Public Health Perspective
To What Extent is Medical Knowledge a ‘Public Good’? A Critical Examination of Economic Solutions to the Problem of its Supply
By LENJA WIEHE
Published: May 21, 2011
Medical Knowledge as a Public Good
Woodward & Smith broadly define medical knowledge (and technologies) as the “understanding of health risks, preventive, diagnostic, curative and palliative interventions, and delivery systems” stating that “information, per se, such as on health risks and treatment régimes, is in principle both non-excludable and non-rival in consumption. However, in practice, it may not be”. For a good to be defined as a public good however, it must be non-rivalrous and non-excludable. The potential of economic revenues from medical knowledge, however, confers properties that are characteristic of private and club goods.
The term “medical knowledge” encompasses professional as well as lay medical knowledge that can’t often be clearly distinguished. In this context, it may be helpful to explore different modes of knowledge production, storage, dissemination and expression as elements of supply. Access goods necessary for each of these elements should also be considered as they complicate the argument whether or not medical knowledge can be classified as a public good.
Basic medical knowledge, or traditional knowledge and its application to maintain or improve health at the home level is acquired and communicated within the social environment and handed down from one generation to the next. Acquiring this type of knowledge, transmitting it and putting it into practice involves relatively low costs and neither diminishes the value of its expression nor others’ utility. Nevertheless, the storage medium here would range from personal memory to for instance, written forms; gradually introducing rivalry, which argues against the public goods nature of medical knowledge because any material embodiment or encoding of information is still strictly speaking, rivalrous.
Concluding that medical knowledge is an impure public good, I would like to briefly discuss economic solutions to the problem of its supply due to its public good properties and economic value, examining to what extent some of the central solutions actually provide solutions.
Economic solutions to the supply of medical knowledge
The discussion of whether medical knowledge is a public good or not has pointed out problems of its supply. Along with an economic framework, social and ethical issues must also be taken into account. Depending on these frameworks, arguments for interventions, such as the formation of monopolies and information asymmetry can be used both in favor and against the protection of intellectual property.
Intellectual Property Rights
If medical knowledge were freely accessible and usable by others, there would be no incentives for its production, causing market failure. Creating private rights over knowledge and its use through patents, copyrights, trademarks and trade secrets protect different forms of innovation. To ensure the coverage of Research and Development (R&D) expenses through returns, patents are seen as one solution to encourage the creation, dissemination and use of knowledge for the benefit of society. However, patent protection may be inefficient (because the knowledge may be underused or the good under produced) and socially undesirable research may occur if scarce research expertise is diverted to imitating products similar to those protected by patents (generica). To circumvent such proceedings, investors may choose trade secrets over patents. Furthermore, the selected release of information increases information asymmetry amongst potential competition as well as consumers or patients. Thus, Patents do not necessarily enhance R&D. If the patent system is only introduced at a relatively high level of development, subsequently the number of inventions decreases. This may prevent alternative medicines from being discovered, contributing to the establishment of monopolies and certainly enhancing the monopolist status of fairly developed pharmaceutical industries, putting poorer countries at a disadvantage. Voluntary licensing allowing poor countries to import generic drugs at lower prices are rarely issued by the pharamceutical companies. Even compulsory licensing and parallel importing under the TRIPS agreement are not always successful because of a strong pharmaceutical lobby and the threat of trade pressures.
Ensuring private profitability
Ensuring private profitability through pre-purchase agreements, fiscal incentives or monopolies, can attract private investments for medical research. Fiscal incentives can be implemented through tax deductions on R&D for certain neglected diseases, reducing development costs. To ensure the actual distribution of medical products, it is suggested that tax reductions are not given for R&D, but for the sale to priority groups.
An inherent problem of private funding and patents is the focus on profit-oriented R&D, shifting away from health needs that may not be as profitable towards market demand or health wants, especially those in the developed world. This skewedness (or cream-skinning) has serious implications for affordability of pharmaceuticals in developing countries, from which investors expect lower commercial returns. On the one hand, R&D costs can be kept low if funding is private, because private economic interest will increase accountability regarding the dispensing of resources. On the other hand, the control of results lies largely with the investors, so that certain information may be held back, possibly concerning the actual effectiveness of a drug, or actual R&D expenses in order to ‘justify’ high costs of drugs: The claims that high prices of medicines result from costly research have been questioned by the OECD and NGOs because in contrast to increasing marketing costs and profits, R&D costs and public funding remain unchanged.
Direct public funding and organization of medical research
Further solutions to counter underinvestment are direct public funding and organization of medical research at universities, government laboratories and private research centers. While government funding appears to be more socially desirable than private funding, its efficiency is often questioned, not solely for weak states. Controls of medical research will not be as tight putting scarce resources at a risk of being wasted. In some cases, patents on medical knowledge researched with public funds have been brought under private patent.
In summary, usually the losses associated with some possibly wasted resources are far outweighed by the benefits in terms of increased production and access to medical knowledge. In States with weak government structures, public private partnerships (PPP) or NGOs may provide an alternative. Nevertheless, success can never be guaranteed. Even a PPP between UNAIDS and five companies failed because the different countries that were to be targeted had to negotiate individually which substantially weakened their position and caused substantial transaction costs.
At a high level of information asymmetry, it is necessary to draw attention to certain research fields that may not be as profitable as others. Putting the focus on socially desirable medical research can be achieved by donations of philanthropic foundations, private donors, charitable funds etc. While these may benefit the donors themselves- enhanced social capital, publicity- they may also attract subsequent donations. Philanthropic investments have provided for the development of a vaccine for yellow fever, the Bill and Melinda Gates Foundation support research on HIV/AIDS and Malaria vaccination, donates towards child immunization programs, the eradication of polio, and supply schools with computers.
Further attempts to spread information are social contracts, arrangements that make the benefits of medical knowledge widely available. Such arrangements entail making scientific journals freely available on the Web after a delay of not more than a year, or programs like the “socially responsible licensing program” launched by the University of California, Berkley, that grants developing countries access to research that may be of exceptional importance to them.
Statutory duty of reinvesting
Reinvestments of a proportion of revenues into health research by those bodies involved in the medical business (pharmaceutical companies and other health care providers) can be made legally enforced by taxation. Obviously, options like these are only feasible in countries with a functioning health research industry and States where taxation systems are in place.
Although medical knowledge should be a pure public good in an ideal world, it can only be classified as an impure good. Regardless of its ‘purity’, the public good properties of medical knowledge, arising information asymmetry and monopoly formation that cause market failure as well as ethics each argue for policy interventions to ensure its socially optimal supply. In cases where States are weak, excludability of medical knowledge calls for strategies that have both positive potential and associated difficulties. None of them need be adopted in isolation; rather, they can be combined to varying degrees. Creating barriers through patents to protect knowledge will be contra-productive. The adequacy of solutions for equitable access will depend on the context of government structures, policy makers and agenda setters.
Lenja Wiehe is a first year MPH student at EHESP. She holds a master’s degree in Southeast Asian Studies. She has worked with the German Technical Cooperation (GTZ) and the Emergency Humanitarian Action Unit of the World Health Organization (EHA-WHO) in Indonesia where she supported aid coordination after the West-Sumatra earthquake of 2009. She practices yoga, loves reading and traveling.