[Ip-health] Thomas Pogge and Jake Hirsch-Allen respond to Sakiko Fukuda-Parr and Proochista Ariana

Jamie Love james.love at keionline.org
Mon Oct 3 09:20:10 PDT 2011

Attached an 2997 word response of Thomas Pogge and Jake Hirsch-Allen to the
earlier ip-watch article by Sakiko Fukuda-Parr and Proochista Ariana.   As
KEI is mentioned as often are the authors, we might provide a commment on
this.  Jamie


Inside Views
A Response From The Authors Of The Health Impact Fund
Intellectual Property Watch

Published on 3 October 2011 @ 3:18 pm

By Incentives for Global Health

In reaction to the recent post “Health Impact Fund – Raising Issues of
Distribution, IP Rights and Alliances,” by Sakiko Fukuda-Parr and Proochista
Ariana, we offer this response on behalf of Incentives for Global Health
(IGH), the non-profit organization that is developing the Health Impact Fund
(HIF) proposal.

For ease of exposition, we address their criticisms in reverse order.


Our critics are correct to point out that IGH has not done well in forging
alliances with civil society organization in the global North. The main
reason for this has been the hostile reaction to the HIF proposal by
Knowledge Ecology International (KEI). We have tried hard, within our tight
resource constraints, to persuade global health activists to examine our
proposal first-hand (at www.healthimpactfund.org) rather than to rely on
KEI’s inaccurate characterizations of it. Perhaps we deserve to be
criticized for not trying hard enough. But this criticism has a strange ring
when it comes from the chair of KEI’s Board of Directors, Sakiko

Providing a list of efforts and successes that exemplify alliances aimed at
protecting global health, the critics complain that our HIF proposal is
“oddly out of sync with this global network.” This cannot mean that we have
opposed those other efforts, because we have, as individuals and as an
organization, supported nearly all of them in published work or through
donations. Instead, it likely means that we have persisted in developing a
proposal even after it had been attacked by KEI. We have done this because
we believe that the serious objections to our proposal can be met and that
the HIF, suitably designed, constitutes a politically feasible reform that
would inaugurate revolutionary improvements in global health.

Our confidence in the HIF proposal may, of course, be misplaced. If so, we’d
prefer to know sooner rather than later. We are therefore most grateful for
any well-informed criticism of our work, no matter how severe. We are
committed to the HIF proposal only because and only insofar as we are
convinced that it can actually bring massive improvements in global health.
This is not about intellectual contests or academic egos but about achieving
a morally imperative goal. Committed to this goal, we stand ready to abandon
the HIF proposal if it is shown to be unworkable. Committed to this same
goal, you should stand ready to study the HIF carefully and to support it if
you find it compelling. This critical search for the best ideas is the very
least we owe to the poorer half of humanity who, living on less than three
percent of global household income, are far more vulnerable to disease and
far less able to cope with it.

Social Determinants of Health

Fukuda-Parr and Ariana are right to claim that poverty and disease can be
more cost-effectively addressed by ensuring adequate supplies of clean
water, nutritious food, sanitation, housing and (we would add) education
especially for women and girls. We fully and actively support these efforts.
But does this mean that we should not seek improved medical care as well?
Here it would seem to be Fukuda-Parr and Ariana who are oddly out of sync:
with the scientists and companies that develop new medicines, with the
health systems and staff that deliver those medicines, and with the global
movement that has been fighting for access to essential medicines and to
antiretrovirals in particular. The activists of this movement are a great
inspiration to us, and we do not think that their immense energies would be
better spent fighting for clean water.

Why not? Because access to medicines is a cause we can win, politically, and
in the short-term. This is so because the injustice is so egregious and so
evident. Medicines that can be mass-produced for pennies are, under patent
protection, sold for dollars and those who would manufacture and supply
cheaper versions are shackled by laws, courts, and police. The resulting
deaths and hardships manifest not merely a passive failure to assist but an
active exclusion of the poor from advanced medicines. Confronting their
fellow citizens with this massive injustice, health activists around the
world have greatly contributed to putting issues of global justice on the
public political agenda, in their respective countries and worldwide.

We can try to overcome this injustice with a piecemeal approach, fighting
highly resourceful pharmaceutical companies across thousands of products in
hundreds of jurisdictions year after year. Or we can try a revolutionary
approach, turning the incentives of such companies upside down so that their
interests become aligned with those of patients. The HIF exemplifies this
latter strategy: changing the rewards of pharmaceutical innovators to give
them substantial financial incentives to achieve the competent delivery of
important medicines at very low prices to even the poorest patients.

Financed primarily by willing governments in proportion to gross national
income, the HIF would offer innovators the option to register any new
medicine, thereby undertaking, during its first decade on the market, to
make it available at no more than the lowest feasible cost of production and
distribution and, once these ten years have elapsed, to waive any remaining
patent protection so as to allow free generic production and distribution of
the product. In exchange, the registrant would receive, during that 10-year
period, annual reward payments based on its product’s worldwide health
impact assessed in quality-adjusted life years (QALYs). Each reward payment
would be part of a large annual pay-out – initially about USD 6 billion –
with every registered product receiving a share equal to its share of the
assessed health impact of all HIF-registered products in the relevant year.

The HIF would foster the development of new high-impact medicines against
diseases that are now neglected because innovators cannot recover their R&D
costs from sales to the poor. It would also promote access to new medicines
by limiting the price of any registered product to the lowest feasible cost
of production and distribution. In addition, the HIF would motivate
registrants to ensure that their products are widely available, perhaps even
below the price ceiling, and that they are competently prescribed and
optimally used.

The HIF does not stake a claim on development aid funds and so does not
compete with other uses for such funds. Rather, the HIF is a better way of
paying for pharmaceutical innovations, which affluent populations are in any
case determined to pay for. It is better morally because it allows
HIF-rewarded innovators profitably to provide new medicines to the affluent
without having to exclude the poor. It is better medically because, when
innovators profit not from mere sales but only from actual therapeutic
benefits, all patients are more likely to receive the medicines that are
best for them. It is better economically because the HIF avoids the extreme
wastefulness of the present system under which large mark-ups cause huge
deadweight losses (as innovators cannot take advantage of profitable sales
at lower prices) and most of the money spent on patented medicines goes not
into new research but into intensive marketing efforts that mostly
neutralize one another, into filing clever patents in dozens of
jurisdictions, into protracted litigation, into lobbying and gaming
activities aimed at extending market exclusivity and to counterfeiters. This
gross wastefulness presents a golden opportunity to formulate and implement
a reform that mitigates a horrendous injustice to poor patients even while
it also benefits the other stakeholders: affluent patients, governments,
taxpayers, pharmaceutical innovators, generic firms, insurance companies,
international organizations and NGOs.

Intellectual Property

Our critics censure that the HIF would allow registrants to retain
intellectual property rights in their registered products and that this
would lead to higher prices and impede collaborative research. It is true
that under the HIF, as currently proposed, registrants retain the right to
control, during the patent period, the use of their patented knowledge for
follow-on innovations and are required to offer zero-cost licenses for the
manufacture and sale of their product only at the end of the 10-year reward
period. Our critics suggest that such intellectual property rights lead to
higher prices and heavy concentration in the pharmaceutical industry.

In response, we strongly agree that the HIF ought to aim for low prices of
registered products and hence for low manufacturing costs. How best to
achieve this goal may vary according to type of product and market (see
Aidan Hollis’ paper at
www.yale.edu/macmillan/igh/files/papers/DP1_Hollis.pdf [pdf]). Open
licensing is not always the best method for achieving low prices: in small
markets with inadequate competition, for instance. It may often be better to
require the innovator to put the manufacture of the product out for tender
with 2/3 of manufacturing going to the lowest bidder, perhaps, and 1/3 to
the second lowest. The innovator would buy the medicine at these lowest bid
prices and sell it on without mark-up. The tender process could be repeated
every few years to capture any new price advantages afforded by improved
manufacturing technologies.

In many circumstances, this tender method would likely be a more effective
way of organizing competition among generic manufacturers because of
improved economies of scale: instead of many firms gearing up to produce the
product in many countries, only two (the winners of the tender) will do so
and then produce much larger quantities. Moreover, generic firms will be
more willing to compete, and to cut their price to the bone, when they can
hope to win a large share of the entire global market rather than merely a
slightly increased share of some national market.

In yet other circumstances, if there is inadequate competition even within a
tender, using an administered maximum price may be the best strategy. The
choice among these options depends on the technological characteristics of
production in a specific market; there is no reason to suppose that a single
mechanism will fit every circumstance.

Though our concern is for the lowest price, we might add that the tender
system would, if anything, be an improvement for smaller firms as they could
take advantage, in the manufacture of one or two medicines, of the same
substantial economies of scale that larger firms exploit for several dozen
products. In the current system, by contrast, small companies labor under a
handicap as they must compete with larger firms that manufacture the same
products in much larger quantities for a global market.

There are further reasons for wanting innovators to retain the option to
control distribution. First, assessing the impact of the introduction of a
new product becomes much easier and cheaper when there is only one
authorized seller rather than many others as well who may not want to
provide accurate sales data to the HIF. Second, a firm which is being
rewarded based on impact will have an incentive to keep prices low wherever
consumers are price sensitive, because the firm can profit from achieving
health impact even among those poor patients. Such a firm may well drop
prices below cost – something generic firms will never do because they
obtain no separate reward based on volume. Third, with only one authorized
seller, the timing of HIF rewards can be adjusted for the special case of
medicines whose long-term utility is endangered by the development of
resistance. For example, the important goal that new anti-infectives should
be used sparingly, only in cases where the older products fail, is best
promoted when distribution is controlled by a single agent incentivized to
maintain the medicine’s efficacy for as long as possible. (We explore this
important theme in a forthcoming paper authored with Kevin Outterson:
“Combating Antibiotic Resistance through the Health Impact Fund.”)

Fourth, the more registrants are required to give up as a condition for
participating in the HIF reward pools, the more reluctant they will be to
register and the higher the reward rate will therefore tend to be. This
means that requiring open licensing would come at the expense of achieving
health impact. In some cases it is worth paying this price – we support, for
example, a requirement that HIF-rewarded products be manufactured under
decent labor conditions even though this might raise the reward rate and
thereby reduce the Health Impact Fund’s own health impact. It is not worth
paying this price, however, for open licensing which brings no significant
benefits relative to the tender method.

Should the HIF pay this price by requiring registrants to relinquish their
rights to control follow-on innovations? We believe that this requirement
would be costly in terms of raising the reward rate and that, even without
it, the HIF would give a substantial boost to open science (as discussed in
our September 2010 Newsletter, www.yale.edu/macmillan/igh/newsletters.html).

Distribution of Costs and Benefits

A similar response can be made to our critics’ complaint that “there are no
guarantees that the manufacturer, the company who offers the most
competitive bid, would be from the global South.” Incorporating such a
guarantee would entail higher prices, to the detriment of patients, and
would also make the HIF proposal less acceptable in more affluent countries.
Nonetheless, even without any guarantee, it is likely that most
manufacturing of medicines would end up in the global South, where many
firms (especially in India) are already far more cost-effective than
manufacturers in affluent countries.
By shifting R&D toward the heretofore neglected diseases of poverty, the HIF
would bring relative benefits to innovators in the global South as well.
Such innovators find it difficult and expensive to compete in the
development of drugs against global diseases, where “Big Pharma” has already
spent untold billions. They have much better prospects, however, when
competing in developing drugs for neglected diseases, which “Big Pharma” has
ignored and where they have easy access to patients.

Our critics worry that the poorest of the poor might still not get access to
advanced medicines because the HIF’s “estimates may allot less weight to the
gains for, or entirely overlook, the poorest or most needy populations.”
This is incorrect: the HIF assigns equal weight to therapeutic benefits,
regardless of the patient’s income or wealth. Referenced by our critics,
Ingrid Robeyns in fact expressed a different, more plausible worry: that
firms might not find it profitable to deliver their HIF-registered products
to remote areas because the additional health impact rewards so earned might
be smaller than the cost of such delivery (especially when the potential
patients can be reached only by selling even below the HIF-mandated price
ceiling). But in such a case, the local health ministry or international
organizations or NGOs can step in and bridge the funding gap – much more
cheaply than with drugs that are sold with high, patent-protected mark-ups
and earn no health impact rewards. So the creation of the HIF would benefit
even the poorest people in the most remote areas: by making it much more
likely that medicines relevant to them would be developed and then made
accessible to them.

Our critics further contend that “there is … no objection made by the HIF
proposal to the very high profits for healthcare innovations.” In fact, the
HIF addresses excessive profits in two ways. First, it is designed so that
its reward rate (dollars per QALY) is self-adjusting: the HIF won’t generate
windfalls for pharmaceutical innovators because an overly lucrative reward
rate would quickly be reduced by the additional product registrations it
would elicit. Second, the existence of very cheap HIF-registered medicines
will have a dampening effect on the prices of other products still sold with
patent-protected mark-ups. Nonetheless, we think that profits are a suitable
innovation incentive: successful innovation requires large, risky
investments in research and clinical trials and will occur only insofar as
innovators find such investments worthwhile. We do not object to firms being
rewarded handsomely for delivering proportionately large benefits to

Our critics greatly overstate the projected cost of the HIF: we propose that
it be commenced with annual reward pools of USD 6 (not 60) billion. Costing
only about 0.7 percent of what humanity now spends on medicines, the HIF
would bring savings that are vastly larger: savings from cheaper medicines,
savings from avoided hospitalizations and operations, and gains from higher
productivity. Moreover, the HIF would relieve the world’s poor from some of
their massive disease burdens. Once the HIF works smoothly, its annual
reward pools could be scaled up to attract an increasing share of new

It is true that we have not acknowledged health as a public good; we simply
don’t know what this would mean. The HIF transforms pharmaceutical
innovation into a public good, financed by all and freely available to all.
It thereby achieves massive efficiency gains (through reductions in
lobbying, gaming, litigation, patenting, excessive marketing, counterfeiting
and deadweight losses) which ensure that affluent populations will benefit
even if initially much HIF-inspired research will target neglected diseases.

The HIF faces serious challenges regarding the reliable assessment of health
impact and the attraction of long-term funding commitments. Let us explore
together whether the HIF is a worthy idea and, if so, whether we can
overcome these challenges.

We encourage interested readers to examine the Health Impact Fund proposal
at www.healthimpactfund.org and to contact us at
contact at healthimpactfund.org.

Incentives for Global Health is the team that is developing the Health
Impact Fund proposal. The authors of this piece are Thomas Pogge, Leitner
Professor of Philosophy and International Affairs at Yale University and a
Director of Incentives for Global Health, and Jake Hirsch-Allen, an
intellectual property lawyer and a consultant to Incentives for Global

James Love.  Knowledge Ecology International
http://www.keionline.org, +1.202.332.2670, US Mobile: +1.202.361.3040,
Geneva Mobile: +41.76.413.6584, efax: +1.888.245.3140.  Sometimes I am using
my MaxRoam number: +447937390810

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