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is unthinkable
To be fair by drug industry, if it weren’t there, the life of both patients and healthcare workers would not have been so comfortable. The pharmaceutical companies known as ‘big pharmas’ not only do new research on new drugs but also manufacture drugs and deliver them in neatly-packed retail packages to patients located in every corner of the globe.
Some 200 years ago, before the onset of pharmaceutical firms in the market place, it was the responsibility of the chemists attached to pharmacies to prepare mixtures of medicine prescribed by physicians and provide to patients. If there are only a small number of patients in the whole world, this practice can be continued without a hassle. But when the number patients treated every day runs into billions, the lonely chemists cannot accomplish their duty without getting the patients to stand in queues for long hours before they get the needed drug preparations. Since most of these cases are emergencies, such a long wait for medicines will definitely be fatal to the patients.
Today when the patient walks out of the physician’s consultation room with a prescription in hand, the nearby pharmacy is ready to supply him with pre-prepared medicines – in tablets, capsules, mixtures, creams or ready-to-inject serums – cutting down the waiting period practically to nothing. If it is not available locally, courier services do the handy job of delivering essential medicines to patients in time globally. A doctor or a patient has to only pick up a phone and order the required medicine from a nearby country.
Such is the efficiency of the drug industry – not only in researching and manufacturing but also in storing, marketing and delivering.
Society’s love-hate approach to drug industry
Despite this beneficial role played by it, the drug industry has been the target of attack for many decades. As reported by US Senator Estes Kefauver who served as the Chairman of the Senate Sub-Committee on Antitrust and Monopoly in his 1965 book ‘In a Few Hands: Monopoly Power in America,’ the pharmaceutical companies had been subject to close scrutiny by the US Congress with respect to the monopoly power they have developed over the years and the consequential exploitation of the patients by charging high prices on prescription drugs. 
Kefauver also reported that the evidence placed before the Senate Sub-Committee had revealed that the pharmaceutical companies had resorted to unethical marketing practices and bribing the doctors to prescribe their brands to patients though there had been many cheaper alternatives available. The concern of the Sub-Committee had been that the doctors too had colluded with these companies by prescribing high priced brands to cheat the US Health Insurance System. Thus, it has been alleged that these companies have been making fat profits by passing the bill finally on to US taxpayers.
Recent intensification of war efforts with drug industry
Though these charges had been levelled against the US pharmaceutical companies since the mid of the last century, any intensified action against them had been taken only recently. This is evident from the history of the fines imposed on pharmaceutical companies and the out of the court settlements they have reached with the US Food and Drugs Administration or FDA during the last four decades.
In the whole of that period, the total of such fines and settlements had amounted to US$ 19 billion; of this sum, $ 17 billion had been imposed during the last 10 years, $ 14 billion during the last seven years and $ 11 billion during the last three years. In the recent past, three pharmaceutical giants had been subject to enormous fines or settlements by US authorities on account of unethical marketing practices or violating the US drug regulations: Pfizer of Germany $ 2.3 billion in 2009, GlaxoSmithKline of UK $ 3 billion in 2012 and Johnson and Johnson of USA $ 2.2 billion in 2013.
The US lead being followed by other nations
Following the US lead, India, another major drug manufacturer in the developing world, had imposed a total fine of IR 2,500 crores or in US dollar terms $ 400 million in July 2013 on 9 major drug companies for overcharging the consumers. The list includes all the major drug manufacturers in India.
The European Union too had imposed a fine of $ 196 million on the Danish drug maker Lundbeck and eight other drug manufacturing companies for a different reason: Lundbeck for paying bribes and the other eight companies for accepting those bribes for delaying the introduction of the generic version of the antidepressant drug Citalopram to the consumers in what is known in the market as ‘Pay-for-Delay-Deals’. After US authorities have been tough on their pharmaceutical companies for adopting unethical marketing practices and violating the drug approval rules, China is also reported to have commissioned an inquiry into their operations in that country recently.
Civil activists: Fines are
not enough
The civil activists, as reported in the New England Medical Journal, have welcomed the imposition of those fines on the pharmaceutical 
companies but have expressed their reservations about the efficacy of those fines in disciplining them into good corporate practices. In their opinion, the fines have been too low to make an effective deterrent to the behaviour of the errant companies. Thus, all the recent developments point to one thing: The World is at war with one of its major contributors to the good health of its people.
The aborted Senaka Bibile Drug Policy in Sri Lanka
Perhaps the evidence of one of the early attempts by a developing country at saving the consumers from the high prices of brand-name drugs comes from Sri Lanka. This was the lone crusade launched by the Sri Lankan Don the late Professor Senaka Bibile in the early 1970s to introduce a National Pharmaceutical Policy in Sri Lanka when he was the Chairman of the newly established State Pharmaceutical Corporation or SPC.
The Policy sought to rationalise the use of medicine by identifying some essential 630 key drugs and persuading physicians to prescribe their generic forms which are available at low prices. This policy, had it been implemented fully, would have cut the burden on Sri Lanka’s taxpayers who run the country’s free healthcare system. When hospitals buy and stockpile the low cost generic drugs, they would also be able to reach as many patients as possible, making the healthcare system an inclusive one.
This policy went into abeyance in his home country after his death in 1977 whilst promoting it in another developing country – Guyana. The reason was that Senaka Bibile was a lone crusader and therefore there was no “owner of the policy” to take it forward. Though there was a renewed interest in resurrecting the Senaka Bibile Policy by the Government that came to power in 2004, even after 10 years, that resurrection has been limited only to just ‘talks’ without any concrete action. However, Professor Bibile’s labour has not been shed in vain since the World Health Organisation, UNCTAD and the Non-Aligned Movement have at least picked it up from him and recommended for adoption by other nations.
Drug market is different due to Government regulations
Any intervention by governments in the drug market through Senaka Bibile type policy or getting tough on drug companies comes under what is known as public policy in the interest of people. If the drug market is a normal market, this intervention is minimal. But the drug market is a freak market which does not share common features with other markets, say the market for bread.
The ordinary market:
Consumers are payers
In the case of the bread market, it is the consumer who places the order for the bread and pays for that order. He could do so because the technical information needed to assess the quality and risk of consuming bread is simple and well established. There is no necessity for a third party specialist to make that evaluation on his behalf. Since he pays for the bread, the consumer can ensure that the supplier supplies him with the bread in the required quality. If the supplier does not do so, he can punish the errant supplier by refraining from buying bread from him.
This market punishment is so severe that the choice before the supplier is either to adjust himself to the quality requirements of the consumer or vanish from the market. Hence, in an ordinary market, the buyer, payer and consumer are one and the same person and supplier has to directly deal with this single party. This direct relationship forces the supplier to follow ethical practices when he deals with the consumer. Hence, the public policy in this market is simply for the government to watch over the transaction and facilitate that transaction.
The freak
drug market
But the drug market is different because there is a third party who plays a crucial role in a market transaction. This third party is the physician who has the exclusive knowledge of the use of the medicine and therefore the consumer who is the patient has to be guided by him. Because of the entry of this third party, the drug market is a freak market. In that market, the supplier is still the producer. But on the consumption side, the market operates in a different manner by making the physician the legally empowered authority to select the drug for the patient, place the order for the drug by writing a prescription and control the most important part of the demand side of the market. But the drug is paid for by the patient who has no role in placing the order for the drug.
If it is the same man who places the order and pays for it, then, he has an incentive to buy it from the cheapest source. But if the person who places the order does not pay for it, he has no incentive to buy it from the cheapest source because it is not from his purse the money is paid. Any dad who has walked into a toy shop with a kid would have experienced this. The kid wants to buy the most expensive toy because he does not care for the size of the purse his dad is carrying. That is why the toymakers are targeting the kids through their marketing and advertising campaigns knowing that the kids have a dominant role in placing the orders for the toys.
The drug market too gets converted to a normal market if government regulations are removed. This is clear when one observes the operation of the market for narcotics which is illegal and therefore not subject to government regulations. There, the consumer places the order and pays for it direct to the supplier. Hence, the quality and prices are ensured by the operation of the demand and supply forces.
Pharmas target physicians,
not patients
Similarly, pharmaceutical companies too advertise, lobby, and canvass not among the patients but among the physicians who place the orders for the drugs. The information involved is so technical and the patient is so ignorant of it that he is unable even to correctly pronounce the name of the drug if he is to go and place the order at a pharmacy.
Since the competition among the pharmaceutical companies is very tough, they have all the incentives to bribe the physicians into prescribing the drugs manufactured by them. These bribes come in the form of legally permissible expenditure by the pharmaceutical companies such as sponsoring physicians for knowledge enhancement seminars and conferences arranged in top leisure cities in the world and illegal payment of commissions on the basis of the prescription of the drugs manufactured by these companies. These expenses are subsumed in the advertising and promotional expenses of pharmaceutical companies and therefore escape review by auditors who just make a financial compliance audit of their accounts.
In some cases, the pharmaceutical companies as a part of their corporate social responsibility initiatives sponsor major art or sport events; the physicians are issued with free tickets for them and their families to attend those events. As reported by Senator Kefauver, an important link between the pharmaceutical company and the physician is the so-called “detail man” whose job is to meet the physicians regularly and educate them of the new drugs which companies are introducing to the market. Kefauver says that though the physicians are technically qualified professional men, they are at the same time human beings who are unable to resist the flood of the advertisements which these detail men bring to educate them.
Regulate the market but
don’t kill it
Is the currently intensified war against the pharmaceutical companies good or bad for the future of the healthcare industry? Anyone who would look at it from the side of the patients’ purse might say that it is good. But if the pharmaceutical companies are punished too much as demanded by some civil society activists, the end result will be bad for the future of the whole healthcare industry. This is because pharmaceutical companies plough back a significant portion of their revenue for research and development, sometimes as high as 20% of their profits, and if these companies are brought to their knees through heavy fines, society will lose all those possibilities of curing the illnesses that take a tough response to prevailing drugs. Thus, societies have to strike a careful balance between their ethical values and their future development.
If the going is too tough for pharmaceutical companies, as Ayn Rand, the Russian-Émigré American Novelist and Philosopher, has said in her novel ‘Atlas Shrugged,’ Atlas who has been shouldering the burden of the world may one day decide to strike back by shrugging. Then the world may have good ethics, but not the drugs which those unethical companies have been supplying to it in increasing numbers.
(W. A Wijewardena can be contacted at [email protected].)
