This article argues that the misalignment of private profit-maximizing objectives with public health needs causes institutional corruption in the pharmaceutical sector and systematically leads firms to act contrary to public heath. The article analyzes how financial incentives generate a business model promoting harmful practices and explores several means of realigning financial incentives in order to foster therapeutic innovation and promote the rational use of medicines.

The federal government indirectly subsidizes the pharmaceutical industry by funding basic research, various tax credits and deductions, patent rules, grants of market exclusivity, and other means, in order to spur drug development, promote public health, and improve medical care. But today, the pharmaceutical industry often neglects these goals and sometimes even undermines them, due to what Lawrence Lessig refers to as institutional corruption — that is, widespread or systemic practices, usually legal, that undermine an institution’s objectives or integrity. A key (...) source of institutional corruption is improper dependence by the institution or its key actors on the actions of third parties that have fundamentally different interests. It is the health care system’s improper dependency on pharmaceutical firms that allows them to displace some public policy goals and to compromise the attainment of others. (shrink)

This paper explains how the current architecture of the pharmaceutical markets has created a misalignment of financial incentives and public health that is a central cause of harmful practices. It explores three possible solutions to address that misalignment: taxes, increased financial penalties, and drug pricing based on value. Each proposal could help to partly realign financial incentives and public health. However, because of the limits of each proposal, there is no easy solution to fixing the problem of financial incentives.

Improper dependencies slant policy over a drug's life span, biasing the development of new drugs, the testing and marketing approval for new drugs, and the monitoring of patient safety after drugs are marketed. This article examines five ways in which the public improperly depends on pharmaceutical firms that compromise the integrity of pharmaceutical policy. Today the public relies on pharmaceutical firms: (1) to set priorities on drug research and development; (2) to conduct clinical trials to test whether drugs are safe (...) and effective; (3) to decide what clinical trial data to disclose to the public; (4) to monitor post marketing drug safety; (5) to supply product information to physicians and to finance continuing medical education and other professional activities. The article suggests options to overcome each of these dependencies. (shrink)

Why do physicians have financial conflicts of interest? They arise because society expects physicians to act in their patients’ interest, while simultaneously, financial incentives encourage physicians to practice medicine in ways that promote their own interests or those of third parties. Because physicians’ clinical choices, referrals, and prescriptions affect the fortune of third parties (providers, medical facilities, insurers, drug firms and suppliers of ancillary services), these third parties may offer physicians financial incentives to make income-driven clinical choices. In the past, (...) physicians and scholars typically conceived of conflicts of interest as an ethical issue to be resolved according to individual judgment or professional and organizational norms. However, society can mitigate or eliminate conflicts of interest by changing financial and organizational arrangements in medicine. Conflicts of interest, therefore, are as much matters of public policy and management as individual choices or social norms. (shrink)