Is Bernie Sanders Lost in Orbit With His HIV/AIDs Proposal?

NEW YORK, NY - MARCH 31:  Democratic Presidential Candidate Senator Bernie Sanders speaks at a rally at St. Mary's Park in th
NEW YORK, NY - MARCH 31: Democratic Presidential Candidate Senator Bernie Sanders speaks at a rally at St. Mary's Park in the Bronx borough March 31, 2016 in New York City. Sanders and opponent Hillary Clinton are campaigning ahead of the April 5 primary in New York. (Photo by Andrew Renneisen/Getty Images)

Presidential candidate Bernie Sanders recently released a proposal calling for a new approach to encourage development of drugs for HIV/AIDs. In doing so, he called the prohibitive cost of treatment "one of the great moral issues of our day."

The media's coverage has called Sanders opportunistic for releasing the paper soon after a Hillary Clinton gaffe. Or it has wondered how the prize money central to his proposal would be divvied up. Or who would divvy it up. Or where it would come from. Or whether it would compete with NIH funding. Or it has been lumped in with the rest of Sanders' ideas for health care.

But a larger question is getting ignored.

That question: is it possible that juicy cash prizes would be a better incentive for drug innovation than the patent system upon which we have relied for hundreds of years?

To analyze the answer to this question, it helps to understand the patent system we use today.

How the patent system incentivizes innovation

Patents have existed since the medieval period. Most date the first patent law back to the Venetian Act of 1474, which established inventors' rights. Some early patent and monopoly concepts emphasized discovery and benefit to society, while other legal approaches emphasized property rights and inventor protections.

In the U.S., federal patent laws have been on the books since 1790. They borrow on some of these early ideas with the basic idea of encouraging inventors to share their discoveries by granting exclusive rights for a limited time.

When it comes to new drugs, our patent laws guarantee a drug manufacturer exclusive rights for 20 years. Getting a period of exclusivity incentivizes drug companies to embark on expensive research projects to discover new treatments. Given the billions of dollars these companies pour into research to procure patents, there is little doubt that patents succeed as incentives to invest in research.

And most agree that it is really important that we give strong incentivizes for this research. Without strong incentives, it would be extremely difficult to justify the millions of dollars it takes to discover and bring a new drug to market. "Companies that pay for research will not be able to recoup their research expenses if they sell their products in a competitive market," said economist Dean Baker, co-director of the Center for Economic and Policy Research, in a 2004 report.

Sanders' proposal does not discount the idea that we need strong incentives to encourage drug research. It just raises the question of whether prizes might be a better way to do it than patents.

Have prizes ever worked before?

Encouraging innovation with prizes is not a new idea. In fact, history is full of great examples of it working -- even in areas where the cost of research is extremely high.

One of the most famous research prizes is the Orteig Prize, which Charles Lindbergh won to the tune of $25,000 in 1927 for completing the first non-stop flight across the Atlantic Ocean.

In 1996, a similar research competition was launched offering $10 million for the first non-government organization to launch a reusable, manned spacecraft into space twice within two weeks. Eventually called the Ansari X Prize, it was awarded in 2004 after SpaceShipOne conducted two spaceflights in less than a week. The winning technology was later used by Richard Branson to create Virgin Galactic.

Both of these prizes proved to be strong incentives for innovation. They proved to be such strong incentives, in fact, that in both cases far more money was put into the pursuit of the prize than the actual prize money. In the case of the Orteig Prize, some calculate that $400,000 was spent in pursuit of the $25,000 prize. According to the X Prize Foundation, more than $100 million was invested in pursuit of the Ansari X Prize.

Patents and Prizes: Not mutually exclusive

Trying Sanders' idea does not require scrapping our patent system first. In fact, it doesn't require the government at all. While there are certainly examples of governments creating prizes, both the Orteig Prize and the Ansari X Prize were created by private citizens.

Raymond Orteig was a successful French hotelier who had a passion for aviation. Peter Diamandis, founder of the X Prize Foundation, is a private citizen passionate about space travel.

Perhaps a private foundation or individual, passionate about a particular area of drug development, will be inspired by Sanders' proposal and fund a prize. Then we can see whether this idea of using prizes to encourage drug innovation has any legs -- without risking any taxpayer dollars at all. In fact, the X Prize Foundation is already considering offering prizes in the areas of kidney disease and Alzheimer's. Candidate Sanders' idea may be closer to reality than some think.