Monday, April 28, 2008

The FDA and "Regulatory Capture"

Dr. Howard Brody in his bog, Hooked: Ethics,Medicine and Pharma, hits another home run.

As explained in HOOKED, this shows the ambivalent relationship that is set up by the phenomenon of "regulatory capture" of a Federal agency by the industry it is supposed to regulate. The drug companies are walking a very fine line. They want the FDA to be rendered sufficiently toothless as to be unable to take any actions that cause any inconvenience or lowered profits for them. But at the same time they want the FDA to appear powerful and threatening enough so that they can turn around and blame the FDA oversight process whenever a scandal arises like tainted Chinese-made heparin. Ditto for the present efforts of the industry to support FDA rules changes that would allow companies to market drugs off-label by circulating reprints from medical journals (based on the assumption that the FDA stringently regulates this process so that no false information could ever get through), and to convince the U.S. Supreme Court that they should be shielded from any legal liability in relation to any drug that has been FDA approved (again assuming that the FDA approval process is so stringent that the public needs no additional safeguards).

The term "regulatory capture" refers to the phenomenon in which a governmental agency ostensibly tasked with acting in the public interest to regulate an industry becomes controlled or dominated by the interests of that industry.This is not so much like authorizing the fox to oversee hen house safety but more like the game warden helping the poachers poach while posturing that they are doing just the opposite. Note- finding a different fox believed to be more concerned with the hen's interests is not likely to change the situation in any meaningful way nor will a more dedicated game warden.

Nobel laureate and Chicago School economist George Stigler is credited with this concept in his Economic Theory of Regulation.

Regulatory capture is one of the mechanisms by which interest groups will use government power and coercion to benefit themselves.


I might quibble with Dr. Brody's characterization stating there is an ambivalent relationship between the drug companies and the FDA. Pharma will act in its interest and will control- to the extent it can manage to do so- the FDA's actions, nothing very ambivalent about that as that is the tendency for all such "regulated" industries.

There have been suggestions as to ways to "strengthen" the FDA and at least move to escape from this capture but I am pessimistic.

Thomas Sowell has suggested when you try and understand why a government agency acts the way it does, do not bother with their mission statement but rather consider the incentives and constraints within which it operatives and the feedback it receives. Combine that with the "follow the money rule" and you will likely come up with some useful insights.

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