John Edwards: Prizes, Not Patent Monopolies

John Edwards has issued a statement on affordable health care, and one new item is the newest idea to control drug costs -- to replace monopolies with prizes, to reward drug developers. The details of the Edwards statement on prizes are here. The fact sheet said:

Edwards will convene an expert panel to identify whether there are discoveries where prizes -- not patent monopolies -- would offer new incentives to researchers, guaranteed gains to companies, and lower costs to patients. Drug companies would know that if they generated a life-saving breakthrough, they would be guaranteed a significant payment in exchange for allowing competition in manufacturing and distribution. With prizes, the government will pay more up front, but it will save taxpayers in the end because companies will generate breakthrough drugs more quickly and provide it to patients at a lower cost. Key questions about the pricing of prizes, the appropriateness of prizes for different diseases, and the relationship to patent protections remain to be resolved, but prizes are a promising innovation that Edwards will pursue.

It is quite important that Edwards has raised this issue, which is both the most radical and the most insightful reform of the crazy mess we have to finance new drug development. The clearest explanation of the use of prizes to pay for drug development was given in an August 22, 2003 guest editorial in the Washington Post by the economist Burton Weisbrod. The most complete explanation of the possible approaches is this paper: "The Big Idea: Prizes to Stimulate R&D for New Medicines", which I recently co-authored with the Welcome Trust Scientist, Tim Hubbard.

Legislation to create a medical innovation prize system was introduced in the Congress in 2005 (109th Congress, HR 417), and will soon be re-introduced in the U.S. Senate, by Bernie Sanders.

Edwards has taken just a first step, calling for the creation of an expert committee to see how prizes can be used to enhance access to medicines, while stimulating more innovation (by targeting incentives much more efficiently than market monopolies have done). This is a big idea, and can solve a very big problem -- how do you reconcile access and innovation? How do you control costs, without introducing rationing?

The use of prizes to stimulate innovations that become public goods is becoming the next big thing. (see these (1,2) blog entires on other prizes). Edwards is on to something quite important, and it may stimulate a broader debate on the way we foster innovation for health care and other important areas of the economy.

There is indeed a growing interest in the use of innovation prizes, as people look for ways to get a payday for things that cost a lot of money to do, but which should be freely available (such new medicines). Economists from the right (Steven Shavell), left (Stiglitz) and center (Suzanne Scotchmer) have championed the use of prizes, and a number of politicians, foundations and others are calling for the use of prizes for everything from clean energy, to agricultural inventions and medical research.

In the area of medicines, there is a lot going outside the United States. Several countries have called for the WHO's new initiative on innovation and access to medicines to create new innovation prizes for R&D on neglected diseases, and this idea will be discussed next Thursday in Noordwijk, the Netherlands, at a high level OECD forum on "medicines for neglected and emerging infectious disease, policy coherence to enhance their availability." Policy coherence? What an interesting idea -- having both innovation and access to the innovation.