WASHINGTON -- In late September, Health and Human Services Secretary Michael Leavitt told members of Congress in a classified closed-door meeting that bird flu could conceivably kill hundreds of thousands of Americans.

Within 24 hours, a band of Senate Democrats jumped on the issue, cobbling together a $3.9 billion legislative proposal to buy and stockpile huge new quantities of vaccines and antiviral medications. Only a few hours later, their proposal passed the Senate on a voice vote, with almost no debate or discussion.

The hasty vote is just one sign that legislators in Washington are scrambling to address a major gap in health care: Marketplace forces aren't providing some of the drugs the public needs most. The price tag of an avian-flu plan has now jumped as high as $8 billion under the latest Senate proposal, with President Bush also proposing a multibillion-dollar spending plan.

Pandemic viruses aren't the only threat. Drug-resistant bacteria and terrorist attacks spreading anthrax, smallpox or other deadly substances are also big worries in Washington. The emerging consensus: Private drug makers have to be encouraged to produce more medicines protecting public health -- even as critics of the pharmaceutical industry are wary of handing it too many incentives.

Separately from the avian-flu proposals, a bill introduced by Sen. Richard Burr, Republican of North Carolina, includes broad liability protections for drug companies that produce "countermeasures" to public-health threats. These companies would also get tax rebates and exclusive market access for their drugs. The bill would create a new agency within the Department of Health and Human Services, with a $1 billion-a-year budget, that would fund companies with promising vaccines and other biodefense drugs.

Here's a closer look at some of the ideas being discussed in Washington to fill the medicine gap.

Lawsuit Protection

Drug companies have long been reluctant to produce vaccines out of fear of lawsuits. While any drug may be the target of a product-liability suit, vaccines and bioterror drugs are particularly vulnerable because they may be rolled out in an emergency and given to millions of people quickly. Also drugs to treat diseases such as anthrax can't be fully tested in humans because it would be unethical to poison people with anthrax to test a drug's efficacy.

In late 2003, the U.S. government and BioPort Corp. of Lansing, Mich., started negotiating a deal under which BioPort would supply the U.S. with five million doses of its Biothrax anthrax vaccine for $122 million. The talks dragged on for more than a year. Among the issues: BioPort demanded that Uncle Sam indemnify it against liability suits from civilians who took the vaccine, says John McClerici, a partner at the Washington law firm of McKenna, Long & Aldridge LLP who represents BioPort. U.S. health officials finally agreed to the stipulation in May.

"We're saying, you aren't going to have companies risk their entire corporate existence without sufficient liability protection," says James Greenwood, president of the Biotechnology Industry Organization, the industry's major trade group. He is a former Republican congressman from Pennsylvania.

Vaccine makers point to the heavy costs of litigating suits alleging a link between vaccines and autism. Despite scholarly studies that have found no link, some 350 lawsuits have been filed, costing $200 million, industry executives say. None has yet gone to trial.

Some Democrats and trial lawyers argue that if the liability protection is too sweeping, victims of a botched vaccine would have no redress. At a committee meeting last month, Sen. Edward Kennedy called for the legislation to include a "strong" compensation fund for victims. The Association of Trial Lawyers of America has also objected to Sen. Burr's bill, which would only provide injury compensation for emergency personnel and other limited groups.

"Congress cannot just eliminate your jury-trial right, just to protect drug companies," says Linda Lipsen, senior vice president of the trial lawyers' association. "That's unconstitutional and unfair."

Senate staffers say the liability issue is the biggest stumbling block to getting the Burr legislation to a vote on the Senate floor. A companion bill hasn't been introduced yet in the House. Republican leaders have said they want to have a law passed by both houses and on President Bush's desk by Thanksgiving, but that may be optimistic.

A Biodefense Czar

For missile defense, the Pentagon has a single agency that spans the armed services, with a powerful chief who runs a nearly $8 billion-a-year budget. In contrast, the effort to protect the U.S. against biological weapons is a patchwork of shared responsibility between the departments of homeland security, health and human services, defense, and other parts of the government.

Even within health and human services, there's a split of responsibilities between the National Institutes of Health, which funds early-stage research, and a separate emergency-planning division that administers contracts under the $5.6 billion BioShield program. BioShield was approved by Congress last year in response to 9/11 and the anthrax attacks, but most of the funds have yet to be distributed.

Just because the NIH considers a particular research area important doesn't mean a company that makes progress will wind up with a contract to sell something to the government. The Department of Homeland Security must issue "material threat" assessments before HHS can award a BioShield contract. To date, Homeland Security has only issued a handful of threat assessments, including anthrax and weaponized smallpox.

Sen. Burr is proposing a new agency within HHS, headed by an industry-savvy official reporting to the secretary. The official would have about $1 billion a year to be used for midstage funding of projects, helping keep early research alive before it reaches the final stage of a BioShield contract.

A new agency with a big budget could bring criticism that R&D by government fiat is unworkable, and the private sector ought to do most of the work -- even if it hasn't so far. Furthermore, a powerful new unit inside HHS working on bioterror drugs could create a turf war with the emergency-planning office that administers BioShield contracts. In fact, under Sen. Burr's bill the $1 billion budget for the new agency's first year would be carved out of BioShield's $5.6 billion, although future funds would have to come from elsewhere.

Creating a Market

A popular idea among some foundations and economists in recent years is to create a guaranteed bounty for new drugs that market forces wouldn't normally supply. About $750 million from the Bill and Melinda Gates Foundation jump-started an international vaccine fund in 1999. A number of countries and nonprofits have also contributed to the fund, which pays for vaccines for hepatitis B, yellow fever, influenza and other diseases.

The Gates Foundation, among others, has also studied the idea of promising companies a huge payment if they invent, say, a malaria vaccine that can be used in poor countries. The attraction of the idea is that it limits the potentially stifling involvement of government or charities in the nitty-gritty of drug discovery.

The idea is similar to the "guaranteed" contracts promised under the BioShield law. However, in hearings on Capitol Hill, executives of biotech companies bidding for contracts have painted the BioShield process as anything but the red-tape-free haven envisioned in proposals for a drug bounty. The executives say government officials kept changing the requirements and delaying contracts.

In testimony earlier this year before Congress, top HHS officials said they have made major strides building reserves against anthrax, plague and smallpox outbreaks. But William Raub, deputy assistant secretary at HHS, acknowledged at the time, "We wish we were further along."

Sen. Burr wants to make BioShield purchasing more transparent, so that companies have a better sense of what the government will buy, in what quantity and when. He suggests a system of "milestone" payments to companies as they reach development goals, rather than making them wait for a single uncertain payoff at the end.

Separately, moves by the U.S. government to stockpile Tamiflu could set a precedent that will encourage drug companies. Tamiflu was developed as a normal commercial drug by Roche Holding AG, which licensed it from Gilead Sciences Inc., but now Roche is making big profits by selling the drug to governments. Sen. Bill Frist, a physician and Senate majority leader, has urged the Bush administration to buy enough Tamiflu to treat 50 percent of the U.S. population, or nearly 150 million doses. Currently the U.S. has 4.3 million doses and is negotiating to buy more.

If other companies conclude that innovative flu drugs are likely to draw big business from government buyers, it could create an incentive that the industry has found lacking in recent years.

Both President Bush and Congress have put a high priority on spending to prepare for a possible flu pandemic. While both Democrats and Republicans have some quibbles with President Bush's $7.1 billion plan, the momentum is great on all sides and it's likely that multibillion-dollar legislation will pass and be signed into law.

Market Exclusivity

By far the most contentious solution to emerge in the last year was devised largely by Sen. Joseph Lieberman, Democrat of Connecticut, and Utah Republican Sen. Orrin Hatch. It would have given drug companies a two-year extension on the patent of their choice in return for working on anti-infectives.

The proposal was dropped amid vigorous opposition from the generic drug industry and employer groups who fear higher drug costs. But Sen. Burr's bill still contains a number of enticements for drug companies to step up research and production of biodefense drugs -- a category that is likely to include at least some vaccines and antibiotics for natural pathogens.

One enticement is 10 years of market exclusivity for these drugs. That means they would be assured that the government would shut out "me-too" drugs for the same disease for a decade. So-called orphan drugs for rare diseases already enjoy seven years of protection. The bill also calls for tax rebates and grants to beef up drug-making capacity.

Antibiotics R&D could get a big boost from these provisions, supporters say. Martin Blaser, president of the Infectious Diseases Society of America, said in a letter to Sen. Kennedy that the legislation would be "a bargain when measured against the toll of life-threatening pathogens and antimicrobial resistance: the loss of thousands of lives and the avoidable costs of billions of health-care dollars."

Senate staffers say the bill is being revised after protests that the version introduced in mid-October is too broad. The Generic Pharmaceutical Association says the extra incentives wouldn't lead to more new drugs because big pharmaceutical companies already have plenty of incentive to develop new products.

Unless the exclusivity rights are limited, says a statement by the association, "we would be condemning American consumers to pay higher prices for prescription medicines without improving the nation's overall preparedness."