OTHER MECHANISMS TO SUPPORT INNOVATION THAT WE HAVE CONSIDERED BUT WE THINK WOULD BE LESS EFFECTIVE

APPENDIX E

OTHER MECHANISMS TO SUPPORT INNOVATION THAT WE HAVE CONSIDERED BUT WE THINK WOULD BE LESS EFFECTIVE

Intellectual property protection

We do not think that extending the market exclusivity of a product is a sensible way to improve investment in diagnostics for two reasons. Firstly, is that extending the revenue runway by many years gives a relatively small expected return at the point of R&D spending, because developers will use relatively high discount rates for investment analysis. These discount rates will generally be higher than for government or non-profits, reflecting higher cost of funding and the individual product’s risk of failure. Thus, society will have to pay developers a lot in the future to convince them to bear the development risk today. Secondly, the diagnostics market typically changes more quickly than the drugs market, meaning that something that is invented now is far less likely to be relevant in 20 years. As such an extended period of market exclusivity once on the market is less likely to be valuable for a diagnostic than for a drug or, if it is, that might reflect an inappropriate deterrent to new market entrants.

Diagnostic related groups

Many health systems use tariff-based systems of reimbursement which see hospital providers being paid a fixed sum for each patient ‘episode’, depending upon that individual’s symptoms and the recommended treatment. All inpatient costs, including diagnostics and medication, are bundled into a single tariff for a given ‘diagnosis-related group’ (DRG). Such systems are a popular – and largely effective – means of promoting efficiency and cost-control within healthcare systems. However, unless they are highly responsive to the emergence of new medical innovations, that enhance overall outcomes but may increase upfront per patient costs, they can unintentionally act as a deterrent to the uptake of new technology. Policymakers and healthcare payers therefore need to ensure that innovative diagnostic technologies are properly priced into DRGs relating to the treatment of infections. This could also go a step further, and use DRG-based systems to make the use of rapid diagnostics a condition of reimbursement against relevant conditions.