Health Impact Fund – Raising Issues Of Distribution, IP Rights And Alliances 26/09/2011 by Intellectual Property Watch 1 Comment Print This Post The views expressed in this column are solely those of the authors and are not associated with Intellectual Property Watch. IP-Watch expressly disclaims and refuses any responsibility or liability for the content, style or form of any posts made to this forum, which remain solely the responsibility of their authors.By Sakiko Fukuda-Parr and Proochista Ariana In this piece, the authors raise several issues with the public health financing proposal called the Health Impact Fund. It questions the relative distribution of costs and benefits; the persistent issue of intellectual property rights; as well as a lack of alliance with existing efforts to increase innovation of and access to essential medicines for the poor. On 7 September, Professor Thomas Pogge addressed the Annual Conference of the Human Development and Capabilities Association (HDCA) and presented his Health Impact Fund (HIF) proposal. It was an inspiring and provocative lecture about one of the greatest injustices of our times – poverty related deaths. We find much merit in the proposal as a practical remedy to this global injustice, but also some concerns. We raise here for discussion issues of distribution, intellectual property rights, and alliances. Distribution of the Costs and Benefits How are the costs and benefits (direct and indirect) allocated amongst various stakeholders? And who are the short- and long-term winners and losers of this scheme? Our more significant concern is with the burden sharing of costs. The scheme is expensive, with direct costs estimated at USD60 billion per year to cover pay outs to the inventors, and operating costs which include making complex calculations of the health impact of inventions and the production costs of medicines. These costs would be borne by the global taxpayers, paid according to the GDP of their countries. The inventors (primarily multinational corporations) do not bear direct costs. They incur an opportunity cost as they give up the right to charge monopoly prices but they are compensated by the fund an amount determined by the estimated impact of their invention. They moreover keep their patents for any future benefits. The end result is that their immediate and future direct and opportunity costs would be neutralized. Broadly, the main beneficiaries would include those in need of medicines or for whom medicines would be invented. However, it is unclear whether under the mechanisms proposed the benefits reach the poorest of the poor. As Ingrid Robeyns raised at the conference, the criteria for allocating the funds depends on quantifying the cumulative health gains. But such estimates may allot less weight to the gains for, or entirely overlook, the poorest or most needy populations. This crucially depends on how impact will be determined and whether it will incorporate elements of equity weighting. Indeed, the logistical issues of how impact is to be assessed and attributed to a particular drug in a complex context of change are technically far more difficult than the proposal conveys. Another beneficiary includes governments who would benefit from more affordable healthcare and subsequently healthier populations. Healthier populations in turn, according to human capital arguments, can then fuel economic development. In addition to the recipients and their governments, the producers also stand to gain substantially from the HIF scheme. An evident beneficiary would be the inventor who gains the innovation award and profits in a way equivalent to that under the existing patent mechanism. There is, however, no objection made by the HIF proposal to the very high profits for healthcare innovations or any acknowledgement of health as a public good. As such, the proposal indirectly condones pharmaceutical practices of profiting from ill health and effectively undermines efforts to encourage open access to knowledge and innovation in the area of health (more on this below). In addition to the inventor, the company who manufactures the drug, potentially a smaller generic manufacturer from the global South, would also benefit from the HIF scheme. However, there are no guarantees that the manufacturer, the company who offers the most competitive bid, would be from the global South. Nor is there any consideration of the broader benefits of supporting such an industry for some countries with limited manufacturing capacity. As it stands, the inventor and producer gain the most in the short term while the recipients are expected to be the long-term beneficiaries. However, while the gains to the producers are clear and direct, the actual gains to the recipients have yet to be determined. Intellectual Property and the Social Determinants of Health The second issue concerns the management of intellectual property. The concept of prize funds is motivated by the search for an alternative to monopoly rights as an incentive to invest in research and development (R&D). The HIF is designed to allow the inventor to keep the monopoly. There is no obligation to allow open licensing. Although the inventor loses the ability to earn monopoly profits on that particular drug they retain the other benefits of patent monopoly. In particular, they can prevent other generic firms from acting independently to manufacture the drug. It may also stymie further innovation based on that invention and stifle market competition to produce the drugs at as low a cost as possible. In its current form, the HIF condones the increasing concentration of the pharmaceuticals industry in the hands of the few multinational companies (big Pharma). It fails to support small and medium scale companies, especially those that specialize in the generics markets. Moreover, while the HIF is designed to encourage investment in neglected diseases and expand immediate access to some medicines, it does not contribute to addressing the structural causes of poverty and premature death. Using limited resources to tackle the social determinants of health would have far wider benefits for the given costs than any one drug could hope for. The HIF retains a focus on treatment as the way to address the unacceptable rates of illness which persist in the world today despite the advances in knowledge and technology to overcome them. As Thomas McKeown famously demonstrated for turn of the century England, it was not medical technology (i.e., antibiotics and vaccines) that led to the decline of diseases evident at the time but rather improved living situations and enhanced nutrition. Such improvements, as Simon Szreter illustrates with his historical research, were the result of social mobilization and political will that culminated in the necessary regulations that improved the dismal living conditions. While healthcare is undoubtedly important, it is naive to assume that it provides the solution to the kinds of health problems the poor face today. It certainly is not the most cost-effective approach and as such less likely to be a sustainable solution to the growing burden of ill health. Efforts that address root causes (ranging from water and sanitation to housing conditions and livelihoods) will serve to alleviate more than just one disease and thereby have further reaching impact on the lives of the poor. The donor governments and their taxpayers, therefore, are more likely to improve health and sustain such improvements if they enhance their efforts at alleviating poverty more generally. Alliances The third issue is one of alliances, strategy and tactics necessary to remove injustice. Governments of the South, civil society organizations of the North and South, and generics companies of the south have worked together on many strategic initiatives. Surprisingly, HIF has not allied with these groups and indeed many of the leading organizations have been critical of the HIF. The HIF does not follow the strategic priorities of these networks that are working together towards open access and encouragement of generics – strategies that address the systemic issues of the pharmaceuticals sector. Health injustices continue on a massive scale yet much has been achieved in the last decade through the alliances: – In 2001 the global market prices for HIV/AIDS drugs was some $12,000 a year, and even the deepest discounts from the big Pharma companies made under threats of compulsory licenses were still unaffordable. Now they have come down to below $70 a year. – In 2001, the case against South African governments’ health act seeking to expand access brought by the big Pharma corporations with the backing of the US government was still on. The companies have now withdrawn the case due to civil society outrage in both the North and the South. – In 2001, WIPO was an international organization that denied the relevance of intellectual property to the problems of global poverty – since then they have adopted a ‘development agenda’ pledging to address issues of global poverty and marginalization of LDCs from global technological progress; – In 2001, WTO negotiations were challenging the legitimacy of compulsory licensing, parallel imports and other TRIPS [Agreement on Trade-Related Aspects of Intellectual Property Rights] flexibilities. Since then, we had the Doha Declaration affirming the right of national governments to take steps to protect public health and provide access to medicines for all. The use of compulsory licensing has expanded. – In 2001, the World Health Assembly was nervous about pressures from the US and other governments that were influenced by the pharmaceutical companies in addressing issues of access to medicines. Since then, access to AIDS retrovirals has been adopted as an MDG target. The WHA has adopted many proactive measures to move forward different solutions for expanding innovation and access for health technologies for the poor. The most recent initiative is the WHO Consultative Working Group on R&D Financing (CEWG) chaired by Norway and Brazil. Numerous proposals have been made to find alternative models for financing R & D, especially but not limited to neglected diseases. They include government and NGO backed prize fund proposals in the WHO process that feature open licensing and an open source dividend to enhance access to knowledge with creative arrangements to finance costs and address monopolies. Some have gained real traction such as UNITAID’s patent pool, or the two bills in the US Congress to fund prize funds for AIDS research. These gains illustrate how systemic issues in the structure of the global pharmaceuticals markets are being addressed. They are introducing reforms to the implementation of the intellectual property rules and opening space for national governments and creating opportunities for the generics sector. The HIF does not do this. The gains of the last decade are a phenomenon that has parallels with the democratic pressure that prevented famines in India in the 20th century. This is democracy at work. Instead of India in the 20th century, here we are witnessing global civil society networks putting pressure on national governments, corporations, and international organizations to remove the injustice of people who have lost their entitlement to healthcare. International networks of civil society activists – MSF, Oxfam, HeathGap, ActUp, CPTech/KEI, Health Action International, Third World Network, strong civil society movements in South Africa, Kenya, Brazil, Thailand, Indonesia, Malaysia, Peru, Chile, Columbia and India – have been at the forefront of these struggles. But it is not the NGOs alone who are behind the changes; they are providing support to national governments and companies in the South. They work with delegations to influence negotiations in the WTO and the World Health Assembly. They are allied with think tanks – such as the South Centre, an inter-governmental research center – who worked closely with the governments of Brazil and other like minded countries to push forward the WIPO Development Agenda, a significant reform of an international organization. These governments take the positions they do in WIPO and WTO as a result of pressure from local civil society organizations at home. The breakthroughs in the TRIPS agreement and the massive decline in the price of HIV/AIDS drugs resulted from the existence of Rambaxy, Cipla and other generics manufacturers in the south that would compete with the big Pharma multinationals. It was the supply of generics from Cipla and Rambaxy and their deal with the MSF to supply the drugs at a fraction of the patented price from big Pharma that opened up negotiations with big Pharma to cut prices for poor countries. The politics of this movement is complex, with multiple players: national governments of the South and the North, local NGOs of the South, international NGOs, international organization secretariats and their inter-governmental governing boards, and the private companies that include not only big Pharma but the small generics companies of the South. The picture and the dynamics are complex; it is not a simple matter of North versus South. There are different interests and ethical demands within each country. For example, a New York Times series of articles on Brazil’s policy on access to HIV/AIDS treatment proved a critical factor that turned around public opinion in the US. The HIF is oddly out of sync with this global network. It is surprising that the HIF has not allied with other civil society actors, nor pursued their core strategies that address the systemic issues of the global pharmaceutical industry. Removing injustice in the global economy surely calls for not only alleviating the sufferings of the poor but addressing the root causes and creating more inclusive institutions. Sakiko Fukuda-Parr is Professor of International Affairs at The New School University, New York, and Director of the Human Development Reports 1995-2004. Proochista Ariana is Lecturer in Global Health and Development at the University of Oxford; and Secretary of the Human Development and Capability Association (HDCA). 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