Kicking the Habit

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Dean Baker
The Guardian Unlimited, February 18, 2008

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There is a simple solution to the abuses and corruption within the pharmaceutical industry: public financing of clinical drug trials

The prescription drug industry in the United States stands alongside the tobacco and gun industries as outlaws of the corporate world. The leading firms in the industry are routinely caught engaging in a wide range of corrupt practices. This list includes concealing test results that show drugs to be harmful or ineffective, payoffs to researchers for publishing favorable articles in professional journals, bribing doctors to prescribe certain drugs, and hiring former cheerleaders to pitch drugs to doctors.

This sort of corruption should not be surprising to anyone familiar with basic economics. The government currently finances prescription drug research by granting companies patent monopolies on the drugs that they develop. This allows them to sell their drugs at prices that can be several thousand per cent above the cost of production. Drugs that could profitably sold in stores for $4 a prescription may instead sell for $300 or $400 per prescription. This enormous gap between the price and the cost of production invites the sort of corruption that we see in the pharmaceutical industry.

Each time a new scandal is exposed, the industry promises to root out the bad apples and the regulators promise to do a better job. That allows everyone to feel better until the next scandal is exposed. But the problem is not a few bad apples - the problem is the structure of the industry.

The way to eliminate corruption in the pharmaceutical industry is to get prices more in line with the cost of production. The best way to bring prices in line with costs is to have the government pick up much of the industry's research costs, in exchange for charging much lower prices [PDF].

The place to start is through public financing of clinical drug trials. This is by far the most corrupt part of the drug development process, since clinical test results are most immediately associated with the approval and marketing of drugs. If the tests can be taken out the control of drug companies who have a direct material stake in their outcome, it will remove the major source of corruption in the prescription drug industry.

The government can appropriate a sum of money approximately equal to what the industry now spends on clinical trials (around $20bn a year). It can then arrange long-term contracts (10-12 years) with independent testing firms, who would then decide which drugs to test. Renewal and expansion of the contracts would depend on the effectiveness of the contractor in finding and testing new drugs and preventing unsafe drugs from coming to market.

The government should impose strict rules on the contractors to prevent the sort of abuses that we currently see in the industry. First, there should be no overlap of financial interests between the firms doing the testing and the drug companies. All communications between the two, for example petitions to test a particular drug, should be in the form of public documents posted on the internet. Any other contact should be treated the same way as if a lawyer contacts a sitting juror in a pending case - it's called "jury tampering" and you spend years in jail for doing it.

Also, all the data from the tests must be publicly posted on the internet. This will allow any researcher anywhere in the world to independently analyze the data. This should substantially reduce the likelihood of mistakes or misrepresentations of results. It would also enormously facilitate comparative effectiveness assessments of different drugs. This will allow for much better and more timely research.

The method for paying for this research will also improve the public's health. If drug prices in the United States are brought more in line with drug prices elsewhere in the world then the industry would have less incentive to use misleading marketing and bribery to push their drugs. The savings to the Medicare drug program alone could easily cover the cost of the testing. If we could also get lower prices for the public as a whole it would both increase access and further reduce corruption.

The industry doesn't really have an argument against having independent testing firms paid on contract by the government. They just have lots of money to buy politicians. This means that the effort to clean up the drug industry will be a long and difficult process, but it can be done. Anyone who questions this fact should try to light up a cigarette in an airplane, restaurant or public building.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.