Replace monopolies with impact rewards
Image by SilvanaGodoy from Pixabay
Globalized in 1995 by the TRIPS Agreement, mankind’s dominant mechanism for encouraging innovation involves 20-year product patents. Such temporary monopolies give innovators exclusive rights to the production and sale of their innovation, allowing them to collect significant margins from early adopters.
The resulting high prices hamper the diffusion of innovations during their patent period. Coal-fired power plants in India were built without the latest “super-critical” green technology, as its use would have required a license fee of around $ 1.5 million per boiler. An excellent cure for hepatitis C, sofosbuvir, was introduced in 2013 at a price of $ 84,000, about 3,000 times the cost to manufacture. It has since reached only 5 million patients worldwide; the other 66 million remain infected and continue to spread the disease. During their long patent term, innovations produce only a fraction of the social value they could produce if offered at a competitive price.
This access problem can be avoided by creating publicly funded impact funds that would reward competitively priced innovations based on the social benefits obtained with them. As with the patent system, the fixed cost of innovation would fall largely on those who can afford it. However, there would be no reason to exclude the rest. With innovations that are socially valued and rewarded with public funds, anyone can have access to them without a monopoly surcharge.
Impact rewards can work in any area where a uniform metric of social value can be formulated, such as health gains for pharmaceuticals, pollution reduction for green technologies, expertise and employment for education, nutrient yield and reduction of fertilizer and pesticide use in agriculture. Such a system would work best if many states jointly supported it, thereby greatly increasing its social value while diluting its cost.
The pharmaceutical industry is a good area to explore this idea. Its innovations protect and promote health, an appropriate purpose for public funding. Imagine a Health Impact Fund that, supported by many countries, invites innovators to register any of their new pharmaceutical products to participate in ten consecutive annual installments, each distributed among registered products based on earnings. of health achieved in the previous year.
During their long patent term, innovations produce only a fraction of the social value they could produce if offered at a competitive price.
With these rewards allowing innovators to recoup their R&D expenses and make appropriate profits, registrants would have to accept competitive prices during the reward period and also forgo any remaining monopoly privileges thereafter. In rich non-contributory countries, however, filers should remain free to charge monopoly prices. This exception would attract registrations by reducing their opportunity cost and would also give rich countries more reasons to join the funding coalition.
Some variants of quality-adjusted life years (QALYs), widely used and refined in recent decades, could be used as a common measure to compare and aggregate health gains for various diseases, therapies, demographic groups, lifestyles. and cultures. To reassure funders and / or innovators, a maximum and / or minimum reward per QALY could be specified.
Assuming an initial contribution rate of 0.02% of gross national income and a weighted participation of one-third of states, the Health Impact Fund could start with annual pools of $ 6 billion, or less than 1% of the $ 800 billion the world currently spends on brand name pharmaceuticals each year. State contributions would be offset by savings on (a) registered pharmaceuticals and (b) other health care costs, as well as gains in (c) economic productivity and (d) resulting tax revenues. arise.
With annual pools of $ 6 billion, each registered drug product would participate in $ 60 billion in disbursements over its ten-year reward period. A business innovator would only register a product if he hoped to make a profit in addition to recouping his R&D expenses. There is a debate about what these fixed costs of innovation represent. The number of products registered with the Health Impact Fund would shed some light on this issue due to the Fund’s self-adjusting reward rate. If it were to attract around 20 products, with two entries and two exits in a typical year, that would show that the outlook of $ 3 billion over ten years is considered satisfactory – neither a bargain nor a deprivation. This self-adjusting feature reassures innovators / contributors that the reward rate will not drop / increase to an unreasonable level.
The Health Impact Fund demonstrates that we can encourage innovation in a way that avoids the severe access barriers of monopoly patents. These barriers therefore constitute a huge violation of human rights. As the case of hepatitis C illustrates, millions of people suffer and die every year because generic manufacturers are prohibited from selling them the drugs they need at competitive prices. Millions more suffer and die because high margins hamper the diffusion of green technologies in the poorest countries.
Impact funds would bring revolutionary change. Where monopoly rewards turn innovators into jealous spies looking for potential violators, impact rewards would encourage innovators to actively promote the rapid, wide, and impactful dissemination of their recorded innovation. Filers would subsidize it even to poor buyers to the extent that the increased remunerative impact justifies the cost of the subsidy.
Impact funds would also ensure additional gains for human rights. When patent rewards fail to encourage innovations that meet the specific needs of the poor, impact funds would encourage such innovations by assessing the impact regardless of the economic position of the beneficiaries. In this way, pharmaceutical innovators could profitably develop and deploy new effective treatments for the now notoriously neglected tropical diseases, which afflict over a billion people, and for other major diseases concentrated among the poor, such as tuberculosis, cancer. malaria, hepatitis and pneumonia, which together kill some seven million people a year.
While patent rewards are largely indifferent to the third-party effects of an innovation, impact funds would take them fully into account. So the Health Impact Fund would reward disease containment with a new drug for protecting people who have never taken the drug against infection. An innovator rewarded with monopoly mark-ups, on the other hand, is only rewarded to the extent that his drug fails to contain his target disease. By eradicating a disease, such an innovator would destroy his own future market.
Patent rewards motivate innovators in various ways to “put profits before people”. Impact funds align profits with human needs, making the innovation business much more equitable in terms of research priorities and access to its fruits: innovators do well while doing good. By guiding innovators to organize their R&D and marketing holistically towards achieving the most profitable social gains, impact funds allow a triple victory: for the potential beneficiaries of the innovations, for the innovators and also for the governments and taxpayers.