SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Health Prizes Rewarding Innovation, 
Savings, and Effectiveness Act of 2014''.

SEC. 2. PRIZE COMPETITIONS.

    (a) In General.--Part B of title IV of the Public Health Service 
Act (42 U.S.C. 284 et seq.) is amended by adding at the end the 
following:

``SEC. 409K. PRIZE COMPETITIONS FOR IMPROVING HEALTH OUTCOMES AND 
              REDUCING FEDERAL EXPENDITURES.

    ``(a) Goals.--The goal of the prize competitions under this section 
is to improve health outcomes, thereby reducing Federal expenditures on 
health programs.
    ``(b) Initial Actions.--
            ``(1) Identification of diseases and conditions.--Not later 
        than 6 months after the date of enactment of the Health Prizes 
        Rewarding Innovation, Savings, and Effectiveness Act of 2014, 
        the Director of NIH, in consultation with the Director of the 
        Congressional Budget Office, the Administrator for the Centers 
        for Medicare & Medicaid Services, and relevant health 
        economists, shall identify 3 to 5 human diseases or health 
        conditions with respect to which--
                    ``(A) the Federal Government, for such diseases and 
                conditions, collectively spends a total of not less 
                than $5,000,000,000 per year on prevention and 
                treatment activities;
                    ``(B) public and private investment in research is 
                disproportionately small in comparison with such 
                investment for other human diseases and conditions for 
                which the Federal Government has similar or greater 
                expenditures on prevention and treatment activities; 
                and
                    ``(C) the prize competitions under this section 
                would be appropriate for achieving the goal described 
                in subsection (a).
            ``(2) Design of prize competitions.--Not later than 12 
        months after the date of enactment of the Health Prizes 
        Rewarding Innovation, Savings, and Effectiveness Act of 2014, 
        the Director of NIH shall--
                    ``(A) design prize competitions--
                            ``(i) to cooperate with competitors to 
                        realize innovations to achieve the goal 
                        described in subsection (a) with respect to one 
                        or more diseases or conditions identified 
                        pursuant to subsection (b); and
                            ``(ii) to award one or more prizes--
                                    ``(I) if appropriate, at the 
                                beginning of or during the 
                                competitions, to the competitors whose 
                                innovations are most promising or 
                                demonstrate progress; and
                                    ``(II) at the end of the 
                                competitions, to the competitors whose 
                                innovations prove to be the best 
                                solutions;
                    ``(B) ensure that the design of such competitions--
                            ``(i) is realistic, given the amount of 
                        funds to be awarded as prizes;
                            ``(ii) does not reflect any bias concerning 
                        the type of innovations which will prove to be 
                        the best solutions;
                            ``(iii) allows any person to participate as 
                        a competitor without regard to the person's 
                        place of incorporation, primary place of 
                        business, citizenship, and residency, as 
                        applicable; and
                            ``(iv) addresses areas of unmet need with 
                        regard to a lack of recent and pending 
                        innovations; and
                    ``(C) submit to the Congress a report on the design 
                of such competitions.
            ``(3) Consultation.--In carrying out paragraphs (1) and 
        (2), the Director of NIH shall consult with--
                    ``(A) medical, economic, budgetary, innovation, and 
                venture capital experts; and
                    ``(B) the heads of relevant Federal agencies, 
                including the Commissioner of Food and Drugs, the 
                Director of the National Science Foundation, and the 
                Administrator of the Small Business Administration.
    ``(c) Simulation.--The Director of NIH shall--
            ``(1) not later than 14 months after the date of enactment 
        of the Health Prizes Rewarding Innovation, Savings, and 
        Effectiveness Act of 2014, award one or more contracts--
                    ``(A) to perform a simulation of the prize 
                competitions to be conducted under this section, based 
                on the designs developed under subsection (b)(2) and in 
                consultation with the categories of experts and agency 
                heads described in subsection (b)(3); and
                    ``(B) to use the simulation to assess the 
                effectiveness of the design; and
            ``(2) not later than 4 months after awarding such one or 
        more contracts, submit to the Congress a report on the results 
        of the simulation and assessment.
    ``(d) Adjustments to Design.--Not later than 21 months after the 
date of enactment of the Health Prizes Rewarding Innovation, Savings, 
and Effectiveness Act of 2014, the Director of NIH shall--
            ``(1) taking into consideration the results of the 
        simulation under subsection (c), and subject to the 
        requirements of subparagraphs (A) and (B) of subsection (b)(2), 
        make such adjustments to the design of the prize competitions 
        under this section as the Director determines appropriate; and
            ``(2) submit to the Congress a report on any such 
        adjustments.
    ``(e) Implementation of Prize Competitions.--
            ``(1) In general.--The Director of NIH shall enter into an 
        agreement with one or more private entities to implement prize 
        competitions based on the designs developed under subsection 
        (b)(2), as adjusted under subsection (d).
            ``(2) Duration.--The prize competitions under paragraph (1) 
        shall require competitors to demonstrate the effectiveness of 
        their innovations over a period of not more than 5 years.
            ``(3) Guidance and access to testing facilities.--The 
        Secretary and the Commissioner of Food and Drugs may cooperate 
        with qualified competitors in the prize competitions under 
        paragraph (1) by providing guidance and access to testing 
        facilities.
            ``(4) Number of prize competitions.--The Director shall 
        conduct--
                    ``(A) a total of not more than 5 prize competitions 
                under this section; and
                    ``(B) not more than 2 such prize competitions with 
                respect to any disease or condition.
    ``(f) Tracking; Reporting.--The Director of NIH shall--
            ``(1) collect information on--
                    ``(A) the medical efficacy of innovations funded 
                through the prize competitions under subsection (e); 
                and
                    ``(B) the actual and potential effect of the 
                innovations on Federal expenditures; and
            ``(2) not later than one year after the conclusion of the 
        prize competitions under subsection (e), and not later than the 
        end of each of the 4 succeeding years, submit to the Congress a 
        report on the information collected under paragraph (1).
    ``(g) Intellectual Property.--
            ``(1) Prohibition on the government acquiring intellectual 
        property rights.--The Federal Government may not gain an 
        interest in intellectual property developed by a participant in 
        a prize competition under subsection (e) without the written 
        consent of the participant.
            ``(2) Licenses.--The Federal Government may negotiate a 
        license for the use of intellectual property developed by a 
        participant in a prize competition under subsection (e).
    ``(h) Authorization of Appropriations.--
            ``(1) In general.--To carry out this section, in lieu of 
        amounts authorized to be appropriated by section 402A, there 
        are authorized to be appropriated $50,000,000.
            ``(2) Minimum percentage for prizes.--Of the total 
        assistance awarded to private entities under subsection (e) 
        (including in-kind contributions and testing or other technical 
        support) to implement any prize competition under this 
        section--
                    ``(A) not more than 30 percent of such assistance 
                shall be for administration of the prize competition; 
                and
                    ``(B) not less than 70 percent of such assistance 
                shall be awarded as prizes to competitors in the prize 
                competition.''.
    (b) Prizes Excluded From Gross Income of Recipients.--
            (1) In general.--Section 74 of the Internal Revenue Code of 
        1986 is amended by adding at the end the following new 
        subsection:
    ``(d) Certain Prizes for Improving Health Outcomes.--Gross income 
shall not include the value of any prize received by the taxpayer 
pursuant to a prize competition under section 409K of the Public Health 
Service Act (as in effect immediately after the enactment of this 
subsection).''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to taxable years ending after the date of the 
        enactment of this Act.
Health Prizes Rewarding Innovation, Savings, and Effectiveness Act of 2014 - Amends the Public Health Service Act to require the Director of the National Institutes of Health (NIH) to design prize competitions open to competitors worldwide to realize innovations that improve health outcomes thereby reducing federal expenditures on health programs. Requires the NIH to identify as the subject of the competitions diseases or health conditions for which the federal government spends at least $5 billion per year on prevention and treatment, and the research investment is disproportionately small in comparison to other diseases with similar or greater federal expenditures on treatment and prevention. Directs the NIH to award contracts to perform a simulation of the designed prize competitions to assess the effectiveness of the design. Requires the NIH to contract with private entities to implement the competitions. Allows the Secretary of Health and Human Services (HHS) and the Food and Drug Administration (FDA) to provide competitors with guidance and access to testing facilities. Prohibits the federal government from gaining an interest in intellectual property development by a participant without the participant's written consent. Amends the Internal Revenue Code to exclude prizes from gross income.
Health Prizes Rewarding Innovation, Savings, and Effectiveness Act of 2014