A business model for stimulating health care innovation

Authors from the Fuqua School of Business and department of European studies at Duke University are proposing a regulatory incentive to help stimulate health care solutions for neglected disease. Conditions such as malaria, tuberculosis and leishmaniasis afflict a billion people each year, but cures and treatments are hard to come by, in part because pharmaceutical cures for such diseases lack a business model providing attractive return on the sizable investments needed to develop and deliver them.

In a paper in the September 11 issue of The Lancet, the Duke researchers propose that the European Union’s drug regulatory body, the European Medicines Agency or EMA, adopt a modified version of a US health care scheme called the priority review voucher. The idea would be to incentivize the development of new drugs for neglected disease, and here’s how it would work:

Companies that develop a drug for a neglected disease would receive a priority review voucher for their new drug, as well as another voucher that they could use for any other drug they develop. Vouchers could be used by other companies as well, giving them substantial monetary value. Why might quicker drug review stimulate health care innovation? Because time is money.

Review time in Europe averages around 300 days. Its estimated that voucher-backed priority reviews could land new products on the market several months earlier. With potential estimated extra earnings of around $50 million per month, that’s a significant incentive, around $120 million worth. Additionally, current regulations from the FDA in the US and EMA in the European Union allow for extensions of patent protection to make up for the typically long periods necessary to gain approval (since the clock starts ticking on patent expiration before drugs hit the market). The authors also propose adjustments to patent extension for voucher-backed approvals that could add an additional $180 million in earnings, for a total of around $300 million extra. That’s a lot of incentive.

Its easy to grow uneasy at the thought of new schemes that increase profit margins in health care. But this type of incentive makes a lot of sense. Increasing profit by reducing the time to market doesn’t adversely effect patients, since they aren’t paying higher prices, they are just paying sooner for a product that may benefit them sooner. In other words, the added income is a product of more time on the market, not higher prices.

Just rewards for worthy innovation? Let us know what you think.

(And on a related note, would price controls stifle innovation?)

Orignal Source: www.justmeans.com/A-business-model-for-stimulating-health-care-innovation/31004.html