A Powerful New Idea for Financing Healthcare Research
The world might be close to curing many kinds of cancer, but the US government is refusing to invest the funds needed to develop the cure.
Funding for the U.S. National Institutes of Health (NIH); the largest source of financing for biomedical research, fell by 22% between 2003 and 2013, MIT Economics Professor Andrew W. Lo calculated. The NIH received around $30 billion a year in 2003, and around $25 billion when the funds are adjusted for inflation.
To make matters worse this comes at a time when the Trump administration proposed a further 22% budget cut to the NIH, Science Magazine reported. It should be noted here that presidential budget requests are meaningless; because the House of Representatives writes the budget in the United States.
The underfunding is horrendous because it is occurring when researchers think that cures for many kinds of cancer will soon be possible, Lo pointed out in his book Adaptive Markets: Financial Evolution at the Speed of Thought. That makes the underfunding of the NIH; and scientific research in general, by Congress criminal.
It does not mean the research will not get funded; other countries such as Saudi Arabia, China, and Norway will gladly make the payments and reap the rewards. One sorry result will be large numbers of U.S. scientists moving to Saudi Arabia or the People’s Republic in search of a paycheck.
How to Fund Healthcare Research without raising taxes
Fortunately, Lo may have figured out how to finance healthcare research and the war on cancer without raising taxes.
His suggestion is for Uncle Sam to issue CancerCures bonds similar to the war bonds the US government issued to finance World War II. The bonds would finance biomedical research into a cancer cure.
People would buy the bonds because they can pay a guaranteed interest rate of 5%. The rate would be paid by the profits from the sale of the treatments or drugs developed.
Pharmaceutical makers can be induced to buy by charging a cash price. For that price, they would receive a license to market the drug; or medical device, in a specific country or region for a period of time such as 10 years. The cost of the license would be determined by the size of the marketing area, and the duration.
The NIH would also collect a royalty on drugs and other products developed with its research. The royalty would be 5% of all profits made with those products.
Any additional money generated by the licenses and royalties would be reinvested into a wealth fund to support the NIH, giving it a guaranteed income the politicians would not be able to touch. The sovereign wealth fund can invest its money in index funds in order to tap the stock market for funding. Just imagine how much money the NIH would have it had invested in Alphabet (NASDAQ: GOOG), Berkshire Hathaway (NYSE: BRK.A), or Amazon (NASDAQ: AMZN) shares back in 2005.
Similar bonds can be issued to fund research into treatments and cures for AIDs, ALS (Lou Gehrig’s disease), malaria, paralysis, Alzheimer’s disease, dementia, antibiotic-resistant bacteria, heart disease, muscular dystrophy, diabetes, opioid addiction, mental illness, and other problems.
Nor is just the NIH that can profit, the Centers for Disease Control and Prevention (CDC) can issue vaccine bonds or bonds to finance the development of new antibiotics. Those securities would finance the development of vaccines for diseases like influenza, malaria, AIDS, and Polio.
A Better System for Financing Biomedical Research that can lower drug prices
The wealthy and investment funds can be induced to buy such bonds by them tax-exempt or tax-deferred.
A good suggestion would be to make the bonds tax-deferred; which would encourage people to buy and hold them. A further inducement to purchase would be making the interest tax exempt.
One way to induce the rich to buy such bonds is to cap the tax exemption for individual charitable contributions at $1 million. This would be better than the current system — in which we trust billionaires to donate their money to something that will benefit society.
An inherent advantage to this system is that foreigners can purchase the bonds and finance biomedical research in the USA. Countries like Saudi Arabia and the People’s Republic of China would have a strong incentive to buy bonds because they would benefit from the technology.
A greater benefit is that the money would be directed into research that benefits real people rather than projects designed to enhance companies’ balance sheets.
Such a system can even lower drug prices; because the NIH or CDC would own the patents and license the drugs to any manufacturer that paid a reasonable fee. The government would be in a position to simply pull the license from any company caught overcharging for drugs on which Uncle Sam owns the patent.
Would Congress go along?
A system of biomedical research bonds is a reasonable idea, but it will be a tough sell to Congress.
Taking biomedical research funding away from the U.S. Treasury would reduce the power and influence of Congress. When was the last time you heard of a U.S. Representative or Senator voting to reduce his or her power?
A related problem is anti-science elements in both major U.S. political parties would lose their ability to throttle scientific research. It is not coincidence that federal research funding in the U.S. has shrunk dramatically since the Republicans got control of Congress and the White House.
Republicans are beholden to Evangelical Christians, climate-change deniers, and other elements that are deeply hostile to science. Nor science is likely to get a reprieve under Democrats; there are strong anti-science elements on the left; including some environmentalists, certain unions, animal rights activists, and politically-correct intellectuals.
Getting Big Pharma out of Science
It would also create a system where drug companies would make a lot less money. Since big pharma is a big campaign contributor there would be a huge fight. It might be possible to develop constituencies for such bonds on Wall Street, investment banks might go along with a biomedical bond scheme to make money from commissions.
Such a bond system should be investigated. We should also look into creating bonds for other purposes such as rebuilding our transportation infrastructure, next generation transportation infrastructure like the Hyperloop, education, and housing. One solution to consider would be bonds to finance the construction of low-income housing; the interest would be paid by the rent or mortgage payments made on the housing units.
Other issues to consider would be energy bonds to finance the development of fusion, solar, and other next-generation energy processes. Climate change bonds to finance solutions to that problem and space bonds to pay for space exploration or Mars or Lunar colonization are also possibilities.
One thing is clear we need new ways of financing our government and its sources. Lo has made some great suggestions for doing that. A far more comprehensive explanation of Professor Lo’s proposal can be found in the last chapter of Adaptive Markets: Financial Evolution at the Speed of Thought published by the Princeton University Press.
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