The Health Impact Fund: Pay-for-Performance

In an ideal world, pharmaceuticals would serve the purpose of improving health. By offering to reward firms on the basis of their contribution to this purpose, the Health Impact Fund would stimulate innovation without impeding access through high prices. It would focus the attention of pharmaceutical innovators on the most cost-effective ways of improving global health through new medicines. The HIF is an integrated solution that requires low prices worldwide, while offering innovative companies direct payments based on the health impact of their innovations, no matter where the health impact occurs. The HIF will thus make it profitable to develop medicines for heretofore neglected diseases as well as medicines with global impact. These medicines will be sold at low prices everywhere, while still generating solid returns for innovative pharmaceutical companies and their shareholders. By reorganizing the way we pay for some drugs, the HIF realigns incentives while extending access. It ensures that global pharmaceutical expenditures and innovator profits are matched by much greater health improvements. The essence of the proposal is to offer firms a share of a fixed fund for each of ten years, in proportion to the share of health impact of their registered product out of all registered products. For example, if all registered products were estimated to have saved twenty million “Quality-Adjusted Life Years” (QALYs), a registered product that had saved two million of these QALYs would receive ten percent of the fund. This calculation would be performed annually based on current data, and each registered product would receive annual payments for ten years following market approval. In exchange, the firm would give up the opportunity to earn profits on sales of its registered drug and would offer a royalty-free open license for generic versions of the product following the reward period. Firms could choose whether to register any particular product for health impact rewards or to exploit their monopoly pricing privilege in the usual way. Core funding for the HIF would be provided by partner countries that agree to support it. A reasonable starting level would be $6 billion per year. At this rate, the HIF could support the development of about two new drugs annually, sustaining a stock of about twenty medicines. If the HIF works well, it can be scaled up so as to increase the number of widely accessible innovations it induces and sustains. The HIF allows market forces to set the dollar-per-QALY rate, relying on new medicines that would be commercially viable with or without registration. If the reward rate were excessive, new products would be registered, resulting in an automatic reduction of the rate; and if the reward rate were too low, new products would not be registered, or registered products would be withdrawn, leading to higher rewards for the remaining registrants. Market forces will also determine sales volumes of registered medicines without the monopoly price distortions otherwise typical of pharmaceutical markets. In many countries, pharmaceutical pricing is largely controlled by governments.