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How the Health Impact Fund is Tied to the American Pharmaceutical Industry: An Interview with Dr. Thomas Pogge

By   /  December 9, 2013  /  3 Comments

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Dr. Thomas Pogge is the Leitner Professor of Philosophy and International Affairs at Yale University. He is currently the Director of the Global Justice Program at Yale University’s MacMillan Center, which focuses on several projects including developing and implementing a pharmaceutical patent model which aims to improve worldwide access to advanced medicines. He has published numerous and prominent books, including The Health Impact Fund: Making New Medicines Accessible for All and World Poverty and Human Rights. In this interview, we cover Dr. Pogge’s work with the Health Impact Fund and events affecting the pharmaceutical industry.

 

What is the Health Impact Fund?

 

The idea is born from this horrible mismatch where on the one hand you have medicine, which is extremely cheap to manufacture and the marginal cost is extremely low, and on the other hand, you have its price, which is extremely high. Of course the high price is not just leading to some people having to go without medication, but these people suffer and die. In the face of this really desperate situation, I thought there must be a way where we can do better. The problem is that if you reduce the price of the medication lower, you reduce the incentives and people will not invent new medicines. Inventing medicines is incredibly expensive. So I said there must be a way to keep the incentives high and nevertheless improve the dissemination of the product to make it more available. Therefore, the Health Impact Fund incentivizes the innovator of a medication on the basis of its health impact, which is the average impact per patient multiplied by the number of patients who benefit. We then let the innovator sell the product at cost, so we give the patient the benefit of the marginal cost of production and we reward the innovator on how much good it does in the world, taking account into the fact that the medication now reaches many more people.

 

What are the biggest challenges associated with the Health Impact Fund?

 

Who pays for the Health Impact Fund and how do we measure the “impact” are the two major challenges for this initiative. For the “who pays” question, the same people who are already paying for medications are going to pay; that is to say, the people who are moderately or very wealthy. Those people are now paying because in the first twenty years or so, they already pay a very high price for medication and health insurance. So I say let the rich people pay higher taxes instead of paying high health insurance costs. Then, governments will have extra money that they can spend on rewarding innovation. The only difference is that the poor people can get a free ride, whereas under the present system, the poor are brutally excluded. For example in India, there is a 2005 law stating that if there is a patent on a medication, generic companies cannot manufacture that product. From that point, generic companies could not manufacture cheap medication to distribute to patients all across the developing world.

 

In order to measure impact, the number of people reached by this incentive is one thing. The other of course is how much better off are the people who receive the product compared to how they would have been with what they would otherwise get. In many cases, the treatment people will get is the only treatment that they could possibly have hoped for. So we have to figure out what is the subjunctive baseline in terms of what would have been done for these people otherwise and we have to compare this to the actual world where these people have the benefit of the treatment.

 

How does the Myriad Decision in June 2013 (the Supreme Court ruling stating that genes cannot be patented) affect the pharmaceutical industry?

 

Well it will affect them adversely. Pharmaceuticals, like software and agribusiness, have become an industry where most of their profit comes from patents. These industries patent in a way that covers as much of what other people might want to do as possible. They want their patents to be broad and real impediments for other companies to do things. This is the art now – to have a lot of patents and to block as many roads for other companies as much as possible. Because as you shut these other companies out, you are able to do things without being disturbed by competition. A huge amount of ingenuity goes into intelligent patenting instead of actually inventing new medicine.

For the world at large, this is a real disaster because so much creative talent is wasted and there are all these roadblocks for start-up companies who may have brilliant ideas. Very often, these start-up companies will see the roadblocks and say that this is not worthwhile. This is what’s so sad – blocking progress for humanity. It’s also blocking the diffusion of progress so that even if we achieve a certain amount of progress, that progress doesn’t benefit all of humankind. It only benefits those who are rich or well-insured enough that they can afford to participate in that progress.

 

How does the Health Impact Fund tackle the roadblocks of progress?

 

What we really want is progress, which is innovation that diffuses to as many people as possible. If that is want we want, that is what we must reward. So we shouldn’t reward people for simply inventing something, we should reward people for getting an invention to people in such a way that they can actually benefit. Take the green energy sector for example. We have many patents on new green technologies that reduce pollution. However, it’s difficult for others in developing countries to implement these technologies due to high licensing fees from so many patents. Therefore, they continue to build factories and power plants according to old designs they can use for free rather than using new energy-saving and pollution-reducing designs. Yet, everyone is breathing the same air. So as we continue to tell people that they can’t use an invention, we ourselves are among the people suffering the consequences.

 

What would be the impacts–if any–of the Affordable Care Act on the pharmaceutical industry?

 

The Affordable Care Act won’t change a lot in the industry. It obviously might marginally increase the profit potential of pharmaceutical companies, but the U.S. is already by far the lucrative for pharmaceutical companies. It is a huge market, partly because people are using a lot of healthcare and partly because healthcare in the U.S. is more expensive than anywhere else in the world. 18% of America’s GNP goes into healthcare. That’s huge and for the most part wasteful, partially because of all the lobbying. The U.S. is where lobbying has made its home. All the waste and fraud is due to bad rules that are maintained under pressure from powerful lobbyists that work for the pharmaceutical, software, and agribusiness industries.

 

I welcome the idea of the Affordable Care Act – it’s good that poor people can be insured. But I also think that the entire health operation in the United States is extremely wasteful and could be streamlined. It’s possible to achieve much more with much less money. I think we can realistically half the cost of healthcare but still increase the effect. That’s good news for the Health Impact Fund, because if the Health Impact had to rely on moral arguments alone, it may not get very far. So I think the Health Impact Fund could appeal to how enormously efficient it would be if we didn’t have all this competitive advertising, all this litigation among brand name companies, all the patenting costs, and all the dead-weight losses and so on. It’s just hundreds of billions of dollars that are just wasted that could instead go towards implementing an initiative like the Health Impact Fund.

 

— Walter Hsiang
Walter Hsiang is a junior in Silliman College at Yale University.

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  • Published: 3 years ago on December 9, 2013
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  • Last Modified: December 9, 2013 @ 3:22 pm
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3 Comments

  1. Lisa says:

    I’m not gonna lie, the pharmaceutical industry is already bloated and charges such insane prices. Now I understand that the costs reflect the research (although the side effects of today’s medicines is pretty nuts) but it still does not justify the cost.

    That being said, I cannot see how the government, which can’t manage it’s own budget, can do ANY good in making Rx be cheaper. Obamacare is a fiasco and it will bankrupt the United States if it’s not fixed; so I don’t see how adding pharmaceuticals into the mix will help anyone but the government!

    • Walter says:

      As someone who’s worked in R&D of the pharma industry, I can justify why pharma can and should keep maintaining the supposedly high prices on their drugs. The exorbitant cost of research alone runs into billions if not tens of billions of dollars. BUT if that’s not satisfactory enough, the pricing of the drugs actually saves money. Why do insurance companies even bother covering costs of drugs that run from $1,000-$200,000 per patient? The reason is that if the patient did NOT take the drug, he would end up costing the healthcare system/insurance companies even MORE money from hospitalization costs, diagnostics, physician evals, palliative care for diseases with no SOC, medical equipment, etc. In effect, one patient can end up costing insurance companies well into a million dollars due to direct and peripheral costs.

      I would read the Obamacare related articles elsewhere on this site before jumping to conclusions. Yes, Obamacare is a fiasco in terms of implementation and execution. However, it’s not logical that the government SOLELY benefits from the strategy described by Dr. Pogge. In a sense, the government only provides an incentive, not regulatory action as suggested by your comment. This might actually appeal to right-wing conservative views (especially if they are looking for some middle ground), because this models free market competition/capitalism (with government mediation not regulation). Of course, HIF is a theoretical strategy and there are likely other overlooked factors than in this short discussion here.

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