We are living in the shadow of the COVID-19 pandemic – anxious about our families, our friends and ourselves, depressed by worldwide suffering and anxiety, upset by knowing that once more the poor and marginalized are worse affected. Could the rules and practices organizing healthcare around the world have been better suited to this outbreak? Let us consider the Health Impact Fund as a plausible institutional reform of the current regime for developing and marketing new pharmaceuticals.
Medicines are among humanity’s greatest achievements. They have helped realize dramatic gains in health and longevity as well as huge cost savings through reduced sick days and hospitalizations. The global market for pharmaceuticals is currently worth US$1,430 billion annually, 1.7 per cent of the gross world product (IFPMA, 2017: 5). Roughly US$800 billion thereof is spent on brand-name products, which are typically under patent (IFPMA, 2017: 51).
Commercial pharmaceutical research and development (R&D) efforts are encouraged and rewarded through the earnings that innovators derive from sales of their branded products. These earnings largely depend on the 20-year product patents they are entitled to obtain in WTO member states. Such patents give them a temporary monopoly, enabling them to sell their new products without competition. Under the protection of their patents, they can raise a product’s price far above manufacture and distribution costs while still maintaining a substantial sales volume. Such mark-ups yield large profits for commercial innovators and enable them to invest in new R&D, currently at a rate of US$189 billion a year (Mikulic, 2020).
Monopoly patent rewards are highly effective in stimulating successful research and development but do poorly in the next two stages: rapid scale up of manufacturing and strategic distribution to optimize containment and suppression of the disease. A Health Impact Fund (HIF) approach would do better in all three phases by focusing innovator attention on the population level: giving innovators strong incentives to minimize the number of new infections and to avert the evolution of new strains. Such incentives would motivate innovators to take full account of third-party effects of their treatments and therefore to prioritize the people whose treatment would have the largest effect rather than those who can bid the most money, including even very poor people in their strategy. This method would also encourage manufacturers to reduce the cost of producing and distributing vaccines, a goal that is paramount to the HIF’s success.