In its broadest sense, regulatory capture is the process through which special interests affect state intervention (Dal Bo, E., 2006). More specifically regulatory capture describes the phenomenon that regulators protect the interests of the organisation that they regulate over the interests of the public (Borup, R., Traulsen, J.M. and Kaae, S., 2019). In this essay, we will discuss this in the context of the pharmaceutical sector shaping public health policy in the United Kingdom (UK).
With an expenditure of £10.7b in 2019 or 12.3% of the total healthcare expenditure in 2018 (the OECD., 2019) pharmaceutical spending plays a significant role in the British economy and as such, attracts significant commercial activity and profit-making interest. It is unsurprising that the pharmaceutical industry and its regulators are key targets to attempt to influence in the name of financial profit. Of course, influence requires an understanding of the industry one is trying to affect and so the revolving door model of regulator capture exists. This model describes the phenomenon whereby regulatory officials begin their career in industry, then work for some years in the respective regulatory agency until they return to the industry where they started. Indeed, in the UK, a large proportion of scientists in the British drug regulatory authority started their careers in industry, and many move back there (Abraham, J., 2002).
However, it would be amiss to suggest that the only interest that the pharmaceutical industry has in understanding and influencing its regulators is to maximise profit. Indeed, if a drug or device is to be successful for whatever reason, pharmaceutical companies have to feel secure in the knowledge that the processes for monitoring the safety and efficacy of their products are appropriate and proportional (Abraham, J., 2002). It seems common sense that Pharmaceutical companies must have legitimate interests in the world of regulation in addition to that of profit-making.
In the UK, the body charged with the regulation of medicines is the Medicines and Healthcare Products Regulatory Agency, or MHRA. The MHRA is an executive agency sponsored by the UK Department of Health and Social Care with the responsibility to:
“ensuring that medicines, medical devices and blood components for transfusion meet applicable standards of safety, quality and efficacy; ensuring that the supply chain for medicines, medical devices and blood components is safe and secure; promoting international standardisation and harmonisation to assure the effectiveness and safety of biological medicines; helping to educate the public and healthcare professionals about the risks and benefits of medicines, medical devices and blood components, leading to safer and more effective use; supporting innovation and research and development that’s beneficial to public health, (and); influencing UK, EU and international regulatory frameworks so that they’re risk-proportionate and effective at protecting public health” (GOV.UK., 2014).
Given that regulations are designed to prevent and correct market-based systems that result in unfair exchanges (Albino, D. and Bar-Yam, Y., 2013), a key remit of the MHRA is to influence the creation and adoption of regulation in the UK and abroad that results in public health policies with fair practices. The phrase “influencing UK, EU, and international regulatory frameworks so that they’re risk-proportionate and effective at protecting public health” alludes to this.
Since regulation is supposed to minimise or inhibit the use of unfair advantage, profit-seeking corporations have significant motivation to try to influence regulators to develop and adopt a regulation that confers commercial favour. Consequently, one might expect regulators such as the MHRA to act to keep commercial sector actors at a professional distance to minimise undue influence.
Of course, the MHRA has to engage with the pharmaceutical industry to perform its function and so requires clear and workable governance arrangements that provide a balance between organisational flexibility and protection from influence.
It’s easy to assume that the aims of the MHRA and the pharmaceutical industry conflict. An undisputed aim of the pharmaceutical industry is to maximise profits. In the UK where NHS is mostly funded by the UK government through taxation, the MHRA must work with partner organisation such as the National Institute for Health and Care Excellence and NHS England to maximise the health benefits of spending by making appropriate recommendations based upon regulation. In brief, the UK taxpayer wants better health outcomes for less cost, and the pharmaceutical industry would prefer better health outcomes with more profit. On further inspection, however, these aims are not entirely conflicted.
Since long-term benefits in health occur in societies with growing economies (Frakt, A.B., 2018) there is a clear rationale for the MHRA to have due regard for the economic consequences of its decisions. Whilst this may not be applicable to boom and bust economies the link between economic and health prosperity is strong enough for it to be recognised as the 8th of 17 goals set by the United Nations in its call to countries to promote prosperity whilst protecting the planet. This cannot be ignored (Martin, 2018).
Indeed, Hawkins observes that “regulatory agencies must operate in a political environment, for regulation is intended to preserve the sometimes fragile balance between the interests of economic activity on the one hand and the public welfare on the other (Hawkins, K., 1984).
The relationship between commercial sector actors and the MHRA is therefore complex, requiring symbiosis and cooperation from both sides to meet organisational aims with important regard for political and societal consequences including economic growth and prosperity.
The understanding that strength in industry encourages investment, innovation, jobs, exports, and subsequent economic growth, should not be minimised. The pharmaceutical industry is a major contributor to the European economy, with an estimated contribution of €206 billion in Gross Value Added and 2.5 million jobs in 2016, equivalent to 1.4% of the EU’s combined GDP and 0.9% of employment. The UK is one of three countries in the EU that enjoy the greatest economic benefits of the pharmaceutical industry (EFPIA, 2019).
It must be recognised then that as a significant contributor to the UK economy, the pharmaceutical industry also plays a significant role in the health prosperity of the UK. One would expect at face value that a strong pharmaceutical industry is therefore desirable. Indeed, given that economic strength is a prerequisite for stable social funding of healthcare, one could argue that in the UK protection of the pharmaceutical industry acts in the interest of the public, contrary to our opening definition of regulatory capture. Indeed, there is an argument that a government might choose to encourage regulatory capture to gain advantages from the economic strength of the pharmaceutical industry. After all, governments regularly sponsor and develop other industries with the aim of creating jobs and strengthening the economy.
Of course, there are further needs for a strong pharmaceutical sector and positive relationships with its regulators that extend beyond economics. Indeed, the Covid 19 pandemic has brought this into sharp focus with both short and long-term impacts. Short term impacts include medicine demand changes, supply shortages, and shift of communication and promotions to remote interactions through technology and research and development. Long term impacts include medicine approval delays, moving towards self-sufficiency in supply chains, industry growth slow-down, and possible consumption trend changes (Ayati, N., Saiyarsarai, P. and Nikfar, S., 2020).
Each of these impacts requires cooperation between pharmaceutical companies and regulators to minimise negative consequences upon society as a whole. Due to the rapid evolution of the Covid 19 pandemic and the limited time for us all to learn and react to the situation, one might suggest that in the short term, the revolving door of regulatory capture has been beneficial in minimising the time required to build relationships and maximise knowledge between industry and regulators, allowing them to work together efficiently and rapidly for the good of humanity.
Of course, we cannot just assume that what is best for corporate interests is the same as what is best for the public good simply because it may act to maximise economic growth. Some believe that regulation, free of conflicts of interest with the public interest at its heart, is the only way to ensure commercial sector actors are nudged toward meaningful innovation and effectiveness. However, evidence suggests otherwise with policies such as shortening the length of drug patents and increasing encouragement of generic products seeming to stifle innovation and the development of new medicines rather than stimulate it (Grabowski, H.G., 1982). In such instances, ignoring the interests of commercial actors could result in detriment to the public good
However, not everyone feels positive about close relationships between regulators and commercial sector actors. In response to the draft MHRA cooperate plan which was due to be published in 2013 (GOV.UK., 2013), Russell and Hughes, in their role as patient and public board members of the MHRA wrote to the Science and Technology Commons Select Committee outlining their concerns around the “revolving door” at the MHRA. They stated:
“Whilst it is important for the regulatory authority to maintain clear communication with commercial companies and their representative bodies, we believe they should be wary of assuming that all the authority’s interests are held in common with companies.”.
Russell and Hughes saw this as an issue of such magnitude that they called for conflicts of interests to be managed contractually to prevent MHRA staff from accepting paid positions within the pharmaceutical or medical device industries following the end of their employment (publications.parliament.uk., 2013). Despite these concerns, the MHRA corporate plan was published two months later in April 2013. Its refresh was eventually published three years later in April 2016 and was finally replaced by a new plan in April 2018, some 5 years after Russell and Hughes aired their concerns around regulatory capture (GOV.UK., 2018).
Of course, the revolving door persists despite the years passing by. Indeed, the current Commercial Medicines Director for NHS England enjoyed a senior role in the pharmaceutical industry for 24 years (Dark, B., 2019).
Clearly, a balance between regulation and industry support and sponsorship is necessary and there must exist a point at which gains and losses are acceptable to all involved. At the very least, one would aspire for the gains from pharmaceutical industry regulation to be equal or less than the losses from companies bypassing regulation by way of regulatory capture, appreciating that the relevant gains and losses extend beyond merely the fiscal.
In the opening paragraph, one introduced regulatory capture as the process through which special interests affect state intervention and the phenomenon that regulators protect the interests of the organisation that they regulate over the interests of the public. Whilst these definitions are useful to help us understand the relationships between regulators and commercial actors, they are restrictive in helping us to understand the utility of regulatory capture. That is to say, is it a good thing or a bad thing? This key concept is important because once understood, one can use it to influence behaviours that result in mutual benefit for commercial sector actors and regulators, and thus, for society as a whole.
In examining this key issue we should consider the effects on government and commercial sector actors when influence is tipped in one direction or another.
By encouraging the growth of the commercial sector and minimisation of state intervention, market competition is thought to lead to greater efficiencies in the provision of public services. Indeed, this is traditional conservative theory. Despite this, there is no general evidence to say that private actors deliver the services cheaper or with higher quality than the public sector itself does (PSIRU, 2014). Nonetheless, as traditional conservative theory, this approach has from time to time shaped societies. In shaping society and therefore the relationships between government, regulators, and commercial actors, systematic luck has inadvertently been developed resulting in advantages to commercial sector actors that require little effort on their part (Hindmoor, A. and McGeechan, J., 2013).
The increased prominence of commercial sector actors in the provision of traditional state services and the formation of policy and regulation minimises the input of the state and therefore reduces its subsequent influence. This has been described as an erosion of democratic accountability leading to corpocracy in place of democracy (Farnsworth, K. and Holden, C., 2006). Subsequent growth of the commercial sector resulting in the accumulation of people, knowledge, and money creates a power imbalance between the state and commercial sector actors. Such a power imbalance risks fairness in the development and implementation of policies and regulations that underpin society. Given that regulation is one of the most important interfaces between citizens and government, the ability of the regulatory process to engender public trust is crucial to the broader issue of trust in public institutions (Lind, E.A. and Arndt, C. 2017). Whilst systematic luck may seem favourable, undermining the trust of society is a heavy price to pay.
In this essay, we have briefly discussed the advantages and disadvantages of cooperative working between regulators and commercial sector actors in the pharmaceutical industry in the UK. Indeed, the benefits on economic and health prosperity from state and private sector actors working in partnership are well recognised. The concept of regulatory capture in this relationship seems at first easy to understand when we assume that it refers to the influence of special interest groups on the state. With this definition, we can see that regulatory capture appears omnipresent and therefore appears to be an accurate characterisation of the role of commercial actors in the shaping of public health policy. What appears more complex to appreciate however is whether regulatory capture is detrimental to society. Understanding this concept is important to allow one to avoid its pitfalls whilst maximising its benefits. Given the risks to democracy and societal trust, there seems to be little benefit to either regulator of the pharmaceutical industry to utilise regulatory capture if doing so it should lead to harm to society.
References
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