Background The Health Impact Fund (HIF) Characteristics of the HIF Progress

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2 Background The Health Impact Fund (HIF) Characteristics of the HIF Progress 2

3 Millions of patients lack access to the optimal medicines because of high prices made possible by patent protection. Low pricing alone is not an adequate solution, since it reduces the incentives for R&D investment this is already inadequate for medicines that affect primarily the poor. We need a solution that addresses both innovation and access. 3

4 Current estimates of average drug development costs vary substantially, from $200m per product to $1.3bn per product Clearly, firms are only willing to invest in R&D when they expect meaningful returns. Any solution must accept the fact that drug development is expensive, and that the rewards need to be large enough to pay for the unsuccessful products. 4

5 Proposal is for a fixed sum to be paid annually for pharmaceutical innovations. Patentees could choose to exercise their usual monopoly rights, or to opt in to the HIF. Opting in would mean that the product would be sold globally at a low price (= cost of production), and would earn its profits through direct payments from the HIF based on health impact. 5

6 The HIF would offer a fixed annual reward (e.g. $6bn) financed by governments Each participating firm would be given a share of the fixed reward in each of 10 years following the introduction of its product. The share would be equal to its share of total QALYs generated by all participating products QALY: Quality- Adjusted Life- Year The share would be re- evaluated annually based on current data 6

7 The payment for a product would depend on the health impact of the product, and the health impacts of other products the total rewards available As with the price system, earnings would depend on the relative quality and sales of a given product compared to others, but also on how well it is used. Firms would form expectations of earnings based on past rates of reward per QALY. 7

8 Following the reward period, firms would be obliged to offer global zero- priced licenses on all intellectual property required for manufacture and sale. The 10- year period of reward payments mimics revenues under a patent. This system does not undermine patent rights it is simply a different way of being paid. The HIF could also be used to reward unpatentable products obtaining FDA approval 8

9 Health impact would be assessed globally, without distinction among countries or medical conditions. Thus, initially, the best opportunities for HIF- rewards are likely to be in the neglected area of tropical diseases, stimulating innovations that would not have existed without the HIF. As the burden of disease becomes similar across countries, the HIF would become attractive for global disease drugs. 9

10 The expectation is that the drug developer would obtain no profits from selling the drug: profits would arise from health impact rewards. The registrant would have to sell the drug at price no higher than the average cost of production; possibly it might be required to license to generics. 10

11 Firms would have a choice. Only those that expected to make more under the HIF would opt in. This means that the outside opportunity would regulate the rewards inside the HIF: if the payments from the HIF became too generous, more firms would opt in, reducing the payment per QALY (and vice versa). 11

12 Which products should be rewarded, and how large should the prize be? The HIF is a market- based solution: payments are determined by competition between all registered products for the available rewards. A vaccine for malaria can directly compete against a drug for HIV/AIDS. This regulates relative rewards for registered products, rewarding each at the same rate per QALY, creating efficient incentives. 12

13 Health impact would be assessed compared to the outcomes that could have been expected to occur given the state of technology two years before, and excluding the firm s own patented products. It is especially difficult to assess QALYs in developing countries because of data problems, weaker healthcare infrastructure, and less compliance with therapeutic regimen. 13

14 Health impact will be assessed annually based on available information and inference Assessment will rely on data from Clinical trials to establish effect sizes, supplemented by Pragmatic or practical trials Audited data on sales Stratified sampling of use and users of the product in different environments Administrative databases Global burden of disease data 14

15 This system would be expensive to run. Assessment costs would probably be at least 10% of the fund payout ($600m per year for a fund of $6bn). But assessment of health impact is a priority in almost all countries already. Clinical reasons Budgetary reasons Assessment costs are therefore partly balanced by collateral benefits. 15

16 Firms would require there to be a long- term commitment Otherwise no innovation incentive effects Only governments, of affluent and developing countries, can commit large sums long- term. We propose a small share of GNI for each member country. $6bn a year is less than 1% of global expenditures on pharmaceuticals. 16

17 Currently about 90% of expenditures on patented drugs are in developed countries; Most expenditures are funded by government and employment- based insurance plans. Thus currently, most of the cost of developing pharmaceuticals is borne by rich countries, through taxes and insurance premia. The HIF s net costs to taxpayers would be reduced through savings on HIF- registered drugs. 17

18 Most other proposals involving real money require that money to come from ODA budgets. The HIF requires a lot of funding because it is preventing firms from profiting from high prices in developed countries. Since it is saving health budgets large amounts of money, the savings should finance the HIF. Thus, there is no reason to make ODA budgets the sole source of HIF funding. 18

19 Proper prescribing and compliance are essential to drug effectiveness. The HIF pays on the basis of each medicine s actual health impact, as assessed not only through sales data, but sampling of actual use and population health data Firms therefore have incentives to promote appropriate use of their registered products, as well as to develop products which are effective in resource- poor settings. 19

20 The HIF allows pharmaceutical innovators to concentrate on promoting public health while satisfying shareholders. Patients win through gains in innovation, lower prices for important new drugs, and additional efforts by patentees to achieve actual health impact. Taxpayers are assured of good value for money. 20

21 The HIF has been the product of a global collaboration. Excellent advisory board Financial support from EU, BUPA Foundation, Australian government, Canadian government, and others WHO Expert Working Group recently endorsed HIF as one of five promising proposals out of the 90 they considered. German Social Democratic Party endorsed a trial of the HIF 21

22 We are focused on exploring health impact assessment and are working towards running one or more pilots in which a drug would be rewarded in a country based on health impact. This will help to show what is needed for health impact measurement in a commercial setting. We continue to solicit input and to hold a dialogue with companies, governments, and others. We are exploring legal issues, including incorporation, patent issues, contracts We continue to expand our team to involve more people. 22

23 More information available at 23

24 Consumers contribute a co- pay based on the variable cost of the drug. Everybody pays a premium based on income. The price earned by the drug innovator is based on the therapeutic value. 24

25 Allowing all products is necessary to generate competition so that reward payments based on health impact are appropriate Global geographic scope is important to (a) create incentives for high value products to register and (b) make cost savings into the source for financing 25

26 Generic competition is often not robust Especially initially, and in small markets and countries Even robust generic competition does not always lead to low retail prices True in both developed and developing countries Those products which did not attract enough generic competition would be able to double up on rewards plus high prices, reducing payments for other drugs. This would make the HIF very attractive for complex biologics where non- patent barriers enabled monopolies. The firm could register with the HIF without loss of sales revenues in developed countries. 26

27 Firms appear to face extra risk since profits depend on sales volume, on the actual impact of drugs sold, and on the reward rate per QALY. The reward rate is outside their control. Risk is mitigated by Optional nature Other firms opting in or out will stabilize profitability Experience from past years Hard to know how expectations would be formed in advance of the HIF being implemented. Might set minimum or maximum reward/qaly? 27

28 Typically insurers make payment conditional on cost- benefit trade- off HIF can always include any product; but if benefit is low, reward is low. HIF is different from standard insurance mechanisms, since it doesn t require exclusion of some products. The HIF is explicitly designed for the pharmaceutical market. 28

29 The HIF s reliance on health impact assessment makes explicit and transparent the emerging practice of insurers to make what they cover conditional on some measure of value, which has been subject to the same critiques. E.g. the Australian PBS assesses value before deciding whether to reimburse a drug 29

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