Sunday, November 04, 2007

New Bill to Replace Pharmaceutical Patents With Prizes

James Love reports that Senator Sanders has submitted the "Medical Innovation Prize Act of 2007". This bill would replace the current U.S. patent system for pharmaceuticals with an $80 Billion prize incentive system. This isn't a space prize, but it deserves attention here both because the prize aspects of the bill relate to the politics of space prizes, and because many future space business hopes feature research or manufacturing for pharmaceutical companies.

Here's more about the bill from KEI Online. One key aspect of the bill is described here:

In recent years, there has been a proliferation of prizes to stimulate innovation in fields as diverse as movie preferences, space travel, mining, energy and the environment, and medical science.

Unlike many of these prizes, the Medical Innovation Prize Fund is not a winner-take-all contest based upon success in achieving a specific technological outcome. Instead, every new prescription drug or biologic product registered by the FDA would "win" something from the prize fund, but the amount given to a developer would vary, according to the evidence, obtained over a ten year period, that the product improved healthcare outcomes.

The FDA Law Blog has more.

Senator Sanders includes comments about the bill in his week in review. The text of the bill is here.

The bill sets up a Board of Trustees to manage the fund, and to judge how much money each FDA-approved drug or process that goes through the equivalent of a patent award will win in lieu of a temporary patent monopoly on the drug. The Board of Trustees would be made up of health-related government officials, as well as consumer advocates and business representatives.

I'm skeptical of the various academic attempts to design a prize system to replace the patent system. I was also skeptical of the John Edwards Patent Replacement Prize System, although in that case I didn't have the details, and could only speculate that the proposed prize system would be similar to the various academic patent-replacing prize systems that attempt to carve out a slice of the supply-demand curve by changing innovation incentives. In the case of the Sanders bill, the details are there in the bill text for everyone to evaluate.

I have to say that all of the issues I mentioned in the Edwards bill post apply in this case, so you can check there for the details. The exception is that with this bill, the prize amount ($80 Billion) isn't too small. In fact, it's so big that I can't see it being seriously considered in a real vote, in spite of the bill claim that government savings from removing patent prices (eg: for Medicare) would more than pay for the prize money.

In addition to all of the issues with the bill, I also think it isn't realistic in the sense that, if we can't even get a harmless tiny Centennial Challenges prize program funded, how can we get a huge medical prize program funded that would step on a lot of big business toes that have evolved to work in the patent regime?

Also, the government Board of Trustees to decide how much prize money to award sounds dangerous. Imagine a Space Prize Board of Trustees made up of, say, the NASA Administrator, NASA representatives of the Shuttle, ISS, and ESAS, representatives of Lockheed-Martin, Boeing, ATK, United Space Alliance, United Launch Alliance, and a couple science representatives from NOAA or academia. Do you think the board would make fair and productive decisions on space prize awards? Do you think this government board would be immune from political interference or conflict of interest?

I also don't agree with the criteria the Board is supposed to use to judge the merit of the drugs. The claim is that the patent system leads pharmaceutical companies to develop drugs that aren't beneficial. I assume they mean drugs that don't cure life-threatening illnesses, but rather address problems like cold symptoms and bedroom performance. Such is the way of the free market (or what passes for a free market in the heavily government-dominated area of health care), which tends to address problems that people are willing to pay money to solve, rather than those the pure and virtuous Board of Trustees wants to solve. The factors the Board is supposed to consider are important, but I would also have them consider economic aspects (days off work, health care costs, etc), age of beneficiaries (solving a long-term health problem that I have is less important than one someone 25 years younger has, since they will probably be affected by it for much longer), as well as giving consideration to what people really want (especially those that have contributed enough to society to be able to pay for what they want).

I'm also curious about how the bill would handle international issues. Would it award billions of U.S. government dollars to foreign companies? Would Congress go for a bill that allows that? How would foreign governments react if the U.S. removed its patents? Companies may invest in innovations in the hope of winning patent monopolies in multiple countries. If foreign governments remove their patent protections because the U.S. has in the prize regime, the prize money may need to be a lot bigger to offset this effect.

Instead of such a huge, potentially disruptive prize system that may have a lot of unintended consequences (or intended consequences that a lot of us wouldn't agree with), I'd recommend a small prize regime targeted to specific health problems. It could focus on a limited set of health problems, allowing the excitement, publicity, competition, and education of something like the X PRIZEs and similar targeted innovation prizes. This is the prize mechanism that has worked in the past, so why start such a big program with a new, untested approach?

Like X PRIZEs, it could be directed at specific health problems that the current drug market hasn't addressed well.

It could be presented in a way where the winner has the option of taking the prize money or taking a patent, so that existing business interests are not threatened. If you are serious about increasing the incentive for productive innovation (rather than taking a swipe at capitalism or at least big business), there is no reason to REPLACE the patent system that currently brings about so much productive innovation, when you could instead SUPPLEMENT the existing patent system or give innovative companies the OPTION to exchange their patent (or some years of it) for big cash prizes. Such an OPTIONAL prize system would have the virtue of allowing calibration of prize amounts. If noone is taking the prizes, perhaps they are too small to provide the innovations you want, and vice versa, if everyone takes them but you're not getting much more innovation, perhaps they are too big and you're wasting money.

It could even have a component that is directed at solving health problems using space microgravity research and development, which would give it another happy constituency (that's us space folks!) and help solve other problems at the same time (what to do with the ISS, space access incentives, incentives to develop Bigelow-style space stations, etc).

After we have a chance to evaluate this "trial run" smaller and less disruptive prize regime, we could then take incremental steps to expand the program to the extent that its performance shows it deserves it.

In spite of my criticism of this bill, it's good to see political interest in innovation prizes from a diverse set of political figures, and this bill is no exception. Although I see problems with the details of the bill, I'm in favor of the idea of prizes for innovations in pharmaceuticals. Hopefully the bill will generate discussion and different political interests will carry the idea forward through compromises and negotiations in such a way that the problems and costs are minimized and the productive innovation incentive is maximized.