Patents cause pharma firms to chase the most monopolizable therapies rather than the most socially beneficial---prizes key.

Therefore, an IVPE + AMC Fund can generate billions of dollars in revenue from payers due to cost savings through the development of new low-cost therapies that reduce reliance on expensive therapies. It can also address misaligned incentives under the patent system by encouraging pharmaceutical companies to (1) “de-link” profits from maximizing sales of a monopoly-priced drug, (2) ensure that patented drugs are value for money rather than pursuing “evergreening” strategies such as patenting slight modifications of generic drugs to extend the period of monopoly pricing, and (3) pursue the most effective therapies rather than the most patentable. AMCs can also be used to incentivize development of low-cost therapies to address unmet medical needs if an expensive comparator treatment is not available or otherwise, the IVPE methodology can compare usual care.

A Market Failure Caused by a Tragedy of the Commons

Thousands of potentially safe and effective off-patent and low-cost therapies are currently ignored due to misaligned incentives under the patent system. Core to this tragedy is that the clinical trial data validating the safety and efficacy of treatment protocols is what is valuable to healthcare payers and patients, not whether the drug’s active ingredient is new. In essence, treatment protocols involving new uses for off-patent and unmonopolizable therapies are nonrivalrous and “highly non-excludable” public goods. The co-author Savva Kerdemelidis’s 2014 master’s thesis concluded that because the patent system provides inadequate incentives for the pharmaceutical industry to develop such “unmonopolizable therapies,” alternative “prize-like” incentives are needed. This allows payers to put a price on clinical trial data validating the efficacy of these new and more affordable treatment protocols.