Big pharma: a story of success in a market economy
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- Calinas-Correia, J. Med Health Care and Philos (2013) 16: 305. doi:10.1007/s11019-012-9384-x
In this paper, I will argue that the current discussions about regulating certain activities concerning the pharmaceutical industry do miss a crucial point. The Pharmaceutical Industry is a story of success, providing a wealth of new discoveries and applied technologies, which have greatly enhanced our lives. The current call for strict regulation of the Pharmaceutical Industry makes the unwarranted assumption that such regulation will not disturb the mechanisms of the Industry’s success. I will claim that a centralised regulation profoundly transforms the direction of travel. I will also claim that the role of the executive in bypassing regulations creates a parallel industry of subsidiary regulations to counter such bypassing. The predictable consequence is the increasing role of central regulatory control and the progressive slowing down of the success of the Pharmaceutical Industry leading towards an undesirable mediocrity. The conclusion I wish to advance is that our choices are not limited to ‘a wild open market’ and ‘a regulated open market’ scenarios, and the strategy to avoid a robustly regulated but mediocre Pharmaceutical Industry may involve ‘non-open market scenarios’ which have so far been absent from the alternatives discussed.
KeywordsBureaucracyCentral planningExecutive role/motivation/behaviourIdeologyPharmaceutical industryPolitical economy of healthRegulation
In this paper, I will argue that the current discussions about regulating certain activities concerning the pharmaceutical industry do miss a crucial point. The Pharmaceutical Industry is a story of success, providing a wealth of new discoveries and applied technologies, which have greatly enhanced our lives. The current call for strict regulation of the Pharmaceutical Industry makes the unwarranted assumption that such regulation will not disturb the mechanisms of the Industry’s success. The unstated assumption is that we will continue to enjoy the same benefits from the discovery and practical application of medical drugs and technologies in spite of the changes advocated, only better because the inherent risks will be lessened. The point made here is that we have no reason whatsoever to make the assumption that regulation will not interfere with success. In fact, I will argue we have good reasons to expect significant knock-on effects leading from regulation to a significant loss of effectiveness.
I will not attempt to chart all the possible arguments for my views; I will merely point out a couple of ‘black swans’,1 aiming to establish the reasonableness of discussing the issue of risk in Pharmaceutical production taking a broader view. This view will not take for granted the success of a regulated industry. One such ‘black swan’ is the undesirable consequences of a centralised regulation of the Pharmaceutical business, as discussed a century ago when the welfare state was designed. The other ‘black swan’ is the role of the executive in finding ways around regulation rather than merely abiding by them.
I anticipate that both arguments will convince the reader of the naivety of the underlying assumption that, “if only we could regulate the market, all will be better, with a mere slowing down of the benefits”. I will claim that a centralised regulation profoundly transforms the direction of travel. I will also claim that the role of the executive in bypassing regulations creates a parallel industry of subsidiary regulations to counter such bypassing. The predictable consequence is the increasing role of central regulatory control and the progressive slowing down of the success of the Pharmaceutical Industry leading towards an undesirable mediocrity.
The conclusion I wish to advance is that our choices are not limited to ‘a wild open market’ and ‘a regulated open market’ scenarios, and the strategy to avoid a robustly regulated but mediocre Pharmaceutical Industry may involve ‘non-open market scenarios’ which have so far been absent from the alternatives discussed.
Characterising big pharma
The model of operation of the Pharmaceutical Industry is not a self-appointed framework the industry imposes on society; rather, it is a political decision imposed on the industry in the early twentieth century. Once the model was established, the profile for those capable of delivering it was refined.
The framework of operation
Lesley Doyal and the political economy of health
The framework under which healthcare-related business was to operate was fiercely debated between the final quarter of the nineteenth century and the first quarter of the twentieth century. Many possible models were tried, ranging from unfettered liberal practice to schemes of mutual assistance. According to Doyal (1985), the medical profession as such was an important force lobbying for limiting the centralised regulation of practice and promoting a large degree of ‘free market’ at this time (Doyal 1985, pp. 168–169). This was not done purely out of capitalist greed, but also from a sense that the freedom of the profession would be a protection for the patient.2
This argument is even more relevant when applied to the Pharmaceutical activity, which at that time operated at a similar level to healthcare practitioners (small commercial concerns). In fact, when the opportunity came to test the centralised state regulation of production in state economies, the criticism quickly emerged that such regulation, through its choices and priorities, served the needs of the state rather than those of the individuals.3 The fear was that a state run healthcare system would develop the structures with most impact on ‘macro-level markers’—markers at population level, i.e., index of health factors, productive capacity, etc.4 It is not difficult to imagine how such reasons would influence streams of funding for research and development, with ‘macro-markers’ given a disproportionate priority over ‘micro-aspects’ of individual well-being. For a profession working at the micro level—the individual encounter—this was a situation to avoid. The solution found was to adopt a framework where the sum of ‘micro-aspects’ (i.e., the pooled interests of individual patients) would develop ‘market forces’ generating their own priorities, therefore addressing the individual’s well-being. The twentieth century has seen the rise in mechanisms for the states to influence the levers of the market so to achieve a balance between the macro and micro-level concerns in many areas of business, seen as covert attempts to address the macro-level factors.5
We have seen similar debates arising following the centralised implementation of the Quality and Outcomes Framework in General Practice (QOF). For example, while the QOF was hailed for improving those outcomes included, it had detrimental effects on those it did not, of which Mental Health and Pain are the most commonly referred to ‘Cinderella’ conditions (NHS Quality Improvement Scotland 2008, p. 20) (Ali 2010, pp. 16, 24). This happens in spite of the enormous relevance in terms of national health of both conditions. It is important to note that the centrally determined framework QOF targeted the more easily quantifiable parameters and conditions.
Central regulation tackles those issues where the political decision-makers feel more certain of generating a success story and consistently avoids controversial areas. Therefore, the influence of central regulation on the direction of travel of an activity like Pharmaceutical production must not be avoided in the discussion. While the recent issues surrounding QOF illustrate the current relevance, the political issues tackled 100 years ago must be revisited if we are going to have a broad and reasoned view of what regulation actually means.
The executive role
Sun Tzu and the art of war for executives
Operating within a market economy is a competitive activity, where you are always under threat, where the targets are always getting higher, and where everyone wants a piece of your success (Krause 1995, p. 11). This has been the situation ever since the emergence of private property; while the modes of confrontation have changed greatly over time, the issue remains that there are less resources than candidates to own them, hence the aggressive competition. Adopting military conceptions and techniques in the business environment is a mere reflection of the aggressiveness of market competition. From team building activities modelled on military training and a wealth of titles converting military discourse into business speech (of which Krause is an example) the point does not need pressing further. The profile of the executive emerges as someone capable of absorbing the available information, capable of identifying advantageous ground—and then able to exploit the advantages and take the risks involved. Such are the individuals who have provided us with the many successes of the Pharmaceutical Industry—or indeed, the Communications, Defence and Transport industries, for that matter.
The point I want to make here is that the role of the executive is not to ensure the enforcement of the rules he is given. The successful executive is one capable of designing new strategies, to draw an advantage from the rules he or she faces. From the executive’s perspective, the role of market regulations, biochemical laws and production procedures as constraints is contingent—and overcoming constraints, by designing strategies where those conditions become advantages or are neutralised, is the essence of acquiring a competitive advantage. When this happens, the regulations have lost their restraining power and no longer ensure what they were designed for. A regulated market is an on-going battle of wits between regulator and executive, pitting as adversaries people who should have a common aim in the production of useful goods.
To take an illustration from another heavily regulated industry, we may look at how the regulations imposed on the food processing industries fail to curb the practices they were supposed to control, due to the ingenuity of the executives in circumventing such regulations. For example, the traceability chain for meat supplies and the marking of inedible meat both fail to offer the protection they were designed for, to the extent that “many environmental officers remain unconvinced that measures taken by the Food Standards Agency (FSA) to control the illegal trade will be effective”. (Lawrence 2004, p. 12).
This raises a related but fundamental question, further undermining the claim that regulations are effective safeguards. The issue is the vulnerability of regulations to the lobbying of those entities we want to regulate, as well as to the political interests of governments and other large political bodies. We may look at the limitations on the marking of inedible meat as having been designed in such a way as to offer easy ways around it, open to local interpretation, as a result of the lobbying of the major retailers and processers (Lawrence 2004, p. 12). Or we may look at the dropping of the regulation of international coffee markets in 1989, with a consequent fall in the price paid to the producer and an overall decrease in quality (Oxfam International 2002), as a result of the international politics of a particularly powerful government (Lawrence 2004, p. 165).
The conclusion is that regulation starts as a useful ideal, but is watered down to ineffective procedures by the lobbying of corporate interests and the ingenuity of the competent executive. And if all this fails to make the regulation ineffective, a powerful interest may seize a political opportunity to cause it to be dropped altogether. But the problem does not stop here. As regulations are overcome by the ingenuity of competent executives, new regulations are required to address the new presentations of the old problems. Therefore, a new lucrative industry arises, providing new regulation proposals, lobbying for and against, advising technically, and interfering politically. Pursuing this ever receding horizon, we build an increasingly constrained space where to deliver the innovation and development we require. In such a constrained space, it becomes unavoidable that mediocrity will take the place of the pharmaceutical successes we have come to expect from the pharmaceutical companies, such as Antiretroviral agents, Angiotensin Conversion Enzyme inhibitors, Statins, Disease Modifying Anti-Rheumatic Agents, etc.
Adopting the model
The white paper and its critics
The application of the market model to the Pharmaceutical Industry has been so successful in developing very valuable medications, and in doing so as a self-sustained activity, that we have seen a large number of other core strategic industries, previously directly managed by the state, being ‘out-sourced’ to the private sector (communications, defence, transports, etc.). The whole of the Healthcare Services Industry is now the latest entrant into this fashion—precisely because of the success of the market model in providing innovation and development at a very low direct cost to the state.
The recent White Paper on Health from the Liberal-Conservative Government in the UK explicitly opens the healthcare provision market to ‘every willing provider’ eliminating the ‘preferential provider’ category; it also explicitly defines the healthcare providers’ market as competitive (Department of Health 2010, p. 38). This has already raised concerns that medical collaboration could be threatened under anti-cartel rules.6 While such extremes have been criticised by the medical profession, it is undeniable that current political wisdom would extend the market economy framework from the Pharmaceutical Industry to the whole of the Healthcare Services Industry (British Medical Association 2010, p. §3). It is also a fact that such a model is not something the Profession advocates, rather a political decision imposed on the medical profession by society.
However, whilst outwardly criticising the model, the profession seems poised to make the most of it. This is visible not just in the efforts of its representatives (British Medical Association 2010, p. §1), but also in the positioning of GP’s all over the Country, creating commissioning groups and establishing the alliances from which the commissioning consortia are to emerge. Furthermore, while waiting for the consortia to develop, GP’s seem to have been embracing the private model to the extent that some see GP’s being connected to private providers as the main vehicle for the wholesale privatisation of healthcare7 (Iacobucci and Slater 2011). We may also see it in the proliferation of doctors creating or taking leadership of ‘third sector’ enterprises, as well as private companies.8 It is readily apparent that the medical profession, if not desiring the model, is nonetheless ready to embrace it and make it work. The consequence is that the medical profession is ready to assume the executive profile, with its intrinsic stance on risk, uncertainty and opportunity. And certainly also the executive’s attitude toward regulations: that rules are to be overcome in the pursuit of success in a market model—sustainable profit.
Righteousness and an invitation to mediocrity
All models have problems. Doyal characterised the “obvious and growing contradiction between health and the pursuit of profit under capitalism”, as well as “the contradictions inherent in the particular forms of medical practice which have evolved within capitalist societies” (Doyal 1985, p. 291). Moynihan, Heath, Westin and Henry (and many others) characterised the synergy between our fears and Big Pharma’s need for an ever-expanding market.9 The wisdom required from those addressing such problems is to clarify, to the maximum extent possible, which problems are inherent in the model’s success, and which problems are contingent and can be eliminated without compromising the efficacy of the model. We can and must minimise or erase the latter, but the former is an altogether different prospect. If we are determined to eliminate a ‘problem’—say, the push for profit and expanding markets—on which the success of the model is built, we are condemning ourselves to mediocrity and intellectual impotence. The blurring of the distinction between the two sorts of problem is a recipe for the unquestioned persistence of outdated models, even after being stripped of what drove their (past) success—precisely what Doyal criticised as “more of the same”, avoiding questions of value and ideology (Doyal 1985, p. 292) when addressing structural problems. Current criticism of Big Pharma sounds like an attempt to expunge the ‘market’ from a ‘market economy’, without the courage to question the fundamentals of the ideology where it lives.
If the market model is successful, it is so through the ingenuity of its executives, who assess the field and take the risks, moving the industry forward. A model for widespread use by the Healthcare Services Industry needs to foster development, high quality and sustainability. If we are adopting the market model because of its success in achieving those results, we should refrain from castrating it. But this is no advocacy of “success whatever the cost”. I simply state that what we criticise about Big Pharma is likely to be the price of their success. Regulation of basic structural features of a successful system (in this case, the drive for risk taking if economically appropriate) is unlikely to preserve the integrity of the system. My contention is: (1) strict regulation will decrease success; and (2) we also have reason to doubt regulation’s effectiveness as well as its economic efficiency.
I conclude that, if we strongly refuse to accept the problems intrinsic to the capitalist ‘market driven’ success of Big Pharma, we should rethink the open market model rather than condemn ourselves to an expensive, bureaucratised, mediocrity.
The comment that it only takes one black swan to prove that not all swans are white (regardless of how many white swans one may have counted) is a popular expression of David Hume’s observations on the problems of inductive logic. Here it stands for those facts that stand out from the view that regulation is not an impediment to success.
While Doyal states this in ‘corporative advantage’ speech—that the 1911 Act “offered more freedom (for physicians) to practice medicine as they chose, and there was general agreement that it probably doubled the pay of the average doctor” (Doyal 1985, p. 169)—for a Profession which prides itself in advocating for the benefit of the patient, this increased freedom was indeed a widened scope to protect and provide for the patient.
Doyal, for instance, refers to the 1911 National Health Insurance Act as being designed to ‘improve national efficiency’ (Doyal 1985, p. 166). This is further made clear from the Report of the Actuaries from 21st March 1910, which Doyal quotes: “married women living with their husbands need not be included, since where the unit is the family, it is the husband’s and not the wife’s health which is important to insure”. (Doyal 1985, p. 167).
For example, Kelman’s Marxian approach is illustrative: a population is "optimally functional for health if the last increment of resources directed towards health contributes as much to overall productivity and accumulation as it would if diverted toward direct capital investment" (Kelman 1975).
Sheila Rowbotham describes the growing intervention of the state as a protection of future productive capacity, even if introduced as ‘leftist’ policies. Quoted in: (Doyal 1985, p. 170).
The concern that different Commissioning Consortia would be obliged to operate under competition law, and therefore restricted in their ability to cooperate between them or with NHS Trusts, was publicly stated at the Nottingham LMC meeting 28/09/10 and acknowledged there by Dr Peter Holden, a member of the General Practice Committee of the BMA currently considering the implications of the White paper.
With “one in seven board members of first-wave consortia has a link to a private company” and “one in 10 consortium board members were directors of private providers”, it is no surprise that “19 of the 52 first-wave pathfinder consortia had board members with interests in commercial providers” and in three cases these members were at least 50% of the board (Iacobucci and Slater 2011).
The presentations by the GP’s involved in running Serco Health, Health at Work, Nations Healthcare at the Bart Debate “Views from the Dark Side” organised by the Nottingham Medico-Chirurgical Society on the 13th of May 2010 were illuminating in this respect.