The Health Impact Fund - An Innovative Approach to Medicine or a Pipe Dream?

(Photo credit: epSos.de)

“No problem can be solved from the same consciousness that created it. We must learn to see the world anew.” Albert Einstein

Governments, political bureaucracies that they are, simply are incapable of providing most goods and services effectively. That’s why capitalism has been relatively successful and communism hasn’t. I cringe whenever it is suggested that more government involvement is needed in order to solve a problem.

I'm a free-market, small government, minimal regulation guy, but only to the extent that said free-market serves the needs of the populace. The pharmaceutical industry isn’t doing that, not by a long shot.

The failure of the pharmaceutical industry to meet our needs is not due to evil people or evil corporations. It would be so much simpler if it was. It's because of a broken system. The story goes that by maximizing profits and shareholder value pharmaceutical companies provide the most effective, lowest cost drugs, and make them available to the widest number of people. This model works for industries like computer hardware and athletic socks. Does it work for medicines? No.

I’ve railed here before about how our system of developing, testing, pricing, and delivering drugs is an utter failure. But my friend, Wheelchair Kamikaze, says is so much more eloquently. Please give his post a read, but then come back here for more!

Thomas Pogge, of Yale University, recently gave a Ted talk about this dysfunctional model. He does a credible job of describing the failings of the current system, and articulates the goals of a new one. He points out that most drugs are relatively inexpensive to manufacture. The significant income that the pharmaceutical companies generate from their patent protected drugs does make the shareholders wealthy, but it is also wasted on marketing, lobbying, litigation, and other non-value added activities.

Pogge suggests that if we were to redesign the pharmaceutical industry from scratch, we would have the following objectives:

- Patients would have access to important, existing medicines regardless of their country and income.
- Research and development investment would target the innovations that promise the largest health gains, not necessarily the greatest corporate profits.
- The entire system would be cost-effective so that money spent on medicines would achieve as much as possible for human health, as opposed to squandering money on non-value added activities.

The current system does a poor job regarding all three of these objectives. Pogge makes the point that it is unrealistic for us to simply pressure pharmaceutical companies to adopt more altruistic business strategies. They are operating in a free-market system, and have no choice but to meet their fiduciary duty to their stockholders within the constraints of the law. Otherwise they would go bankrupt.

Pogge proposes a solution called the Health Impact Fund. In a nutshell, this would be an endowment financed from tax revenues (can you see me cringing?) which would reward pharmaceutical companies based on the health impact of their drug on the global population. Pharmaceutical companies would sell the drug at cost, and would be rewarded from this fund rather than realizing profits as they currently do. Please watch the video below and visit their website for a more thorough explanation.

I like the theory behind the Health Impact Fund, but I'm afraid that it is fraught with logistical nightmares, too many to go into detail about in this post. But I hope that they prove me wrong, and I commend this group for offering a solution and for actually trying to raise money for a pilot program.

If not this idea, then what? How can we overhaul the pharmaceutical industry so that it serves the needs of the human population, without having it become a bureaucratic nightmare and just another failed government program? I don't think minor tweaks are the answer. I definitely don't endorse socialization of the pharmaceutical industry. I'm sure other proposals have been made on how to repair the pharmaceutical industry. If you know of any, please share them with us in the comments section.

What’s so damned frustrating is that we can’t seem to get out of our own way. We have a clear and urgent need. We have abundant talent in both the public and private sectors. But while we debate, posture, blame, and politicize, incalculable human suffering continues.

Trust me. I know.