Fixed amounts and public accountability check regulatory capture

In order to lessen the risks of “regulatory capture”, the PIF should be of a fixed amount. Each firm could put forward its best case of how many points it should be awarded, and perhaps even present evidence to show why other firms should get less. The fixed total payout of the PIF would lead to a zero-sum game so that firms would compete to obtain points. In these circumstances, collusion seems more difficult to sustain, although direct bribes by individual firms to PIF employees could always be a risk. BrillEdwards (1999) discusses some problems with regulatory capture in the context of pharmaco-economic evaluation.

Political interference with rewards might also be a concern. Government preferences for giving points to domestic firms would certainly be a problem. This suggests that the rationale for how points were to be awarded would have to be made public and fully documented. In addition, since the order of approval of new drugs could influence reward amounts, one could expect political interference on behalf of domestically developed therapies.

There would also need to be a substantial investment in analysis of health outcomes and health economics by a “Pharmaceutical Innovation Fund Agency” to enable a reasonable allocation of points. With hundreds of significant drugs under patent at any given time, substantial resources would be required for determining QALYs and costs for all these medicines. The ALLHAT study of a few anti-hypertensive medications reportedly cost some $125m (Nash and Clarke, 2003). Possibly such an agency would suffer from efficiency problems. However, there are several reasons for believing that such costs and inefficiencies are not an insuperably large problem. First, undertaking evaluations of drugs and treatments is socially valuable, since it enables better treatment.34 At present, there is a case to be made that there is significant underinvestment in “post-marketing” studies of drugs.35 Second, the costs of drug evaluation after the drug is already approved and on the market would be relatively small compared to the huge potential gains from the proposed system. Third, the bureaucracy would be less likely to suffer from inefficiency given a well-defined mandate of measuring therapeutic benefits and costs. Fourth, such an agency would to some extent simply replace existing pharmaco-economic evaluation and price-control agencies in countries where they already exist, and indeed, one option would be to conduct head-to-head trials along with placebo trials during phase III testing of drugs.36