WASHINGTON (Nov. 12, 2015) – The federal government should establish an “innovation savings program” (ISP) – rooted in familiar prize structures in the public and private sectors – to encourage innovation, save taxpayer money and provide an alternative to the current patent system, according to a new study released by the R Street Institute.

In the study, R Street Associate Fellow Derek Khanna lays out a vision for the ISP, which would kick in when inventions and discoveries surpass a minimum cost-savings threshold to the federal government. For example, if a cancer drug saved the federal government $1 billion per year, the researchers who developed the drug would receive a portion of the savings, in exchange for their not patenting the technology.

The program’s goal would be to provide a profit mechanism, separate and apart from patents and direct subsidies, to encourage innovations that could revolutionize such fields as medical technology, energy efficiency and payment processing. The innovations and research then would be available immediately to all Americans, free of royalty fees, to potentially spur on even further research and development.

“Traditionally, this kind of research has been limited by the patent system,” Khanna writes. “The costs associated with the research mean a patent is necessary to recoup costs.”

He notes the existing patent system’s incentives can mean investing in lawyers, rather than engineers, and filing applications for inventions and processes a firm may not intend ever to bring to the market. In such cases, innovation and competition suffer, for no discernable benefit.

Programs such as the False Claims Act and Medicare Recovery Audit program have provided incentives for auditors to uncover and pursue fraud in federal programs. The Medicare Recovery Audit program in 2013 alone saved the Medicare Trust Funds more $3 billion.

“The Medicare Recovery Audit program shows the power of aligning public and private sector incentives to save taxpayers money,” Khanna writes. “But programs that seek only to stamp out waste, fraud and abuse do little to encourage the kinds of innovations that could drastically reduce costs in the first place.”

Khanna also warns that a program this complex would certainly have some challenges that would have to be addressed, but that the downside risk of the proposal seems minimal.

“If the ISP wasn’t used, Congress could revise or discard it. Its failure wouldn’t have costs to taxpayers, because prizes would be paid only when there is a cost savings,” he said. “We can and should encourage the best and brightest to solve some of the biggest problems facing our country, our economy and our world.”

 

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