Friday, September 11, 2009

Incentivizing Drug Innovation without Monopolies: The Prize Proposal for the U.S. Pharmaceutical Martket

An interview with James Love, director of Knowledge Ecology International and co-chair of the Trans-Atlantic Consumer Dialogue Working Group on Intellectual Property, by Multinational Monitor.

MM: Can you provide a thumbnail sketch for your prize proposal for the U.S. pharmaceutical market?

Love: In the U.S. market, the first proposal was to retain much of the current system, in terms of the granting of patents, but to eliminate the market exclusivity for prescription medicines. The reward for a successful R&D effort would not be a legal monopoly, but rather a share of the Medical Innovation Prize Fund.

The Medical Innovation Prize Fund would base its rewards on the impact of new products on health care outcomes. The rewards would be based upon objective evidence. Outcomes would be benchmarked against existing medicines. These changes alone would vastly reduce incentives to spend money to develop or market products that have little therapeutic gain over existing medicines, leading to very large savings.

The elimination of monopolies on products permits competition by generic manufacturers, and will lead to low prices, particularly in a market where there is no initial period of a monopoly to associate the product with a trademarked brand name.

In the absence of a legal monopoly, the procurement of difficult-to-manufacture biologic products could be organized much better, given the opportunities for governments and insurance companies to acquire products from low cost suppliers. The lower prices would lead to the elimination of price sensitive formularies, better utilization of products and improved health outcomes.

MM: If patents are a kind of prize for innovators, why would a cash prize be superior?

Love: Prizes can be designed in ways that provide more rational and efficient incentives for product development. If prizes are used as a substitute for the monopoly, you can avoid all sorts of problems caused by the monopoly, such as high prices or wasteful marketing efforts.

MM: Where does the money come from for large-scale prizes?

Love: To be a serious alternative to the current system, the prize would would have to be large. We have estimated a prize of 0.5 to 0.6 of U.S. GDP would be more than enough. In today’s economy, the U.S. prize fund would have been about $80 billion per year, growing with the GDP.

In the original versions of the bill, the money for the prizes would have come from the federal government. In the next version of the bill, there will likely be some sharing of the costs with entities that provide health insurance. We believe insurance companies will support the prize fund approach, because it is a far cheaper and more sustainable way to pay for innovation than the current system.

MM: Is this a massive public subsidy for Big Pharma?

Love: The current system is incredibly wasteful and constantly gamed by Big Pharma. The prize fund approach would radically reform the market for innovation, in the same way the Internet has radically changed the way we use telecommunications. The supply of useful innovation would be a highly competitive activity, rather than one that is crippled by irrational incentives, corrupt marketing practices and unproductive rent-seeking activities.

MM: How would a prize system work to lower medicine prices?

Love: By eliminating legal monopolies and prompting competition for products. Prices would be low, as they have been in India for decades.

Read the entire interview: Eyes on the Prize: Incentivizing Drug Innovation without Monopolies

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