Pay for performance to get drugs to the poor

Buying medicine in Côte d’Ivoire. Photo by: Anouk Delafortrie / ECHO / CC BY-ND 

Every year, millions of people die from lack of access to lifesaving medicines. Millions more suffer from treatable conditions because they can't get the right medications. Most are poor people from poor countries.

High drug prices propped up by intellectual property rights create insurmountable financial barriers for many patients.

“The sad irony is that excluding the poor does not help anybody,” Thomas Pogge, a professor of philosophy at both Yale University in the United States and the University of Central Lancashire in the United Kingdom, told Devex. “But a side effect of enforcing the markups is that you exclude the poor.”

Pogge believes, though, he might have a solution — one that would guarantee both access to the poor and reasonable returns on investment for pharmaceutical companies. Enter a concept known as “pay-for-performance.”

Pogge suggests creating an international Health Impact Fund to be financed by governments according to a percentage of their gross national incomes and by private donors. A pharmaceutical firm willing to provide a drug to all comers at the lowest possible price could register it with the fund and would be compensated with a portion of the fund's cash, based on the drug’s relative effectiveness in helping patients around the world accrue “quality-adjusted life years” or QALYs. Poor countries could be included automatically, but rich countries would only benefit if they signed up to contribute.

A complex challenge

If that sounds complicated, consider the complexity of the problem. It extends well beyond poor people merely being unable to purchase existing drugs. Since pharmaceutical companies make their money from selling products to people who can afford them, they tend to focus research and development efforts on conditions that affect rich people, often ignoring ones like malaria or Ebola that primarily touch the poor.

The system also leads to duplication: a company will often invest in a new form of a profitable drug pioneered by a competitor just to grab market share. Firms must also spend heavily on advertising and litigation.

“The system is inefficient,” Pogge said.

If that weren’t enough, the demand for lower-priced drugs leads to counterfeiting in poor countries. These fake drugs are often diluted versions of the real things, so they have the additional downside of creating resistance even if they are not fully effective. Meanwhile, pharmaceutical companies must stand aside and watch this "black market" soak up profits, albeit at lower margins.

“The system is irrational and immoral on both sides,” said Pogge.

Some advocates for the poor claim that the high mark-ups generate “profits that kill.” They argue that all drugs should be made available to the poor at prices they can afford. The pharmaceutical companies counter that this would just create another black market — one in which smugglers would obtain lower cost drugs in poor countries and ship them to rich ones.

The access dilemma

Observers like Pogge agree that the poor need and deserve access, but they also understand the dilemma of the pharmaceutical companies.

The firms are saddled with high costs for R&D and regulatory compliance. In addition, some initially promising drugs fail to make it to market because they prove to be insufficiently effective or have dangerous side-effects. Without high prices protected by patents, they cannot afford to develop new drugs, argue the companies.

“Their costs must be covered,” Pogge agreed. “We are not saying that the companies should not be rewarded.”

He suggests that they might garner rewards in a different way, giving them a different set of incentives, ones governed by “pay-for-performance” — basically how many quality-adjusted life years a drug can generate. Earlier in 2014, the European Research Council provided a 2 million euro ($2.48 million) grant through UCLAN to help Pogge and colleagues like Aidan Hollis, an economist at the University of Calgary in Canada, develop adequate measurements.

The researchers hope to devise a formula that can work across different groups of people, cultures and countries.

A QALY, Pogge explained, is like a ruler. The length is life expectancy, and the width is the quality of life for each moment of time. If you die sooner than you should, part of the ruler’s end is chopped off. If you are sick or disabled, part of the width is chipped away. Coming up with a standard measurement is hard for many reasons, partly because certain ailments are more debilitating in some environments than others. For instance, a mobility problem would seem to be more debilitating in Nepal than in the Netherlands.

Defining measurements

Pogge’s team has launched a pilot project in India in partnership with U.S.-based pharmaceutical manufacturer Johnson & Johnson to look at the QALY metrics of an experimental drug to help treat tuberculosis.

“The TB market has been unproductive for 43 years,” he said. “TB is a typical disease that is concentrated among the poor.”

If everyone can agree on how to measure a QALY, the HIF could pay companies based on a proportion of how many of them their drug(s) could pile up. Pogge suggests an initial funding goal of $6 billion per year. At that level, the HIF could support about 25 drugs, though if there is sufficient interest and support the numbers could rise. The drugs registered with the fund would go through a revolving door with the expiration of intellectual property protections. Drugs no longer enjoying IP projection would go generic, much as under today’s system.

The HIF would be patterned in many ways after the Global Fund to Fight AIDS, Tuberculosis and Malaria and, as Pogge envisions the new entity, work closely with the Geneva-based organization.

Poor people would not be the only beneficiaries, the expert argued, as in his vision the HIF would help save money for rich country health systems, especially big buyers like the U.S. Veterans Health Administration.

Want to learn more? Check out the Healthy Means campaign site and tweet us using #HealthyMeans.

Healthy Means is an online conversation hosted by Devex in partnership with Concern Worldwide, Gavi, GlaxoSmithKline, International Federation of Pharmaceutical Manufacturers & Associations, International Federation of Red Cross and Red Crescent Societies, Johnson & Johnson and the United Nations Population Fund to showcase new ideas and ways we can work together to expand health care and live better lives.

The views in this opinion piece do not necessarily reflect Devex's editorial views.

About the author

  • Bill Hinchberger

    Bill Hinchberger is a global communications professional and educator. He studied at Berkeley and has taught at the Sorbonne. Based mostly in Paris, he spends quality time in Brazil and the United States, and works extensively in Africa and Latin America. He has served as an international correspondent for The Financial Times, Business Week, ARTnews, Variety, and others. One current focus of his work is content creation for foundations, NGOs and other organizations, especially those working on issues related to international affairs, the environment and development. He also runs training programs for professional journalists, notably in Africa, and is an associate of Rain Barrel Communications, a leading consultancy for social justice projects.