The Prize is Right
What can we learn from drug PRICE setting mechanisms for the establishment of inducement PRIZES in medical R&D?
CPTech wants to show that the idea of introducing a Medical Innovation Prize Fund is not just a revery out of the ivory tower. Rather, it is a viable and highly promising approach to solve the problem of eminent market failures in the development of new medicines.
Why establish a Prize Fund?
Traditionally, medical innovation is rewarded by the granting of patent rights. In this scheme, innovators are given the right of unchallenged commercialization of their products for a few years. The expectation of due profits through exclusive intellectual property rights is expected to keep research and development (R&D) going at a high level.
Yet this mechanism is seriously flawed in many ways: Patent rights are indeed “exclusive rights” in many senses: they exclude large portions of the world population from enjoying the latest medical innovations – simply because most people lack sufficient funds to afford those medicines. Finding a cure for “neglected diseases” is delayed and even prevented, because potential customers lack purchasing power and there is no profitable market.
More and more people wonder why private entities should enjoy profits from patent protection, while basic research of these proucts has largely been funded with public grants.
Manifold efforts have been made to limit the grim effects of patent protection on people in both developing and developed countries. Yet in a way, these efforts are but meddling with the symptoms of a flawed system. A sustainable solution is much needed.
In many instances, prizes have proven to be an instrument to foster innovation. A wide range of technological innovations has been spurred by the competition for the achievement of prizes. Examples include the race for the first transatlantic flight, for the first private flight into space, for the most enduring robots in an all-terrain race, for the first computer to defeat a world chess champion, for developing a method of precisely measuring longitude…
Why not employ inducement prizes as methods to boost medical innovation in much-needed (and so far neglected) fields of research?
How would it work?
A prize fund could grant abounding rewards to researchers who bring about true innovation in essential fields. Thus, questionable spending on research for “me-too drugs” and “lifestyle drugs” could be avoided and redirected towards finding drugs for the fight against rampant diseases.
The prize fund would be installed instead of the currently used intellectual property regime. This means that the morally problematic effects of patent protection could be effectively tackled. New drugs would immediately become eligible for cheap generic production. (In fact, the term “generic manufacturing” would become somewhat obsolete, since all drugs would enter generic manufacturing mode after prizes have been awarded.)
The effect would be what economists call a “separation of markets”. On the one hand, there would be a highly competitive R&D struggle for prize money. On the other hand, there would be a market for the manufacturing of drugs – where drugs would be free of extra costs for the homaging of patent rights.
Research and Development of pharmaceuticals is an expensive endeavour. But don’t worry, the prize fund would be well-equipped financially and prizes would be luring incentive more than just fair reimbursement.
Sounds good? Well, the prize fund is not yet fully workable, though. Here’s why:
Troubleshooting
Let us suppose that somebody proposed a prize for the best drug against, say, Malaria.
Evidently, this would create competition for a new and better drug. Yet who knows how big the prize should be in order to spur optimal investment? It should neither be too modest nor too lush.
Matters are further complicated when it comes to figuring out which of the many innovations should be rewarded with how much prize money. Who gets the biggest chunk of the pie? Who determines whether the new AIDS vaccine or the new cancer treatment gets more? And if there are multiple solutions for the same disease, who determines which one will make the race? These questions are important – they have to be solved!
Already, there are people who say they would rather be willing to put up with the negative side-effects of the patent system than permit inefficient, intransparent government agencies to begin arbitrary prize-setting.
Help is on the way…
These people ignore the fact that solutions are just around the corner. Most developed countries already employ efficient, sophisticated and highly acclaimed schemes to assess how much pharmaceuticals are worth. Among them are Australia, Canada, Germany, New Zealand, the United Kingdom…
These countries want to find out whether a medicine should be put on a list of drugs that are reimbursed by public healthcare systems. They also want to know what a reasonable price would look like for those drugs and how much they are going to pay for them through public healthcare systems.
Many such schemes of price regulation rely on a mechanism called “reference pricing”. In reference pricing, similar drugs are put into a category and the average (“reference”) price is figured out. No new drug may then exceed the reference price – this prevents exceedingly high prices. While this might be a useful mechanism, it does not relate immediately to the Prize Fund idea.
Rather, today’s take-home message is that many countries already implement evaluation mechanisms for drugs. They assess drugs with regard to their effectiveness - to find out whether they are worth their price.
How does that relate to the Prize Fund?
These assessment strategies, evidently, could help figuring out how reward sums should be shared out in the Prize Fund. New drugs would be awarded according to their merits in terms of quality of life improved, life years gained, negative side-effects avoided etc.
In the assessment of pharmaceuticals, so-called utility measures play an important role. They reflect how people assess certain health outcomes that are brought about by medical treatment.
Many people might prefer losing a leg over losing their life. The amputation of the leg can thus be a preferred health outcome in some states of severe illness. This sounds banal. But a similar rationale can be applied to more tricky questions, too.
To do this, drugs can be evaluated according to how many “quality adjusted life years” (QALYs) they bring about. What is the concept behind this bulky term, and why might it be so important for the Prize Fund?
Assessing drug QALYty
To evaluate a drug in terms of QALYs gained, medical trial data are needed. The drug is scrutinized to find out which improvements – and which adverse effects – it brings about.
The next step is to find out how patients, professionals, or the public value those improvements and adverse effects. This can be done through questionnaires that may be designed according to various principles: Respondents may be asked to place each health state in question on a list, with intervals between items reflecting preferences. They might also be asked how much of their lifetime they would be willing to trade in for reaching a certain health state. Sometimes, preference scaling has been done by asking respondents how much they would be willing to pay for a certain outcome. (Yet this approach might reflect a person’s ability to pay rather than their true preferences).
Let (Y) be the score that a certain state of health reaches on a preference scale between 0 (death) and 1 (perfect health). QALYs are then the arithmetic product of this score multiplied by life expectancy. Thus, if a drug leads to a perfect state of health and prolongs the patient’s life for 20 years, it produces 20 QALYs. If the drug leads to a sub-optimal state of health with a score of 0.5 (for example, lack of appetite, or severe dependency), and prolongs the patient’s life by 20 years, then it produces 10 QALYs.
The employment of QALYs and similar quality measurements has advantages that might make those instruments meaningful for the Medical Innovation Prize Fund. QALYs are like a currency to compare health outcomes. Their biggest advantage is that they refer to the general health status of patients rather than to disease-specific improvements. Thus, they can be used to make comparisons across different groups of treatments and diseases – which is exactly what would be needed to determine which innovation deserves how much reward.
Yet the concept of QALYs still includes many serious drawbacks. These flaws have to be fixed and considered if quality assessment of drugs is to become a workable part of the Prize Fund. I would like to list some of them here.
Problems that have to be considered
One problem is that even if a drug was successfully assessed in terms of QALYs, the QALY-score alone could hardly be the decisive factor in setting a prize. I don’t know whether maximising overall raw QALY scores should be considered an end in itself. Scores might have to be adjusted in various regards.
This is because additional QALYs may be very difficult and expensive to reach in a field where research has been conducted for a while. Maybe some kind of progressive scaling could be implemented that grants bigger awards to more difficult QALY-accomplishments.
Drugs for some diseases might be structurally disadvantaged in the race for rewards, because it would be more difficult to score extra QALYs in tackling chronic diseases. Even though in chronic diseases, quality of life could be significantly improved, life expectancy might not necessarily increase at all. Thus the little QALY gains in chronic disease treatment might be completely unattractive compared to QALY gains in tackling acute life-threatening diseases.
To solve this problem, a key would have to be developed in order to adjust QALY gains by the type of sickness treated.
Another important question is whether preference scaling methods used for the valuation of health states lead to morally and politically sound results.
Even if the majority of patients preferred a certain health outcome and therefore gave it higher scores (leading to higher QALY-scores and rewards for the drug), this procedure would not reflect the preferences of everyone concerned. It might even be that the voice of those that are affected most is ignored, because preference ranking might rely on questionnaires given to the general public, not given to patients. QALY measures as they are collected today grossly misrepresent mental, emotional and social factors. For example, QALY scores would not directly reflect the improvements and burdens a drug brings about for a person’s social surroundings. A drug might bring about disproportionately great relief for poor patients or parents, thus benefiting the patient and many dependants at the same time. Yet it would still be judged only according to the utility it has for the single patient.
Let’s do it!
These problems will be but minor obstacles on the way to a Prize Fund for Medical Innovation. They can and will be overcome.
Everyone is invited to think about how this can best be done.
CPTech wants to show that the idea of introducing a Medical Innovation Prize Fund is not just a revery out of the ivory tower. Rather, it is a viable and highly promising approach to solve the problem of eminent market failures in the development of new medicines.
Why establish a Prize Fund?
Traditionally, medical innovation is rewarded by the granting of patent rights. In this scheme, innovators are given the right of unchallenged commercialization of their products for a few years. The expectation of due profits through exclusive intellectual property rights is expected to keep research and development (R&D) going at a high level.
Yet this mechanism is seriously flawed in many ways: Patent rights are indeed “exclusive rights” in many senses: they exclude large portions of the world population from enjoying the latest medical innovations – simply because most people lack sufficient funds to afford those medicines. Finding a cure for “neglected diseases” is delayed and even prevented, because potential customers lack purchasing power and there is no profitable market.
More and more people wonder why private entities should enjoy profits from patent protection, while basic research of these proucts has largely been funded with public grants.
Manifold efforts have been made to limit the grim effects of patent protection on people in both developing and developed countries. Yet in a way, these efforts are but meddling with the symptoms of a flawed system. A sustainable solution is much needed.
In many instances, prizes have proven to be an instrument to foster innovation. A wide range of technological innovations has been spurred by the competition for the achievement of prizes. Examples include the race for the first transatlantic flight, for the first private flight into space, for the most enduring robots in an all-terrain race, for the first computer to defeat a world chess champion, for developing a method of precisely measuring longitude…
Why not employ inducement prizes as methods to boost medical innovation in much-needed (and so far neglected) fields of research?
How would it work?
A prize fund could grant abounding rewards to researchers who bring about true innovation in essential fields. Thus, questionable spending on research for “me-too drugs” and “lifestyle drugs” could be avoided and redirected towards finding drugs for the fight against rampant diseases.
The prize fund would be installed instead of the currently used intellectual property regime. This means that the morally problematic effects of patent protection could be effectively tackled. New drugs would immediately become eligible for cheap generic production. (In fact, the term “generic manufacturing” would become somewhat obsolete, since all drugs would enter generic manufacturing mode after prizes have been awarded.)
The effect would be what economists call a “separation of markets”. On the one hand, there would be a highly competitive R&D struggle for prize money. On the other hand, there would be a market for the manufacturing of drugs – where drugs would be free of extra costs for the homaging of patent rights.
Research and Development of pharmaceuticals is an expensive endeavour. But don’t worry, the prize fund would be well-equipped financially and prizes would be luring incentive more than just fair reimbursement.
Sounds good? Well, the prize fund is not yet fully workable, though. Here’s why:
Troubleshooting
Let us suppose that somebody proposed a prize for the best drug against, say, Malaria.
Evidently, this would create competition for a new and better drug. Yet who knows how big the prize should be in order to spur optimal investment? It should neither be too modest nor too lush.
Matters are further complicated when it comes to figuring out which of the many innovations should be rewarded with how much prize money. Who gets the biggest chunk of the pie? Who determines whether the new AIDS vaccine or the new cancer treatment gets more? And if there are multiple solutions for the same disease, who determines which one will make the race? These questions are important – they have to be solved!
Already, there are people who say they would rather be willing to put up with the negative side-effects of the patent system than permit inefficient, intransparent government agencies to begin arbitrary prize-setting.
Help is on the way…
These people ignore the fact that solutions are just around the corner. Most developed countries already employ efficient, sophisticated and highly acclaimed schemes to assess how much pharmaceuticals are worth. Among them are Australia, Canada, Germany, New Zealand, the United Kingdom…
These countries want to find out whether a medicine should be put on a list of drugs that are reimbursed by public healthcare systems. They also want to know what a reasonable price would look like for those drugs and how much they are going to pay for them through public healthcare systems.
Many such schemes of price regulation rely on a mechanism called “reference pricing”. In reference pricing, similar drugs are put into a category and the average (“reference”) price is figured out. No new drug may then exceed the reference price – this prevents exceedingly high prices. While this might be a useful mechanism, it does not relate immediately to the Prize Fund idea.
Rather, today’s take-home message is that many countries already implement evaluation mechanisms for drugs. They assess drugs with regard to their effectiveness - to find out whether they are worth their price.
How does that relate to the Prize Fund?
These assessment strategies, evidently, could help figuring out how reward sums should be shared out in the Prize Fund. New drugs would be awarded according to their merits in terms of quality of life improved, life years gained, negative side-effects avoided etc.
In the assessment of pharmaceuticals, so-called utility measures play an important role. They reflect how people assess certain health outcomes that are brought about by medical treatment.
Many people might prefer losing a leg over losing their life. The amputation of the leg can thus be a preferred health outcome in some states of severe illness. This sounds banal. But a similar rationale can be applied to more tricky questions, too.
To do this, drugs can be evaluated according to how many “quality adjusted life years” (QALYs) they bring about. What is the concept behind this bulky term, and why might it be so important for the Prize Fund?
Assessing drug QALYty
To evaluate a drug in terms of QALYs gained, medical trial data are needed. The drug is scrutinized to find out which improvements – and which adverse effects – it brings about.
The next step is to find out how patients, professionals, or the public value those improvements and adverse effects. This can be done through questionnaires that may be designed according to various principles: Respondents may be asked to place each health state in question on a list, with intervals between items reflecting preferences. They might also be asked how much of their lifetime they would be willing to trade in for reaching a certain health state. Sometimes, preference scaling has been done by asking respondents how much they would be willing to pay for a certain outcome. (Yet this approach might reflect a person’s ability to pay rather than their true preferences).
Let (Y) be the score that a certain state of health reaches on a preference scale between 0 (death) and 1 (perfect health). QALYs are then the arithmetic product of this score multiplied by life expectancy. Thus, if a drug leads to a perfect state of health and prolongs the patient’s life for 20 years, it produces 20 QALYs. If the drug leads to a sub-optimal state of health with a score of 0.5 (for example, lack of appetite, or severe dependency), and prolongs the patient’s life by 20 years, then it produces 10 QALYs.
The employment of QALYs and similar quality measurements has advantages that might make those instruments meaningful for the Medical Innovation Prize Fund. QALYs are like a currency to compare health outcomes. Their biggest advantage is that they refer to the general health status of patients rather than to disease-specific improvements. Thus, they can be used to make comparisons across different groups of treatments and diseases – which is exactly what would be needed to determine which innovation deserves how much reward.
Yet the concept of QALYs still includes many serious drawbacks. These flaws have to be fixed and considered if quality assessment of drugs is to become a workable part of the Prize Fund. I would like to list some of them here.
Problems that have to be considered
One problem is that even if a drug was successfully assessed in terms of QALYs, the QALY-score alone could hardly be the decisive factor in setting a prize. I don’t know whether maximising overall raw QALY scores should be considered an end in itself. Scores might have to be adjusted in various regards.
This is because additional QALYs may be very difficult and expensive to reach in a field where research has been conducted for a while. Maybe some kind of progressive scaling could be implemented that grants bigger awards to more difficult QALY-accomplishments.
Drugs for some diseases might be structurally disadvantaged in the race for rewards, because it would be more difficult to score extra QALYs in tackling chronic diseases. Even though in chronic diseases, quality of life could be significantly improved, life expectancy might not necessarily increase at all. Thus the little QALY gains in chronic disease treatment might be completely unattractive compared to QALY gains in tackling acute life-threatening diseases.
To solve this problem, a key would have to be developed in order to adjust QALY gains by the type of sickness treated.
Another important question is whether preference scaling methods used for the valuation of health states lead to morally and politically sound results.
Even if the majority of patients preferred a certain health outcome and therefore gave it higher scores (leading to higher QALY-scores and rewards for the drug), this procedure would not reflect the preferences of everyone concerned. It might even be that the voice of those that are affected most is ignored, because preference ranking might rely on questionnaires given to the general public, not given to patients. QALY measures as they are collected today grossly misrepresent mental, emotional and social factors. For example, QALY scores would not directly reflect the improvements and burdens a drug brings about for a person’s social surroundings. A drug might bring about disproportionately great relief for poor patients or parents, thus benefiting the patient and many dependants at the same time. Yet it would still be judged only according to the utility it has for the single patient.
Let’s do it!
These problems will be but minor obstacles on the way to a Prize Fund for Medical Innovation. They can and will be overcome.
Everyone is invited to think about how this can best be done.
posted by Lukas F. at 7:06 PM
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