How To Encourage Drug Development for Resource-Poor Populations? A Quandary

An ongoing debate at the medicine-Pharma interface is what to do about the huge disparity in drug R&D that focuses almost exclusively on chronic and lifestyle conditions in the rich countries and ignores most of the diseases that now kill millions in the poorer nations--where it is not profitable for the big companies to sell their brand-name drugs. A debate over one creative plan to fix this problem exposes one of the lingering issues in developing regulations or incentives for the pharmaceutical industry.

Aidan Hollis and Thomas Pogge have proposed a Health Impact Fund (http://www.yale.edu/macmillan/igh/hif_book.pdf) to be paid for by the rich nations, and to attempt to use the current patent process by providing monetary incentives. Briefly, a company marketing a new drug could apply for funding to the HIF. The HIF would pay a fee based on the total, global health impact of the drug. In return the company would agree to sell it basically at cost for 10 years, then to make it available by open licensing agreements (while retaining all its basic patent rights throughout). Ideally companies would now be incentivized to develop drugs that cured or prevented the most cases of diseases, globally, and also to help fix the broken health systems in resource-poor countries that now prevent those suffering from getting needed medicines even when they are affordable. Hollis and Pogge estimate that about a $6B nest egg would get the HIF off and running.

In a recent volume on global public health and patent law, Kathleen Liddell of Cambridge offers a number of criticisms of HIF, stressing that she believes that HIF is a very important proposal and that her criticisms should be viewed as trying to improve rather than sideline it. In the process she makes an important statement: "[T]here is an unsettling feeling that the proposal plays right into the hands of the pharmaceutical industry. It fuels their search for profits, offering them yet another optional method to increase their existing profit margins at the expense of the public purse, when they are already among the very wealthiest industries." In short, Hollis and Pogge feel that one of the strengths of their HIF proposal is that it is almost all carrot and hardly any stick, whereas Liddell would like to see a bit of stick brought out--or at least pressure placed on the industry to better live up to its social obligations.

Let me explain why I found this passage from Liddell especially scary, first by delving into a bit of ancient history. The 1980s marked one of the first experiments at the Federal level in containing medical costs. The focus was on hospital costs which were skyrocketing due to the ease with which hosptials, and the doctors who worked there, could simply keep patients longer and do more stuff, and both Medicare and the private insurance of the day would simply pass the costs through to the payers. The response was the DRG (diagnosis related group) system: "Tell us what, in the end, you figured out was wrong with the patient that caused the hospitalization. We will then consult a table of averages for the cost of taking care of a patient with that condition. We'll pay you the average figure, regardless of what the stay actually cost you." In other words, incentivize hospitals to provide care more efficiently, not at higher cost.

Now, the Feds figured that the DRG system would work in a certain way, based on its pedigree. DRGs had been invented by a group of health service researchers at Yale, because to do their research, they needed to have a way of calculating how sick and with what diseases were the patients being admitted to different hospitals. When they initially used their DRGs for research purposes only, no one got paid more or less because of it.

But as soon as actual payments hinged on DRGs, a lot of things changed--most of which were not anticipated by the Feds. To take just one example, in about 1.3 seconds, software firms developed complex packages to tell hospitals, if a patient with certain symptoms and diagnoses could potentially be classified under 2-3 different DRGs (as often occurred), which classification would net the hospital the most bucks. The result was "DRG creep." If in 1984, hospital discharge diagnoses were more or less evenly distributed over the whole DRG spectrum, by 1986 or 1988, the distribution had changed dramatically, so that a majority of hospitalizations just by coincidence fell under the DRGs that reimbursed the most. In short, once real money was at stake, it took the hospitals an eyeblink to figure out how to game the system.

Now fast forward to today, when we are all too keenly aware of how easy it is for the drug industry to manipulate research findings for its profitable drugs--which as we have seen mostly affect a few million people in the rich nations of the world. If, for example, Merck lies to us about how risky Vioxx is, then the people getting the heart attacks are people in the wealthy part of the world, and relatively few of them on a global scale. Now imagine that we made it worth a half billion or a billion dollars to a drug company if only they could show, scientifically, that a new drug for malaria or TB was saving lives across Africa and Asia. Could we seriously doubt that some of the same gamesmanship that we see evidenced today in industry research would not reappear, in spades, in the global health context--even though now the lives and health of hundreds of millions are at stake? No matter what the other advantages of something like the HIF, is this really something we want to try to wrestle with?

Liddell K. The Health Impact Fund: a critique. In: Pogge T, Rimmer M, Rubenstein K, eds. Incentives for global public health: patent law and access to essential medicines. New York: Cambridge University Press, 2010.