The Price of a Cure? How Big Pharma Can Help Poverty-stricken PopulationsPublished: May 26, 2010 in Knowledge@Wharton
How much is a cure for an illness that afflicts the poor really worth? Under a new plan to address the disconnect in pharmaceutical innovation that leaves millions in the developing world suffering from neglected diseases, the true value of a cure would be used to encourage drug makers to come up with medicines that would help poverty-stricken populations around the world.
In a presentation to Wharton's legal studies and business ethics research program and the University of Pennsylvania's department of philosophy, Thomas Pogge, a Yale University professor of philosophy and international affairs, outlined this market-based proposal. The plan creates a structure of incentive payments to drug companies based on the impact a medicine actually has on global health outcomes.
Under the proposal, governments would contribute $6 billion a year -- less than 1% of current spending on pharmaceuticals -- to be paid out to drug manufacturers that agree to make new medicine available at low cost in poor countries. The company would be rewarded with payments based on the impact of a new medicine on global health, said Pogge, who outlined the basic elements of the Health Impact Fund (HIF) in a speech titled, "The Health Impact Fund: Making New Medicines Accessible to All."The fund was designed by Pogge along with other scholars and health professionals who call their group Incentives for Global Health.
Taxpayers would see a return on the investment through lower medicine prices for consumers and private and national health insurers, as well as a reduction in foreign aid, said Pogge, who has been working on the plan for five years. "After complaining bitterly about the injustices of the world, I wanted to see whether I can propose something that will make it a little better," he noted.
According to Pogge, the Health Impact Fund is based on market economics and would assure that public entities provide a large enough payment to encourage companies to do the work, but not provide windfalls beyond the true value of the drug to society. He estimates the fund would be able to finance two new drugs a year.
A Problem of Global Scale
Pogge pointed out the growing inequality and poverty around the world, which is resulting in needless deaths. He said that of the planet's 6.8 billion people, one billion are chronically undernourished, two billion do not have access to basic drugs and 884 million lack safe drinking water. These conditions lead to a third of all deaths each year, or about 50,000 each day.
Much of the world's economic inequality and persistent poverty is no longer simply a symptom of government structures or conditions in particular countries, Pogge noted, but conditions that have evolved along with increasing globalization. "More and more of the rules that shape our lives and economy are settled at the global level, not the national level."
Policy making on the global level is even less transparent and predisposed to bias than efforts within individual nations, he added. Negotiations are often held behind closed doors and are heavily influenced by lobby groups, particularly those representing multinational corporations. "It is not surprising that the outcome of the contest among these elephants is rules that satisfy those players," he stated. "Globalization in this regard has a negative impact on the poor because it concentrates the power to influence the rules."
As examples, he pointed to global trade rules for agriculture that protect rich countries able to subsidize their farmers' exports. He also cited global banking rules that allow "dirty money" to flow out of capital-starved countries through tax evasion and embezzlement only to benefit Western banks. "Global institutions create pretty consistent headwinds against the poor," Pogge said. "If you could change the headwinds, or make them a little less strong, you would have a much better chance of eradicating poverty."
The price of medicine around the world is influenced by the World Trade Organization, a global institution that governs international trade, including drug patents. Pogge believes WTO policies led to pharmaceutical companies gaining 20 years of lucrative patent protection in the organization's 153 member countries, resulting in high prices in poor nations that are not allowed to produce cheaper, generic drugs. "Don't get me wrong. I'm a great fan of globalization. It's a wonderful thing," he added. "The question is, on what terms are the rules set? The terms now are set with little input from the vast majority of the human population."
Pogge pointed to a number of problems with the current system, including the high prices pharmaceutical companies charge for patent-protected medicines. Drug companies typically finance innovation, along with marketing and other expenses, through big markups on products that actually cost very little to manufacture. He said patents protect drug markers from price competition, putting life-saving remedies out of reach for most people in poor countries. The high markups discourage development of drugs to treat diseases that plague the developing world because companies can make so much more money catering to patients in richer countries who can afford to pay premium prices for drugs to treat such ailments as diabetes and heart disease. Pogue also argued that the payment structure encourages research into drugs that alleviate the symptoms of disease, but do not actually cure them. If a patient's symptoms are treated but he or she still suffers from an illness, then the drug companies have a customer for life.
In addition, the patent system encourages wasteful litigation that drains resources from drug discovery, Pogge stated, adding that the dramatic price-differentials for patented products also create incentives to produce counterfeit drugs. Counterfeit drugs, or those with only a small amount of a remedy's active ingredients, can lead to the increased spread of drug resistant diseases. Excessive marketing costs are another outgrowth of the current patent system, Pogge noted. With financial rewards so high, companies are willing to divert funds into marketing that might otherwise go into research. Finally, Pogge believes that the current structure does little to address the "last-mile" problem -- i.e., obstacles in poor countries, such as a lack of physicians or diagnostic equipment.
Gauging the True Value of a Cure
According to Pogge, he is not out to attack pharmaceutical companies; in fact, he thinks the firms are acting rationally within the existing business environment. "The responsibility is not with them. I see the responsibility with us," he noted. "It's our responsibility to regulate drug companies in such a way that their inventiveness and creative talent goes toward overcoming illness."
The key element of Pogge's Health Impact Fund proposal is an assessment of how much a new treatment would actually impact wellbeing as measured by sales figures, samplings of actual use and benefits, and population health data. The information would come from clinical trials, pragmatic or practical trials, and figures calculating the global burden of disease. The assessments would rely on quality-adjusted life years, which are commonly used in public health to gauge both the quality and quantity of life extended through medical care. In return for payments based on the assessment, the drug company would agree to license the product to the lowest cost manufacturer, a move intended to reduce the price of the medicine.
Under the Health Impact Fund system, Pogge expects that drug companies would initially put forth numerous promising treatments that existed in their portfolios, but were never fully developed because of the inability of target populations to pay. "It's quite possible you will get a lot of drugs out of the woodwork very quickly," he noted.
The expense of conducting assessments would cost the fund about 10% of its value, but would have added benefits for global health, he said. In addition to determining the proper value of incentives, the Health Impact Fund assessment process would also help develop data on the effectiveness of treatments that could be used to guide medical practitioners to provide better care for their patients. He pointed out that there is little of this type of analysis currently being done for drug treatments beyond work by Britain's National Institute for Health and Clinical Excellence, which was founded in 1999 to assess which drugs and treatments provide the best value to the nation's health service.
The Health Impact Fund would likely have benefits for patients in the developed world, too, according to Pogge. At first, the program would likely finance drugs intended to make a big difference for poor populations because companies will be paid in relation to the remedies' impact on health. As health in the developing world improves over time, however, Pogge expects the "low-hanging fruit" to be exhausted and pharmaceutical innovators to then apply the program to treatments for diseases that afflict richer populations. He also points out that, in an era of air travel, diseases are easily spread between countries regardless of each nation's level of affluence.
Pogge acknowledged that pharmaceutical companies "don't want the word 'assessment' anywhere near their products" because they associate the effort with lower prices. He added that pharmaceutical companies became cautious about creating products for the developing world following an effort by Merck to provide new roadways and infrastructure in Africa to deliver the company's cure for river blindness. While the program has been applauded by governments and non-profit health organizations, it was expensive to implement. "The story going around pharmaceutical companies is 'Never again -- I don't want to be caught dead with a medicine that might work in the developing world. If I have one, we shelve it and tell everyone who knows we have it not to squeal,'" Pogge stated.
But Pogge believes researchers in pharmaceutical labs are excited about his proposal because many are frustrated that their work so rarely leads to a significant improvement in patient health. These scientists went into research to create breakthroughs, he noted, yet find that their work is often steered by business executives to products that are lucrative, but not life-saving.
In the future, Pogge expects that models similar to the Health Impact Fund might be developed to spur innovation in other technology areas in which societal needs have gone unmet by traditional economic incentives. As examples, he pointed to green technology to help ease the effects of climate change, and agriculture innovation that could increase the yield of crops per acre. He said the most important aim of the Health Impact Fund is to remain practical and focused on a modest proposal that works politically. "The Health Impact Fund has the advantage of not being a development aid program, but [something that] is good for every pharmaceutical company. The taxpayers also benefit, and the patients in poor countries benefit the most."