coordinating international telecommunications standards.
Establishing a specialized UN agency to coordinate international aviation rules and establishing early rules for international air travel.
Facilitating international air travel by allowing, inter alia, aircraft access to foreign airspace.
International maritime safety treaty considered essential for guaranteeing the safety of merchant ships in international and foreign waters.
Creating rules for dealing with spills of oil and other hazardous materials carried in bulk.
One of the most widely adopted and implemented international environmental treaties, with high rates of compliance expected to produce real reversals in ozone damage.
Promoting peaceful scientific cooperation and exchange on the Antarctic territories.
Causing some 120 States Parties, after ratification, to adopt or strengthen their tobacco control legislation. Very substantial help from Megan Corrarino in the composition of this paragraph is gratefully acknowledged. For further discussion, see Chayes and Chayes Citation(1998), Goldsmith and Posner Citation(2005), Koh Citation(1997), Hathaway (Citation2002, esp. pp. 1942–1962), Vagts (Citation2001, esp. pp. 313 and 331), and Haffeld et al. (Citation2010, esp. p. 616).
Perpetual bonds are bonds without a maturity date. The borrower need never repay the principal, but must pay interest forever. The British government issued such bonds (‘consolidated annuities’ or consols) in the 1750s and is still paying the interest on them. Various banks have issued US dollar-denominated perpetual bonds in recent years, including Credit Suisse Group AG, BNP Paribas SA, and HSBC Holdings plc.
For the various proposals of an international financial transaction tax, see the eponymous Wikipedia entry [http://en.wikipedia.org/wiki/Financial_transaction_tax]. For a proposed scheme that would raise money in combination with slowing environmental degradation and natural resource depletion, see Pogge (Citation2008, pp. 202–221). Problems of assured funding will be further explored by a working group centered in Germany, with participation of finance experts from around the world.
See Article 31 of the 1995 TRIPS Agreement [www.wto.org/english/docs_e/legal_e/27-trips_04c_e.htm] and the 2001 Doha Declaration [www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm].
This model was first proposed and explored in Abramovicz (Citation2003).
I initially favored this option across the board (Pogge, Citation2005 and 2008, pp. 222–261), but extensive discussions with Aidan Hollis and others (in December 2007) have convinced me that other options are superior in many cases. See Hollis Citation(2009) for an excellent treatment that informs and complements the present section.
The following thoughts were in part developed in response to Sakiko Fukuda-Parr, who was the official respondent to my Mahbub ul Haq Memorial Lecture. She argued that allowing HIF-registrants to retain exclusive marketing rights would, relative to open licensing, lead to higher prices and heavy concentration in the pharmaceutical industry. Her critical comments, composed with Proochista Ariana, are available, along with our replies, on the website of Intellectual Property Watch [www.ip-watch.org].
This point is made, for instance, in the critique by Fukuda-Parr and Ariana, cited in the preceding note.
This issue is further discussed in the September 2010 IGH Newsletter [http://us1.campaign-archive.com/?u=098b142792357c7a0d980ed67&id=a8766ac893].