[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 1137 Introduced in Senate (IS)]

112th CONGRESS
  1st Session
                                S. 1137

 To provide incentives for investment in research and development for 
   new medicines, to enhance access to new medicines, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 26, 2011

  Mr. Sanders introduced the following bill; which was read twice and 
  referred to the Committee on Health, Education, Labor, and Pensions

_______________________________________________________________________

                                 A BILL


 
 To provide incentives for investment in research and development for 
   new medicines, to enhance access to new medicines, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medical Innovation Prize Fund Act''.

SEC. 2. FINDINGS.

    Congress makes the following findings:
            (1) The development of new medicines and vaccines is 
        necessary to improve health care outcomes.
            (2) Market exclusivity for new products is an expensive, 
        inefficient, and unfair mechanism to reward investments in new 
        products.
            (3) By de-linking research and development incentives from 
        product prices, and by eliminating legal monopolies to sell 
        products, it is possible to induce investments that are 
        medically more important, procure products at low prices from 
        competitive suppliers, radically lower pricing barriers for 
        access to new medicines, reduce wasteful marketing and research 
        and development activities, and dramatically lower the overall 
        costs of acquiring innovation, while expanding access to that 
        innovation.
            (4) By funding innovation prizes at .55 percent of gross 
        domestic product, the United States would provide more than 
        $80,000,000,000 in rewards for successful innovation in 2011.
            (5) The development of new medicines benefits from greater 
        sharing of knowledge, data, materials, and technologies.
            (6) By providing 5 percent of the prize fund rewards to 
        those who provide open access to knowledge, data, materials, 
        and technologies, new open source business models will induce 
        greater access to useful knowledge, data, materials, and 
        technologies.

SEC. 3. PURPOSE.

    It is the purpose of this Act to provide incentives to encourage 
entities to invest in research and development of new medicines and to 
share knowledge, data, materials, and technology, through the 
establishment of a Medical Innovation Prize Fund, while enhancing 
access to such medicines by eliminating legal monopolies on the 
manufacture, distribution, and sale of such medicines.

SEC. 4. DEFINITIONS.

    In this Act:
            (1) Biological product.--The term ``biological product'' 
        has the meaning given such term in section 351 of the Public 
        Health Service Act (42 U.S.C. 262).
            (2) Board.--The term ``Board'' means the Board of Trustees 
        for the Fund for Medical Innovation Prizes established under 
        section 7.
            (3) Drug.--The term ``drug'' has the meaning given such 
        term in section 201 of the Federal Food, Drug, and Cosmetic Act 
        (21 U.S.C. 321).
            (4) Fund.--The term ``Fund'' means the Fund for Medical 
        Innovation Prizes established under section 6.
            (5) Market clearance.--The term ``market clearance'' means 
        the approval of an application under section 505 of the Federal 
        Food, Drug, and Cosmetic Act (21 U.S.C. 355) or the approval of 
        a biologics license application under subsection (a) of section 
        351 of the Public Health Service Act (42 U.S.C. 262).

SEC. 5. ELIMINATION OF EXCLUSIVE RIGHTS TO MARKET DRUGS AND BIOLOGICAL 
              PRODUCTS.

    (a) In General.--Notwithstanding title 35, United States Code, 
relevant provisions of the Federal Food, Drug, and Cosmetic Act (21 
U.S.C. 301 et seq.) (including amendments made by the Drug Price 
Competition and Patent Term Restoration Act of 1984 (Public Law 98-417; 
commonly referred to as the ``Hatch-Waxman Act'')), the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (Public 
Law 108-173), and any other provision of law providing any patent right 
or exclusive marketing period for any drug, biological product, or 
manufacturing process for a drug or biological product (such as 
pediatric extensions under section 505A of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 355a) or orphan drug marketing exclusivity 
under subchapter B of chapter V of such Act (21 U.S.C. 360aa et seq.)), 
no person shall have the right to exclusively manufacture, distribute, 
sell, or use a drug, a biological product, or a manufacturing process 
for a drug or biological product in interstate commerce, including the 
exclusive right to rely on health registration data or the 30-month 
stay-of-effectiveness period for Orange Book patents under section 
505(j) of such Act (21 U.S.C. 355(j)).
    (b) Remuneration.--A person that is eligible for prize payments 
from the Fund as provided for in sections 9, 10, or 11 shall receive 
such payments--
            (1) in lieu of any remuneration the person would have 
        otherwise received for the exclusive marketing, distribution, 
        sale, or use of a drug, biological product, or manufacturing 
        process for a drug or biological product but for the 
        application of subsection (a); and
            (2) in addition to any other remuneration that such person 
        receives by reason of the nonexclusive marketing, distribution, 
        sale, or use of the drug, biological product, or manufacturing 
        process for a drug or biological product.
    (c) Application.--This section shall apply only with respect to the 
marketing, distribution, sale, or use of a drug, a biological product, 
or a manufacturing process for a drug or biological product that occurs 
on or after October 1, 2012.

SEC. 6. FUND FOR MEDICAL INNOVATION PRIZES.

    (a) Establishment.--There is hereby established in the Treasury of 
the United States a revolving fund to be known as the ``Fund for 
Medical Innovation Prizes'', which shall consist of amounts 
appropriated to the Fund and amounts credited to the Fund under 
subsection (c).
    (b) Availability of Funds.--Amounts in the Fund shall be available 
to the Board, subject to section 17(c), for the purpose of carrying out 
this Act.
    (c) Amounts Credited to the Fund.--The Secretary of the Treasury 
shall credit to the Fund the interest on, and the proceeds from sale or 
redemption of, obligations held in the Fund.

SEC. 7. BOARD OF TRUSTEES FOR THE FUND.

    (a) Establishment.--There is hereby established (as a permanent, 
independent establishment in the executive branch) a Board of Trustees 
for the Fund for Medical Innovation Prizes.
    (b) Membership.--The Board shall be composed of 13 members, 
including--
            (1) the Administrator of the Centers for Medicare & 
        Medicaid Services;
            (2) the Commissioner of Food and Drugs;
            (3) the Director of the National Institutes of Health;
            (4) the Director of the Centers for Disease Control and 
        Prevention; and
            (5) 9 individuals to be appointed by the President, with 
        the advice and consent of the Senate, of which--
                    (A) 2 shall be representatives of businesses that 
                provide health insurance to employees;
                    (B) 2 shall be representatives of entities that 
                provide health insurance and contribute to the co-
                funding of the Fund for Medical Innovation Prizes under 
                section 17;
                    (C) 2 shall be representatives of the medical 
                research and development sector, including at least 1 
                representative of the nonprofit private medical 
                research and development sector; and
                    (D) 3 shall be representatives of consumer and 
                patient interests, including at least one 
                representative of patients suffering from orphan 
                diseases.
    (c) Terms.--
            (1) In general.--Except as provided in paragraph (2), each 
        member appointed to the Board under subsection (b)(5) shall be 
        appointed for a term of 4 years.
            (2) Terms of initial appointees.--As designated by the 
        President at the time of appointment, of the members first 
        appointed to the Board under subsection (b)(5)--
                    (A) 5 members shall be appointed for a term of 4 
                years; and
                    (B) 4 members shall be appointed for a term of 2 
                years.
    (d) Vacancies.--Any member of the Board appointed to fill a vacancy 
occurring before the expiration of the term for which the member's 
predecessor was appointed shall be appointed only for the remainder of 
that term. A member of the Board may serve after the expiration of that 
member's term until a successor has taken office.
    (e) Compensation and Travel Expenses.--
            (1) Compensation.--Members of the Board shall each be paid 
        not less than the daily equivalent of level IV of the Executive 
        Schedule for each day (including travel time) during which they 
        are engaged in the actual performance of the duties of the 
        Board.
            (2) Travel expenses.--Each member of the Board shall 
        receive travel expenses, including per diem in lieu of 
        subsistence, in accordance with applicable provisions under 
        subchapter I of chapter 57 of title 5, United States Code.
    (f) Chairperson; Officers.--The members of the Board shall elect a 
Chairperson and any other officers of the Board. The Chairperson and 
any such officers shall be elected for a term of 2 years.
    (g) Staff.--The Board may appoint and fix the pay of such 
additional personnel as the Board considers appropriate. The staff of 
the Board shall be appointed subject to the provisions of title 5, 
United States Code, governing appointments in the competitive service, 
and shall be paid in accordance with the provisions of chapter 51 and 
subchapter III of chapter 53 of such title relating to classification 
and General Schedule pay rates.
    (h) Experts and Consultants.--The Board may procure temporary and 
intermittent services under section 3109(b) of title 5, United State 
Code.

SEC. 8. POWERS AND DUTIES OF THE BOARD.

    (a) Duties.--The Board shall--
            (1) award prize payments for medical innovation in 
        accordance with this Act; and
            (2) submit a report to the Congress under section 16.
    (b) Powers of Board.--
            (1) Hearings and sessions.--
                    (A) In general.--The Board may, for the purpose of 
                carrying out this Act, hold hearings, sit and act at 
                times and places, take testimony, and receive evidence 
                as the Board considers appropriate.
                    (B) First meeting.--Not later than 30 days after 
                the initial members of the Board are appointed under 
                section 7(b)(5) and confirmed, the Board shall conduct 
                its first meeting.
            (2) Policies and procedures.--
                    (A) In general.--Not later than 1 year after the 
                initial members of the Board are appointed under 
                section 7(b)(5) and confirmed, the Board shall 
                establish such policies and procedures as may be 
                appropriate to carry out this Act.
                    (B) Majority vote.--The policies and procedures of 
                the Board shall require that any determination of the 
                Board be made by not less than a majority vote of the 
                members of the Board.
                    (C) Administrative procedures.--The policies and 
                procedures of the Board shall comply with subchapter II 
                of chapter 5 of title 5, United States Code.
                    (D) Transparency.--The policies and procedures of 
                the Board shall--
                            (i) comply with sections 552 and 552b of 
                        title 5, United States Code (commonly referred 
                        to as the ``Freedom of Information Act'' and 
                        the ``Government in the Sunshine Act'', 
                        respectively); and
                            (ii) ensure that the proceedings and 
                        deliberations of the Board are transparent and 
                        are supported by a description of the methods, 
                        data sources, assumptions, outcomes, and 
                        related information that will allow the public 
                        to understand how the Board reaches its 
                        criteria-setting and award decisions.
            (3) Expert advisory committees.--To assist the Board in 
        carrying out this Act, the Board shall establish independent 
        expert advisory committees, including committees on the 
        following:
                    (A) Economic evaluation of therapeutic benefits.
                    (B) Business models and incentive structures for 
                innovation.
                    (C) Research and development priorities.
                    (D) Orphan diseases.
                    (E) Financial control and auditing.
                    (F) Open source biomedical science.
            (4) Powers of members and agents.--Any member or agent of 
        the Board may, if authorized by the Board, take any action 
        which the Board is authorized to take under this Act.
            (5) Mails.--The Board may use the United States mails in 
        the same manner and under the same conditions as other 
        departments and agencies of the United States.

SEC. 9. PRIZE PAYMENTS FOR MEDICAL INNOVATION.

    (a) Award.--For fiscal year 2013, and each subsequent fiscal year, 
the Board shall award to persons described in subsection (b) prize 
payments for medical innovation relating to a drug, a biological 
product, or a new manufacturing process for a drug or biological 
product.
    (b) Eligibility.--To be eligible to receive a prize payment under 
subsection (a) for medical innovation relating to a drug, a biological 
product, or a manufacturing process, a person shall be--
            (1) in the case of a drug or biological product, the first 
        person to receive market clearance with respect to the drug or 
        biological product;
            (2) in the case of a manufacturing process, the holder of 
        the patent with respect to such process; or
            (3) in the case of open source contributions, the persons 
        or communities that openly shared knowledge, data, materials, 
        and technology on a royalty-free and nondiscriminatory basis.
    (c) Criteria.--The Board shall, by regulation, establish criteria 
for the selection of recipients, and for determining the amount, of 
prize payments under this section. Such criteria shall include 
consideration of the following:
            (1) The number of patients who would benefit from the drug, 
        biological product, or manufacturing process involved, 
        including (in cases of global neglected diseases, global 
        infectious diseases, and other global public health priorities) 
        the number of non-United States patients.
            (2) The incremental therapeutic benefit of the drug, 
        biological product, or manufacturing process involved as 
        compared to existing drugs, biological products, and 
        manufacturing processes available to treat the same disease or 
        condition, except that the Board shall provide for cases where 
        drugs, biological products, or manufacturing processes are 
        developed at roughly the same time, so that the comparison is 
        to products that were not recently developed.
            (3) The degree to which the drug, biological product, or 
        manufacturing process involved addresses priority health care 
        needs, including--
                    (A) current and emerging global infectious 
                diseases;
                    (B) severe illnesses with small client populations 
                (such as indications for which orphan designation has 
                been granted under section 526 of the Federal Food, 
                Drug, and Cosmetic Act (21 U.S.C. 360bb)); and
                    (C) neglected diseases that primarily afflict the 
                poor in developing countries.
            (4) Improved efficiency of manufacturing processes for 
        drugs or biological processes.
            (5) The extent to which knowledge, data, materials and 
        technology that are openly shared have contributed to the 
        successful development of new products or improved processes 
        for manufacturing products.
            (6) In the case of antibiotics or other products for which 
        drug resistance is a significant public health problem, the 
        expected life cycle benefits of the antibiotic or other 
        product, with appropriate adjustments that reward the 
        conservation of the resources, taking into account drug 
        resistance that is related to use of the product.
            (7) In the case of products used in stockpiles for 
        potential threats to the public health, the risk adjusted 
        benefits of stockpiling the products.
    (d) Requirements.--In awarding prize payments under this section, 
the Board shall comply with the following:
            (1) In cases where a new drug, biological product, or 
        manufacturing process offers an improvement over an existing 
        drug, biological product, or manufacturing process and the new 
        drug, biological product, or manufacturing process competes 
        with or replaces the existing drug, biological product, or 
        manufacturing process, the Board shall continue to make prize 
        payments for the existing drug, biological product, or 
        manufacturing process to the degree that the new drug, 
        biological product, or manufacturing process was based on or 
        benefitted from the development of the existing drug, 
        biological product, or manufacturing process.
            (2) The Board may not make prize payments based on the 
        identity of the person who manufactures, distributes, sells, or 
        uses the drug, biological product, or manufacturing process 
        involved.
            (3) The Board may award prize payments for a drug, a 
        biological product, or a manufacturing process for not more 
        than 10 fiscal years, regardless of the term of any related 
        patents.
            (4) For any fiscal year, the Board may not award a prize 
        payment for any single drug, biological product, or 
        manufacturing process in an amount that exceeds 5 percent of 
        the total amount appropriated to the Fund for that year.
            (5) For every drug or biological product that receives 
        market clearance, the Board shall determine whether and in what 
        amount to award a prize payment for the drug or biological 
        product not later than the end of the fourth full calendar-year 
        quarter following the calendar-year quarter in which the drug 
        or biological product receives market clearance.

SEC. 10. PRIZES FOR PRIORITY RESEARCH AND DEVELOPMENT.

    (a) Minimum Levels of Funding.--For fiscal year 2013, and each 
subsequent fiscal year, the Board shall establish and may periodically 
modify minimum levels of funding under section 9 for priority research 
and development.
    (b) Initial Minimum Levels.--Of the amount appropriated to the Fund 
for a fiscal year, the Board shall use (subject to the establishment or 
modification of an applicable minimum level of funding under subsection 
(a)) not less than--
            (1) 4 percent of such amount for global neglected diseases;
            (2) 10 percent of such amount for orphan diseases; and
            (3) 4 percent of such amount for global infectious diseases 
        and other global public health priorities, including research 
        on AIDS, AIDS vaccines, and medicines for responding to 
        bioterrorism.
    (c) Public Input; Recommendations.--The advisory committee on 
research and development priorities (established pursuant to section 
8(b)(3)) shall--
            (1) solicit public input on research and development 
        priorities; and
            (2) periodically recommend to the Board modifications in 
        the minimum levels of funding for prizes for priority research 
        and development under this section.
    (d) Procedures.--The Board shall adopt procedures to establish and 
periodically modify minimum levels of funding under section 9 for 
priority research and development.

SEC. 11. OPEN SOURCE DIVIDEND PRIZES.

    (a) In General.--In order to induce greater access and the open 
sharing of knowledge, data, materials and technology, at least 5 
percent of the prize payments from the Fund shall be dedicated to Open 
Source Dividend prizes.
    (b) Procedures.--
            (1) In general.--The Board of Trustees shall adopt 
        procedures for the allocation of Open Source Dividend prizes. 
        Such procedures shall--
                    (A) be fully transparent regarding the process for 
                evaluating the value of open sharing of knowledge, 
                data, materials, and technology;
                    (B) reward the open, nondiscriminatory and royalty-
                free sharing of knowledge, data, materials, and 
                technology that has contributed to the development of 
                the new drugs, biological products, or manufacturing 
                processes that are rewarded under sections 9 and 10;
                    (C) in the case of rewards for contributing to the 
                development of new drugs, biological products, or 
                manufacturing processes rewarded under sections 9 and 
                10, provide for a time-limited period of nominations 
                for persons or communities whose contributions were 
                considered useful, including the evidence to support 
                such nominations to describe the significance of the 
                contribution; and
                    (D) provide for rules and procedures to protect 
                against conflicts of interest.
            (2) Public availability of nominations.--The nominations 
        described in paragraph (1)(C), and the evidence supporting such 
        nominations, shall be public. The public shall be allowed to 
        provide commentary and additional evidence on such nominations 
        before awards are made.

SEC. 12. COMPETITIVE INTERMEDIARIES FOR FUNDING INTERIM TECHNOLOGIES.

    (a) In General.--The Board of Trustees may authorize multiple 
nonprofit intermediaries to reward projects for interim research and 
development of products, or for open source dividend prizes. Such 
intermediaries shall compete for funding from non-Federal entities that 
co-fund the Fund.
    (b) Availability.--Prizes awarded by competitive intermediaries 
shall be available to persons or communities that provide open, 
nondiscriminatory and royalty-free licenses to relevant intellectual 
property rights.
    (c) Rules.--The Board of Trustees shall adopt rules to ensure the 
transparency and accountability of any entities authorized to act as 
competitive intermediaries under subsection (a).

SEC. 13. SPECIAL TRANSITION RULES.

    (a) In General.--A drug or biological product that is on the market 
on October 1, 2012, shall remain eligible for prize payments for not 
more than 10 fiscal years, consistent with section 9(d)(3).
    (b) Determination of Value.--In determining the amount of a prize 
payment for a drug or biological product described in subsection (a), 
the Board shall calculate the incremental value of the drug or 
biological product as of the date on which the drug or biological 
product was first introduced in the market.
    (c) Maximum Amount.--With respect to drugs and biological products 
described in subsection (a), the Board may award--
            (1) of the amount appropriated to the Fund for fiscal year 
        2013, not more than 90 percent of such amount; and
            (2) of the amount appropriated to the Fund for each of the 
        succeeding 9 fiscal years, not more than a percentage of such 
        amount that is equal to 9 percent less the percentage 
        applicable to the preceding fiscal year under this subsection.

SEC. 14. ARBITRATION.

    In the case of a drug that is on the market on October 1, 2012, and 
subject to patents owned by a party other than the person who first 
received market clearance for the drug, the Board shall establish an 
arbitration procedure to determine an equitable division of any prize 
payments under this Act among the patent owners and the person who 
first received market clearance for the drug.

SEC. 15. ANNUAL AUDITS BY GAO.

    (a) Audits.--The Comptroller General of the United States shall 
conduct an audit of the Board each fiscal year to determine the 
effectiveness of the Board--
            (1) in bringing to market drugs, vaccines and other 
        biological products, and new manufacturing processes for 
        medicines in a cost-effective manner; and
            (2) in addressing society's medical needs, including global 
        neglected diseases that afflict primarily the poor in 
        developing countries, indications for which orphan designation 
        has been granted under section 526 of the Federal Food, Drug, 
        and Cosmetic Act (21 U.S.C. 360bb), and global infectious 
        diseases and other global public health priorities.
    (b) Reports.--The Comptroller General of the United States shall 
submit a report to the Congress each fiscal year on the results of each 
audit conducted under subsection (a).

SEC. 16. REPORT TO CONGRESS.

    Not later than 1 year after the date of the enactment of this Act, 
the Board shall submit to Congress a report containing the findings, 
conclusions, and recommendations of the Board concerning the 
implementation and administration of this Act, including 
recommendations for such legislative and administrative action as the 
Board determines to be appropriate.

SEC. 17. FUNDING.

    (a) Appropriations.--
            (1) Start-up costs.--For fiscal year 2013, there are 
        authorized to be appropriated to the Fund, such sums as may be 
        necessary to carry out this Act.
            (2) Program implementation.--For fiscal year 2013 and each 
        subsequent fiscal year, there is appropriated to the Fund, out 
        of any funds in the Treasury not otherwise appropriated, an 
        amount equal to the amount that is .55 percent of the gross 
        domestic product of the United States for the preceding fiscal 
        year (as such amount is determined by the Secretary of 
        Commerce).
    (b) Availability.--Funds appropriated to the Fund for a fiscal year 
shall remain available for expenditure in accordance with this Act 
until the end of the 3-year period beginning on October 1 of such 
fiscal year. Any such funds that are unexpended at the end of such 
period shall revert to the Treasury.

SEC. 18. IMPOSITION OF ANNUAL FEE ON HEALTH INSURANCE PROVIDERS.

    (a) Imposition of Fee.--
            (1) In general.--Each covered entity engaged in the 
        business of providing health insurance shall pay to the 
        Secretary not later than the annual payment date of each 
        calendar year beginning after 2012 a fee in an amount 
        determined under subsection (b).
            (2) Annual payment date.--For purposes of this section, the 
        term ``annual payment date'' means, with respect to any 
        calendar year, a date determined by the Secretary, which in no 
        event, may be later than September 30 of such calendar year.
    (b) Determination of Fee Amount.--With respect to each covered 
entity, the fee under this section for any calendar year shall be equal 
to the amount determined under section 17(a)(2), multiplied by the 
ratio of the covered entity's net premiums written with respect to 
health insurance for any United States health risk taken into account 
under subsection (c) during the preceding calendar year, to--
            (1) the sum of net premiums for all covered entities; and
            (2) all Federal outlays on health insurance or 
        reimbursement of health care costs, excluding the costs of long 
        term care.
    (c) Amounts Taken Into Account.--For purposes of paragraph (b), the 
net premiums written with respect to health insurance for any United 
States health risk that are taken into account during any calendar year 
with respect to any covered entity shall be determined as follows:
            (1) With respect to a covered entity's net premiums written 
        during the calendar year that are not more than $25,000,000, 
        the percentage of net premiums written that are taken into 
        account is 0 percent.
            (2) With respect to a covered entity's net premiums written 
        during the calendar year that are more than $25,000,000 but 
        less than $50,000,000, the percentage of net premiums written 
        that are taken into account is 50 percent.
            (3) With respect to a covered entity's net premiums written 
        during the calendar year that are $50,000,000 or more, the 
        percentage of net premiums written that are taken into account 
        is 100 percent.
    (d) Covered Entity.--
            (1) In general.--For purposes of this section, the term 
        ``covered entity'' means any entity which provides health 
        insurance for any United States health risk.
            (2) Exclusion.--Such term does not include any governmental 
        entity.
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