Prefatory Note
The purpose of this post is to inform readers of a global health policy proposal that I suspect many will find exciting. Since the original text is freely available, I only briefly describe it here so readers can quickly ascertain whether it interests them.
Fisher & Syed on "Tradable Obligations to Enhance Health"
In their forthcoming book Infection, law professors William Fisher (Harvard)* and Talha Syed (Berkeley) explore "The Health Crisis in the Developing World and What We Should Do About It." Obviously, EAs generally need little introduction to this problem. As law professors, their "goal is to determine how the laws and institutions that we have historically employed to foster the creation of new pharmaceutical products and then to channel the distribution of those products might be adjusted so as both to generate more vaccines and drugs that address neglected diseases and then to make those vaccines and drugs available to the people who need them." (Introduction, p. 22).
Some of the proposals they consider—and ultimately find unsatisfying—include mandatory research (ch. 6, pp. 3–5), price regulation, (id. pp. 5–7), mandatory licensing (id. pp. 7–10), and foreign filing licenses (id. pp. 11–13).
Their main proposal—and the subject of this post—is essentially a tradable DALY quota system:
Each pharmaceutical firm would be required to achieve, each year, a ratio, which we will call the social-responsibility index (SRI). The numerator of this index would be the total number of Disability Adjusted Life Years (DALYs) saved as a result of the distribution and consumption of the firm’s products during the year. The denominator would be a measure of the firm’s size, presumptively its global gross revenues during the year.
Like [greenhouse gas] emission permits [as in cap-and-trade schemes], the DALYs in this regime would be both tradeable and bankable. Thus, a firm that, in a given year, failed to earn enough DALYs to meet its target could purchase DALYs from a firm that had a surplus. For example, a firm specializing in so-called “lifestyle” products (such as erectile-dysfunction drugs, sales of which are lucrative but result in only modest health benefits) could buy DALYs from a firm specializing in vaccines or drugs efficacious in preventing or treating more serious diseases or conditions. Alternatively, a firm that, in a given year, earned more that enough DALYs to satisfy its obligations, instead of selling the surplus could apply it to the firm’s account for the following year.
Like the [Corporate Average Fuel Economy] standards, our proposed regime would permit each firm to decide how it could most efficiently comply with its obligation. A firm at risk of missing its target would have (at least) the following options:
- It could reduce the prices charged in developing countries for drugs already in its portfolio, thereby increasing the number of persons able to afford the drugs and earning more DALYs.
- It could alter the formulations of drugs already in its portfolio so that they could be distributed more easily in developing countries – for example, by making them more heat resistant and thus easier to distribute in areas without reliable “cold chains.”
- It could increase its investment in research projects that promise to generate drugs with large health benefits (for example, vaccines for infectious diseases).
- It could alter its business-acquisition policies to acquire more “startup” biotechnology companies that have developed products that offer large health benefits.
- It could collaborate with governments or NGOs in developing countries to improve the distribution systems for its drugs, thereby getting them into more mouths.
- It could, as mentioned above, buy DALYs from other firms better positioned to improve public health.
- Finally, it could reduce the prices of some or all of its products, thereby lowering the denominator of its ratio. (For obvious reasons, this is the option the firm is least likely to adopt.)
I suspect many EAs, like me, will find this proposal compelling because it combines both the power of markets and the regulatory power of developed governments to effect systemic changes in global healthcare delivery.
If you'd like to read more, this proposal is developed from page 14 onwards in Chapter 6 of Infection. Access to most of Infection is available for free here.
*For transparency, I know about this proposal because I took Prof. Fisher's Patent course at Harvard Law School.
The authors fail to consider what seems to me to be the obvious response firms would make.
Their policy is basically a tax on global sales for pharmaceutical companies, imposed by the US, which they would pay because of the threat of being excluded from the US market (roughly half of sales). The rational response is to sell off the rights to sell the international marketing rights to your drugs, either to a new international company or to an existing one. These sales are then protected from the US scheme, and the fall in the denominator of the ratio (by ~50%) should ensure the industry is compliant, without any need to alter their behaviour in other ways.
As a simple example, instead of Amgen selling Enbrel in the US and internationally, you would have AmgenUS, with the right to sell Enbrel in the US and paying the tax, and AmgenInternational, with the right to sell Enbrel internationally and does not pay the tax. These sorts of geographic splitting of marketing rights are moderately common in the industry anyway, and don't seem to significantly increase overhead.
There are of course ways around this problem, but I think this shows the general problem with all such regulations - that the designers never consider all the unintended consequences, and so mis-estimate the effects of their policies.