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Hi Larks, a very big thank-you for your close reading and excellent comments on the Health Impact Fund (HIF) proposal. Let me go through them in order. 

1. You write that the HIF is vulnerable to “fraudulent inflation of impact numbers by local officials in third world countries.” Note that the HIF does create parties incentivized to prevent fraud, namely all the other innovators with HIF-registered products. If one registrant claims greater health gains than it actually achieved, then the payouts to other registrants are thereby diminished (the HIF’s disbursements are unaffected). Some of these competing registrants operate in the same countries and may well be able to spot fishy claims. The HIF’s audit staff could then check up on reported suspicious claims. Should fraud be detected, the HIF would trigger statutory penalties – and there would also be the sanction of public opinion: it would look truly awful if a pharmaceutical company’s claims to have achieved health gains among the world’s most impoverished populations turned out to be based on bogus evidence obtained through bribery. So I am confident that this sort of misconduct could be effectively deterred down to a trickle.  

2. You write that, under the current system, “once there are two [patented] drugs on the market, competition will generally significantly reduce the revenue either can earn.” I agree. My points were (i) that, with appearance of a patented competitor, the break-through drug will, under the current system, lose its advantage, and (ii) that this can greatly weaken incentives to swing for the fences i.e. to do R&D on possible break-through treatments. By contrast, the HIF preserves the advantage of the first-in-class product by treating it more generously than later copy cats. This is how: the health gains achieved with the break-through drug are always assessed against the standard of care prevailing when it entered the market – whereas the health gains achieved with later (also HIF-registered) copy cats are always assessed against a (higher) standard of care including the earlier breakthrough product.

3a. I accept on your word that the actual price charged for sofosbuvir in the US was often well below list price ($60k per course of treatment rather than $84k). That's "only" 2143 times the estimated cost-based generic price of $28, still a markup of 214,186%.

3b. I also accept that the majority of the 66 million who did not get sofosbuvir did not even know they had hepatitis C. But this is not a context-independent fact! Had there been an affordable cure, many more potentially hepatitis-C-infected people would have sought diagnosis; and had it been paid for health gains, Gilead would have made, and pushed for, concerted efforts to identify patients with hepatitis C (in order to improve the health of these patients and of those they might infect).

3c. Holding fixed how it was getting paid, Gilead would not have fared better with a strategy aimed at suppressing and eradicating hepatitis C. Pursuing such a strategy, it would indeed have sold much more product – but at very much lower prices and profit margins.

3d. I completely agree that the root problem lies with myopic and irrational payers. This is the central insight behind the HIF: the pharma industry would achieve vastly more for human health if some of its monopoly rents were replaced by impact rewards as defined.