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Introduction
Imposing regulationFootnote 2 is generally justified by the failure of markets to self-regulate and the literature explores how regulators and industry operate to resolve the failure (e.g. Bernstein, Reference Bernstein1955; Stigler, Reference Srivastava1971). It follows that economic benefits and the sustainability of markets rely upon both the regulator and industry ensuring the production of marketable goods. This article argues that market sustainability is just as much reliant upon the public interest in obtaining quality goods as it is in ensuring that industry can continue to produce and trade such goods. Yet, the public interest in commercial markets is entirely missing from the literature on regulatory theory and the failure to take it into account through regulatory practice risks complete market failure. This is because, whereas industry and regulators are motivated by economic benefits to continue marketing even when those benefits diminish, the erosion of quality in the goods purchased quickly disincentivises the public to continue participating in the market.
This argument is demonstrated in the context of health care – which is a good traditionally perceived as responding to an essential need – and the central focus is upon innovatory medicines, because this is the area of the market least likely to be affected by patient-consumer disaffection. This does not negate the analysis similarly extending to innovatory devices. In addition, existing medical treatments are actually more likely to form the basis of patient-consumer disaffection than innovatory products. This requires some explanation. Medicines are evidence based across a population over time to vouch for their quality (e.g. safe and effective), but this also identifies the full scope of the medicine’s limitations through long lists of side-effects and contraindications. Similarly, the length of marketing time also facilitates the spread of anecdotal evidence and the potential for contradictory empirical evidence (e.g. recently seen with statins, e.g. Srivastava 2016), all of which prompts the public to view the medicine sceptically. This aligns with psychological evidence that evaluation focuses upon negative evidence even in preference to positive evidence (Vaish et al., Reference Vaish, Grossmann and Woodward2008). Comparatively, for innovatory medicines there is limited evidence and what there is fundamentally rests on the clinical trial evidence supplied by the medicine producer in order to gain market authorisation. So patient-consumers are more inclined to view the medicine positively because, even though it is untested across a patient population and there may be limited negative information available, it is innovatory and this makes it presumptively better even on its negatives (e.g. side-effects are presumed to be fewer or less severe, because hope substitutes for evidence). The inference is that if an essential market which is least vulnerable to consumer disaffection is demonstrably in danger of the public disengaging as consumers, then other markets must also be at risk and this is a pressing argument for regulatory change.
The analysis begins by identifying the public interest in commerciality, the commercial nature of health care goods and the importance of regulators in vouching for the quality of those goods. The article exemplifies how the changing practices of patent,Footnote 3 reimbursement and market authorisation bodies are failing to ensure the qualities expected of health care products: whether they are innovatory; have market value in being costed relative to demand and benefits; are safe, effective and reliable. Finally, the potential for market failure is argued to be exacerbated by providers of goods/information (health care professionals, health institutions, patient groups and industry) already having poor reputations, preventing them from retaining public trust if quality assurance deficits are publicly identified.
Health care goods: markets and interests
It is a given that health is a public good, but it has long been understood that medical care can be conceptualised within a market (Arrow, Reference Arrow1963). While health care may only be directly consumed by patients, the general public retain an enduring commercial interest as possible future patient-consumers. Similarly, the public have an interest in being able to discern the quality of the products they are either purchasing directly, or which are purchased on their behalf either as taxpayers or as insured parties.
From a commercial perspective, markets necessarily result in information asymmetry in which the industry producing goods benefits from superiority of knowledge regarding their quality. Although regulation ameliorates this asymmetry to a limited degree by imposing restrictions on commercial behaviour (e.g. measures on misrepresentation and advertising), competition prompts the greatest information sharing. The result is that most commercial products are search goods, because their quality can be easily identified from the information readily available from a variety of competing producers.
In the context of health care, the interrelationship of public–private providers and the nature of the goods results in quality being far less discernible. Some types of medicines (e.g. over the counter) are experience goods, because the patient-consumer can only identify differences in quality once the good has been experienced and relate it to the benefit received in order to inform future purchases. Of perhaps more concern is that many health care goods (e.g. surgery, experimental techniques/innovatory products) are credence goods, because their quality cannot be related to beneficial value by the consumer even after the goods have been experienced (Pauly, Reference Ostrom1978). In addition, some goods are also credence goods because their quality can never be discerned no matter what the method of examination (Dulleck et al., Reference Davis and Abraham2009). The pertinent difference between experience and credence goods is that in the latter, the consumer bases their purchasing decision upon the credibility of providers vouching for the quality of the goods and this is distinct from claims that patents are inherently credence goods (Thambisetty, Reference Taylor2007).
In consequence, the public have an interest in the regulatory system governing health care products, because it is the regulator which enables health care professionals to vouch for the quality of the goods being provided. Purchasing/commissioning credence goods essentially relies upon the experience of medical professionals (their ‘reputation’) and trust in the provider [the ‘credibility’ of the National Health Service (NHS)/private health care provider/treatment producer].
This position of credibility or trust is never absolute and is already showing signs of being challenged. The rise in use of complementary and alternative medicines is one indicator of disaffection with the credibility of mainstream medicine (CAMbrella, 2012). Similarly, high profile media information directly affects the perceptions of both the public and health care professionals about the credibility of medicines and alters their willingness to take/prescribe particular treatments. In the process, the media undermines the regulator as guardian of quality assurance. There is also an increasing reliance by the public, regulators and industry upon patient groups, who are regarded as being in a better position to take advantage of ‘economies in group purchasing and in collecting information’ (Sloan, 2001). While these patient groups are seen as the leading edge of increased public involvement in health care provision, some bodies are decidedly sceptical about the involvement of ‘citizen participants’ in developing health innovation and fear it undermines the credibility of existing providers [National Institute for Healthcare Excellence (NICE), 2016; European Group on Ethics in Science and New Technologies, Reference Dulleck, Kerschbamer and Sutter2015].
This brief analysis identifies that the sustainability of health care as a market is reliant upon the public trust in regulators/providers vouching for the quality of products on the presumption that they are in a better position than the pubic to ascertain the quality of goods. So the key issue is whether regulators are fulfilling their quality assurance role to ensure innovative medicines are credible products in the sense of having the qualities the public expect. Yet product quality cannot be completely disassociated from the credibility/reputation of the provider. This is because, the higher the trust in the provider, the more flexibility there is in product quality without prompting consumers to leave the market. So a collateral issue is whether the credibility of regulators/providers is sufficient to sustain public engagement in a market with poor quality innovative medicines. It is to the key issue of quality assurance that the analysis turns to first.
Credibility of goods being innovatory
Innovatory goods attract higher purchase prices on marketing – a ‘patent premium’ – and regulatory perspectives consider this to be warranted by the need to offset investment in development, leading to economic benefits from marketing. From a public perspective, higher purchase costs are justified by only affixing to innovatory goods, because the public has already paid a premium for existing products which are no longer innovatory. Ensuring that patent rights are not granted to technology that has already been innovated rests on three statutory principles: (1) novelty, (2) inventive step and (3) scope.Footnote 4 The importance of medical innovation and the need to ensure continued investment underpin legislative exceptions which permit known products with new medical uses to gain protection.Footnote 5 Yet, even in this context the distinction has been statutorily maintained between offering value providing technological benefit or product choice and simply reclaiming existing products. As benchmarks of innovatory quality, each statutory principle requires more detailed exploration to identify how practical application is eroding this distinction.
Innovatory through novelty
The novelty criterion stipulates that patent rights are granted to innovation which adds to the common general knowledge (CGK) (Article 54, EPC). The CGK can be discerned from anywhere in whatever form and – although the Technical Board of Appeal identified it changes on a case-by-case basisFootnote 6 – the purpose of the provision is to achieve a fair balance in applying the law in order to mediate competing interests. For example, the CGK is judged at the earliest filing date of the patent application and necessitates that direct evidence of what is known must exist before that date. This benefits the applicant by enabling them to pre-assess their own invention to ensure its novelty before filing. Yet indirect evidence which elucidates the pre-filing knowledge can be taken into account even if it comes to light afterwards.Footnote 7 This enables patent bodies to take account of the invention’s significance to the field which competitors can only raise after the patent is filed. Consequently, the statute is applied to ensure a contribution is made to the CGK when filed, with a contemporary awareness of its value at the time of judgement. This point suggests that novelty is enduringly a robust legal standard statutorily and practically in supporting a balance between commercial interests.
This is a misconception, because patent bodies are eroding the fundamental basis of innovation by failing to consider the public interest in the existing CGK as common property (Hardin, 1968; Ostrom, 2015). This interest extends beyond simple property theory, because the public rely upon commercial pricing cycles removing the premium price once the innovatory value has expired. So reimposing another premium for minimal novelty is an undetected form of over-pricing. An example of this is combination inventions, which undermine novelty because they hinge on identifying an unknown assemblage of materials, each of which is already a known part of the CGK. These arise in the context of medicines where a known product has been combined with at least one other existing product/raw material [e.g. using two known active pharmaceutical ingredients (APIs)]. This was the situation in the Teva v Leo caseFootnote 8 in which novelty arose from combining two known substances for treating psoriasis with an existing solvent which stabilised the different pHs of the component products to permit joint use of the substances.
Simply combining existing products/ingredients is generally a minimal contribution to the CGK. This does not dispute that such combinations can sometimes valuably contribute to medical knowledge and there are clear instances in which the creation of combinations have proven invaluable even where the resulting medicine is not more effective in treating. For example, combining AIDS medication facilitated a simplified use regimen, making it suitable for global uptake and in other instances such combinations may reduce the potential for adverse reactions. The argument advanced is not that combinations are never justifiably protected, it is that they are protected without the patent granted being commensurate with the degree of novelty or the extent of the medical/market value offered. In consequence, substantial private rights are gained over products which ostensibly reclaim the CGK or have little innovatory value. The net effect is that public expectations of patents signifying innovatory products is not being ensured and products which should have become cheaper in the market, retain their premium price for a gain which sometimes amounts to little more than the convenience of applying one and not two products.
Neither is this issue confined to combination inventions. Selection inventions test the novelty boundary even further, because they merely identify something known with new detail (e.g. a new property or technical effect). These inventions are often about pulling an obscure substance from a list of known elements with ranged properties (e.g. APIs, chemicals, enzymes) and supplying new information that makes the specific element valuable. As such these inventions tend to result from going back over trial data after a novel medicine has been found, to identify other possible APIs from the same chemical family. In consequence, these rights often accrue to the existing patent holder who is widening the market potential of their rights or extending duration beyond the statutory maximum of 20 years,Footnote 9 neither of which is justified by the novelty of the contribution.
Selection inventions are not wholly insupportable. They can be the basis of a new product – no matter how closely related scientifically they may be to what is known – and the new value offered may be disproportionately greater than their novelty over the CGK. These selections could offer the opportunity to avoid contraindications which may arise from taking a cocktail of other medicines for the same/related condition; or they may reduce side-effects which arise from existing allergies, genetic predispositions or mild toxicity. Similar support rests on the need to secure the investment necessary to obtain different forms of essentially the same treatment, which could prove more effective (e.g. developing esters as alternatives to known salt forms) and this is regarded as justification for imposing additional exclusionary rights.
The problem with these arguments is that they fail to consider that the value of the addition is not commensurate with either the public interest in adding new knowledge or the market benefit. Selection inventions become the basis of ‘patent portfolios’ which frustrate the potential for competition and do not justify the premium price the public are expected to pay. Fundamentally, this raises the question why the law is not confined to competitors attempting to invent around the existing patent, to potentially provide a competitive basis for reducing prices even during premium periods. Ultimately, the accrual of rights to different forms of the same medicine also begs examination of why patents do not accrue to the best, rather than simply the first, innovation. After all, health care is not a market in which the public are prepared to sacrifice obtaining the best product merely in exchange for having a choice of product.
Innovatory through inventiveness
Overcoming novelty does not guarantee patentability and both combination and selection inventions encounter problems in complying with the second patentability criterion, which is intended to ensure inventiveness and similarly prevent simply reclaiming existing technology. The inventive step criterion (Article 55, EPC) requires that the innovation cannot be something that an ordinarily skilled person in the relevant field of expertise would have considered doing. Although EPO practice hinges on a problem-and-solution approach, in contrast to Member States such as the United Kingdom which begin with the ordinarily skilled person,Footnote 10 both inevitably relate to the CGK the ordinarily skilled person accesses.Footnote 11 The problem is in the detail of how this standard is practically applied.
The more complex the technology, the greater the aptitude of the ordinary person in extrapolating from a more detailed CGK. Although this need for a variable standard has been recognised,Footnote 12 it does not strictly define current practice. So in complex fields such as medical innovation, it becomes easier to reclaim what is ostensibly already within the CGK, because simple problems appear beyond the skill of the ordinary, but uninventive person. For example, combination inventions fail to obtain a patent if their difference over the CGK can be achieved by obvious means.Footnote 13 In the Teva v Leo case the different pHs of the component products represented a technical problem that would not have been solved by the ordinarily skilled person with the relevant CGK narrowly defined. Yet, relative to the complexity of the field, technical problems are routinely solved by workers without it necessarily being regarded as such a significant contribution to knowledge/technology that it deserves years of market exclusivity.
Similarly, selection inventions fail this criterion if the selection is ‘purely arbitrary’.Footnote 14 This represents no higher standard than that expected of inventions with absolute – rather than incremental – novelty, yet the former are clearly offering greater developmental value because they depart further from the existing CGK.
Statutory exceptions to known ‘substances or compositions’ are protectable as ‘medical indications’ and, despite being known products, their novelty and inventiveness is justified by providing innovatory medical uses. However, this is also diminished by practice permitting new technical knowledge that translates into new value which is not obvious (e.g. debunking existing knowledge) without necessarily providing new uses.Footnote 15 The new generation of personalised/stratified medicines may rest innovatory value on sub-divisions in patient populations which the EPO require to be distinct in terms of their ‘physiological or pathological relevance’, but this still permits for overlaps and even total incorporation where there is difference in other parts of the claim. This means that, despite the statutory provisions being clear on requiring new uses, practice permits the same medicine to be used for the same condition and re-claimed as innovatory simply because it relates to a different patient category (e.g. newly claimed for treating everyone, but known for treating haemophiliacs).Footnote 16
The difficulty with competition in innovatory medicines is that it relies upon there being a discernable link between quality and benefit. Barely different medicines resist this link, because there is either no, or only a marginal, difference in quality. The patient-consumer has no means of judging innovatory value and does not experience all of the comparator products to form a judgement regarding relative medical benefit or their absence. Equally, patent bodies are in no better position to assess innovatory value to vouch for comparative quality across a competitive market, because they are comparing knowledge rather than product performance and any comparative performance with an existing medicine only occurs during human trials which post date patent grant. The consequence can be exemplified by the EPO grant of a patent to a known product for a known treatment of a known patient population, known as a muscle relaxant. The only innovatory value of the patent was identifying that the known medicine prompts muscle growth, a new technical effect.Footnote 17 Competition between different producers generally prompts differentiation on quality, providing a basis for purchasing choice or credible provision. Where differentiation only rests on a different technical effect, there is no basis for distinguishing quality. In consequence, the product becomes neither an experience nor a credence good, but a duplicative good.
Awarding patents to these barely different innovations impose costs on providers. For example, the UK case of Warner-Lambert v Actavis Footnote 18 concerned patents to pregabalin for different medical uses for which Actavis was constrained to produce their cheaper generic with a ‘skinny label’, identifying only the uses for which patents had expired. These staggered patents come at a cost to generic producers: working around legal rights, changing labels, etc. which increases supply costs. In addition, the court ordered the NHS to issue guidance to general practitioners, hospitals and pharmacies to ensure that any prescription for use of pregabalin for neuropathic pain is written to the branded version only, to respect the active patent. This imposes an administrative cost on taxpayers/the insured.
While patent bodies have expanded novelty and inventive step to encourage patenting these barely different innovations, they have also created a gateway for ‘evergreening’. Evergreening refers to granting patents where there is no additional value at all, not even a new technical effect (e.g. me-too medicines). So, in addition to minimal novelty and inventiveness being unable to justify the patents granted relative to any product benefits/differences, commercial benefits are also inadvertently awarded to me-too medicines with no value. It is difficult to consider that the public, properly apprised of this, would consider it a beneficial change of practice to award rights to innovation either mostly or completely reclaiming the existing CGK and coming at the cost of paying a patent premium for medicines which may actually already be available without the extra cost. Indeed, the public are likely to disengage from a market which dupes them in these ways.
Innovatory through scope
How broad or narrow the patent granted is determined to be, rests on its scope. Scope is derived from the wording of the claim.Footnote 19 For example, combination and some selection inventions are granted full patent rights, because they are considered new products, enabling them to be worded to protect the product, no matter how it is produced or what its use. This can be contrasted with purpose-limited rights granted for medical indications, which only protect against infringement by the use specified because it is only the use which is new. In addition, scope is also determined by purposive construction, which is identified through infringement proceedings (Article 69, EPC). Arguably, patent bodies actively encourage confrontation by creating closely similar rights which prompt litigation and the costs are invariably passed onto the public (e.g. UKIPO, 2015).
Equivalent technology – meaning achieving the same innovation by a closely comparative method – is expressly precluded by Article 2 of the Protocol on the Interpretation of Article 69 EPC as infringing.Footnote 20 Analogous technology – meaning achieving the same innovation by a method which is sufficiently technologically different to be regarded as unrelated – is not infringing. In the context of transitioning from chemical- to bio-medicines, current practice considers that treating a specific medical condition (achieving the same outcome) by DNA-based therapies where only chemical-based medicines are known (different technologies) is not infringing and results in distinctly new innovation. However, this is a simplistic presumption which does not respond to the inherent relationship between all atoms: if chemical and DNA-based approaches both affect the same physiological difference they are arguably equivalent, rather than analogous. The consequence of overlooking this distinction is that industry is able to re-patent products ostensibly obtained from equivalent technology which may offer no additional value in either therapeutic or clinical benefits, but would be disproportionately more expensive. Patent practice is applied in awe of the science alone, which is fundamentally different, rather than in response to the potential market value of the science in compliance with the law.Footnote 21
Undoubtedly, some incremental advancements would have remained unknown, limited by the expertise of the patent holder and unidentified by potential licensees outside of the field but for patents being available. Yet, many inventions are duplications or overlap existing rights to predominantly reclaim existing products. Patent bodies are granting rights to both and yet clearly not all are credible goods if they are insufficiently innovatory to warrant the costs they impose.
The shift in examination practice has already prompted disgruntled commentary about the reduction of patent quality diminishing innovatory value, and the creation of fragmented patents diminishing the value to industry of exclusionary property rights (Polk Wagner, Reference Pan and Chiou2009; Heller, Reference Hardin2013). So why have these insights been ineffective in spurring change in patent practice and why should this argument, relying on much of the same basic evidence, succeed? The answer advanced is that current practice results from a commercial/economic perspective which has remained unconvinced by sociological and property-based objections. Alternatively, an argument based on the potential for failure to achieve a sustainable market responds to the motives already informing existing practice, providing a greater imperative for change. There is a fundamental difference between knowing licenses may stop innovation existing and incur industry costs – which represent no direct impact upon a regulator or market sustainability – compared to identifying that the market will fail because of public reaction to inflated health care costs which regulators have actively facilitated.
Appreciating the difference in these arguments necessitates a brief understanding of the policy motives of patent bodies, which in turn relies upon a contemporary appreciation of industry needs for exclusionary rights to affix to minimal innovatory effort.
Motivations to maximise market potential
Patent bodies account for their behaviour relative to their own policy goals (e.g. achieve economic growth) by maximising their domestic/regional strengths relative to global market potential (Warren-Jones, Reference Warren-Jones2016). So a key issue is how to spot potential when global markets are constantly changing and for patent bodies this currently rests upon an appreciation of strengths in innovation and/or generic production, relative to competitor nations. For example, the European Federation of Pharmaceutical Industries and Associations identified that Europe is well placed to fend off competition for innovatory medicines markets in Brazil, China, India and North America (EFPIA, 2013). As China slowed its economic expansion, the position changed, prompting 2015 predictions to tip India, Mexico, Colombia and Malaysia as among the new fastest-growing global economies, presenting potential for medical market expansion (Bremmer, Reference Bremmer2015).
However, global trends identify a lack of fit between the rising disease burden, and the creation and proliferation of innovatory medicine (Motola et al., Reference Liu2006; WHO et al., Reference Thambisetty2013; OECD, Reference Motola, De Ponti, Poluzzi, Martini, Rossi, Silvani, Vaccheri and Montanaro2014). Reducing patent quality by granting rights to barely different innovation and prioritising innovators over generic producers responds to European patent bodies’ policy-driven need to encourage economic growth by maximising market potential. This is because it gives the impression that more innovatory medicines are being produced than is factually accurate and capitalises on existing technology spreading across and within different fields of expertise. The net effect is that patent bodies demonstrably encourage economic growth, evidenced by increasing number of innovatory rights granted, and industry ends up with robust patent portfolios with which to attract continued investment for expansion into overseas markets.
Current patent practice also responds to pressures upon the health care industry as it navigates huge changes attributable to the ‘patent cliff’ from patents on blockbuster medicinesFootnote 22 expiring, and spiralling development costs necessitated by complex biomedicines and advanced therapies (Jarvis, Reference Heller2010; Ben-Dov, Reference Ben-Dov2013). The bulk of investment gravitates to new products and, because this requires greater investment, more value must be realised elsewhere. For example, early biomedicines are targeted to innovations which are easier/cheaper to achieve because they replicate chemical-based medicines. So not only are patent bodies incentivised to create more rights, if this is all an industry is offering, there is pressure to protect even barely different innovation.
Comparatively, from a public interest perspective, the analysis above demonstrates that patent bodies are not justifiably regulating health care products, because they fail to vouch for the credibility of medicines being innovatory. Not only does this result in an unsustainable innovation market, because it relies upon patient-consumers continuing to purchase the same/barely different medicines at premium prices, it also risks patent bodies being publicly distrusted as credible sources themselves, undermining their ability to vouch for other goods. A limitation of patent bodies is having to guestimate the value of innovation to the public because the assessment occurs in health care contexts at a time far in advance of marketing. This could account for scientific contribution forming the focus of analysis to the detriment of market value for consumers having credible goods. So are direct health care regulators, more closely involved with marketed goods, in a better position to ensure the credibility of products providing new market value?
Credibility in responding to market value
Of the treatments making it through authorisation, those which succeed rely upon the product being commissioned/ordered and funded. Irrespective of whether it is a privately or publicly funded health care system, the commercial interest of the public results from being consumers of medical products and the ultimate payers. It follows that providers and regulators are proxies of the public in making commercial decisions. Assessing the UK system for exemplification, it is apparent that market value is not being credibly vouched for.
Clinical Commissioning Groups operate behind the relative protection of regional Academic Health Science Networks, who are charged with promoting the interface between innovators–industry–health care providers (Academic Health Science Network, 2015). A NICE review is triggered if technology take up within the NHS is not uniform and this is tracked through mechanisms such as NHS England’s innovation scorecards and heat maps. Once triggered, the bedrock of NICE’s calculationFootnote 23 rests on incremental quality adjusted life years (QALYs)-to-cost ratios, which also permit account being taken of other factors. For example, NICE take account of the innovation represented by the treatment, “specifically if the innovation adds demonstrable and distinctive benefits of a substantial nature which may not have been adequately captured in the reference case QALY measure” (NICE, Reference Long2013). So this interpretation allows a higher ratio of cost-per-QALY for innovations treating rarer conditions or children to incentivise the continued development of these ‘orphan’/underdeveloped treatments. This responds to the context of care being new, rather than the level of developmental innovation or the extent of market benefit. Although there is no argument these are special cases, there is still a quality assurance issue where cost is not relative to quality value. For example, industry should not be able to sell existing adult medicines at a premium simply because it has incurred minor costs in trials assessing the dosage for children.
More generally, health care innovation is understood as a “substantial health gain in areas that have been previously untreated” (Prof Sir Michael Rawlins, former Chair of NICE, Reference Pauly2005). This is a measure of therapeutic/clinical benefit and presumed medical need, rather than as a contribution to innovatory knowledge or market demand. For example, NICE fund Crizotinib – a pill-based medicine to treat lung cancer in preference to out-patient treatment by chemotherapy – and marketed in the United States at $11,500/month (Chustecka, Reference Chustecka2014). Clearly, in assessing cost-effectiveness, the broader saving in overheads contributes to identifying this medicine meets the ‘substantial health gain’-to-cost benchmark, vouching for market value.
However, NICE also fund Certinib as a subsequent treatment for patients not responding to Crizotinib, which is difficult to justify as meeting a ‘substantial health gain’ justified by cost. This is because Certinib treats a far smaller patient population (those responding to it, rather than all those not responding to Crizotinib); chemotherapy is already an alternative treatment for everyone not responding to Crizotinib; Certinib is more likely to cause side-effects; and Certinib arguably has a higher unit cost even though it carried less developmental burdens as a subsequent medicine in the new class of medicines created by Crizotinib. This is not to argue that Certinib should not be funded, just that it cannot be justified as representing a ‘substantial health gain’-to-cost value. From a public perspective, there are many market demands and limited resources. In failing to consider innovatory value relative to market value, decisions by remunerative bodies such as NICE result in providers paying a premium for medicines which are unjustified by their contribution to medical innovation.
Inevitably, industry is focused on getting onto the innovation scorecards ahead of competitors with barely different innovations, because this assures NHS-wide proliferation or will trigger an NICE review which will ensure funding if the cost-effectiveness threshold is met. This is because, once NICE recommends a particular innovation, the NHS is bound by its constitution to adopt it and many other countries use the NICE recommendation to guide their own funding decisions. This incentivises industry to adopt strategic practices to maximise the potential for the commissioner/remunerative body to choose their product, which means selection ceases to revolve around the superiority of the innovation or of the medical benefits the medicine offers.
Medical credence goods facilitate three main strategies for industry to adopt: undertreatment, where the treatment leaves medical needs unmet; overcharging, where cost is charged for medical benefits not received; and overtreatment, where the treatment provided exceeds medical needs. Empirical analysis identifies that imposing an obligation to provide a quality matched to patient-consumers’ needs in a competitive context ensures against undertreatment and is more important than utilising goodwill to gain trust (‘reputation building’) or requiring only goods provided be charged for (Dulleck et al., Reference Davis and Abraham2009). Yet, clearly the place to begin is recognising that the public are paying for goods which are not providing either the innovatory value or the market value being charged by industry and facilitated by regulators.
Industry is not incentivised to provide products which overtreat in the sense of exceeding curative expectations, because funding systems are not based on brand/producer loyalty, which would be considered as unacceptable forms of bias. Yet this comes at the cost of industry not caring if the curative experience embeds customer loyalty, for repeat custom. However, the presumptive link between innovation and better products is utilised to overtreat by creating new market opportunities. For example, personalised medicines which can only be taken by discrete patient populations with a specific gene collaterally create a market for ‘companion diagnostics’ which identify if the patient has the gene (Agarwal et al., Reference Allsop, Jones and Baggott2015). The consequence is that treatment prices increase exponentially to accommodate the additional gateway product, further diminishing the link between the innovation–medical market value and cost. For example, a 10% incidence of chronic nausea as a side-effect of taking a chemical-based medicine hardly justifies a four-fold increase in the price everyone pays for an alternative biomedicine, even if it removes this risk for one in 10 patients.
Without taking account of the public interest in obtaining credible goods, regulators (and consequently providers) are failing to ensure medicines respond to market demands either by being credibly innovatory or offering ‘substantial medical gains’ to justify costs. Yet, does this really matter if regulators are vouching for new medicines performing better than existing products?
Credibility in being safe, effective and performing reliably
The International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) was implemented with the mission to create
…a more economical use of human, animal and material resources, and the elimination of unnecessary delay in the global development and availability of new medicines whilst maintaining safeguards on quality, safety and efficacy, and regulatory obligations to protect public health (ICH Terms of Reference).Footnote 24
In Europe, the Clinical Trials Regulation 2014 embeds the ICH safeguards of safety and efficacy as essential elements of clinical investigation [Article 2.2(1)], and quality as part of the scientific methodology in achieving ‘good clinical practice’ (Article 2.30). This has traditionally been encapsulated within standard trial phases predominantly occurring before marketing: Phase I – establishing safety (non-toxicity) in healthy participants; Phase II – establishing safety and efficacy in a small patient population (usually the most healthy of the unwell, to maximise the potential for success); and Phase III – establishing scientific quality (reliable repeatability) in larger patient populations, identifying dosage/incidental side-effects. Leaving post-market Phase IV pharmacovigilance studies to identify performance across a patient population with a host of environmental, genetic and medicinal variations not previously tested against.
Even within this seemingly robust system, ensuring efficacy attests for therapeutic/clinical benefit has not adopted the gold standard of three-armed trials, which verifies products against the medicine already funded in its class of treatments and a placebo (Davis and Abraham, 2011, Reference Davis and Abraham2013). So market authorisation is aimed at finding only some value and even at its most rigorous only requires that value be demonstrated against one other medicine. This means there is no mechanism for selecting the best medicine (safest or most effective) across a range of market alternatives, just a better-than-the-funded medicine or a placebo. It follows that industry is incentivised merely to produce marginally better medicines, removing the incentive to be truly innovative. The scale of the problem becomes apparent in statistical analysis of clinical trials, which are markedly increasing in tandem with the increased volume of barely different medical innovations. For example, the United States’ record of registered trials increased from under 50,000 in 2008 to over 216,000 by May 2016, and of ongoing studies almost 50% are for medicines hoping to enter the market (US National Institute of Health, 2016). So there are more trials because there are more medicines, but occurring during a period where there is less innovation.
Europe’s policy plan for the next five years is focused on increasing technological throughput – meaning short development-to-market cycles – by continuing the previous policy to increase the speed of authorising “new beneficial and safe medicines” (Heads of Medicines Agencies, 2015). This is already being implemented in the introduction of early access schemes and the European Medicines Agency’s (EMA’s) adaptive pathway initiative, which is designed to reduce development costs for the new generation of personalised medicines by facilitating phased trials (the ADAPT SMART initiative). The focus of regulation is shifting away from being the guardian of market entry, ensuring quality in marketed goods being reliably proven as safe and effective. Market authorisation bodies are instead becoming part of a broader product lifecycle management, in which all stakeholders (regulators, industry and patient groups) are complicit in vouching for patient-relative-to-product safeguards. In effect, medicines stop being generally proven in quality and become proven on quality only relative to the condition being treated and who is taking the medicine. Moving from a single model of trials to ones which are so variable makes identifying diminishing quality standards less discernible. Neither is this ameliorated by the increased access to clinical trial information through the EU’s portal and database or its publicly accessible adverse drug reportage system, because access to more information does not necessarily result in the significance of the information available being apparent (Clinical Trials Regulation, Reference Polk Wagner2014).
In addition, the focus of market authorisation has shifted from novel medicines and onto treatments for ‘unmet medical needs’, which actively encourage market access for barely different innovations. For example, the UK’s Early Access to Medicines Scheme for ‘life-threatening or seriously debilitating conditions’ rests on no existing treatment/cure existing, but fails to stipulate that the medicine must also be innovatory. While there may be an argument for lowering quality standards in such extreme cases of desperation, there remains a public expectation that quality still ensures that terminal patients are not guniea pigs for substances with proven track records of toxicity searching for new uses to expunge historically poor safety records (e.g. thalidomide).
In March 2016, the EMA launched the PRIME initiative, which provides early and ongoing nurturing regulatory support to companies developing therapies addressing ‘unmet medical needs’, but again absent any requirement for truly novel innovation and not clearly distinguishing this benchmark from that applied by bodies such as NICE. Indeed, one of the stated aims of the new European medicines policy is to increase the connection to “pricing and reimbursement bodies and patient and healthcare groups…to enable appropriate decision making and sharing of information to allow optimal access” and this is echoed in the United Kingdom (Heads of Medicines Agencies, 2015; Taylor, Reference Stigler2016). So it can reasonably be presumed that market authorisation will align with reimbursement, invoking the same concerns over standards expressed in the previous section.
Europe’s ‘optimal access’ also cannot relate to ensuring only the best medicines are granted market access and funded, because the EMA is simply not capturing that information. Rather, the inclusion of patient groups suggests that filtering the deluge of treatment options – all measured to different trial designs and against different funded alternatives – may rely upon anecdotal evidence gleaned from the online forums and new lobby bodies claiming to represent patient interests (Allsop et al., Reference Agarwal, Ressler and Snyder2004). Either way, it is arguable that evidence-based medicine and any recognition of the value of truly new medicines is being lost in the failure of market authorisation bodies to ensure that me-too medicines are not treated as innovatory; that all medicines are assessed against market-wide comparators; and that barely different medicines are meeting unmet market needs which are sufficiently substantial to make up for their lack of innovatory value.
The enhanced public access to safety and efficacy information both before and after medicines are marketed suggests that medical professionals are only marginally better informed than reasonably educated/IT literate patient-consumers/patient groups, and innovative medicines are becoming search goods (whose qualities are easily identified ahead of purchase). However, a market with lots of barely different medicines means that even this enhanced information fails to distinguish relative benefits, because the variability of trails makes an assessment of even identical products akin to comparing vastly different medicines. So the failure to ensure that medicines are distinctively different in quality ensures these products are credence goods to all users, irrespective of whether they are medical professionals or patients. This raises questions about the role of reputation substituting for quality entirely. Can health care markets be sustained simply because of public trust in medicines providers, independent of product quality?
Credibility of provider reputation
At present, medical practice looks to consent for authority in making medical decisions, but this is seriously undermined where these purchasing/health care commissioning decisions are made by sick people “without sufficient time or emotional stamina for making adequate decisions” about the selection of credence goods (Sloan, 2001).Footnote 25 It follows that patient-consumers are almost completely reliant upon the judgement of others in making decisions about treatment decisions and the products used. This is predominantly medical professionals/institutions, but more recently extends to patient groups and even industry providers. Even in primary care contexts, the convenience of searchable information and the cogency of social media often ensure that patient group/industry sources are part of the discussion contributed by friends and family.
The medical profession enjoys variable trust ratings depending upon where the market is. For example, in the United Kingdom the grossly inappropriate treatment of sick children and general hospital patients – many of whom were elderly – gave rise to the Alder Hey and Mid Staffordshire Inquiries and eroded public trust in both health care professionals and institutions (Royal Liverpool Children’s Inquiry, Reference Roland2001; Francis, 2013). In addition, research identifies problems in relying on reputation where markets comprise selfish (profit maximising) and non-selfish (public) experts, because the “selfish expert free rides on the conscientious expert and behaves even more opportunistically than he would have if he were the only expert in the market” (Liu, Reference Jarvis2011). So, health care which is variously provided by public and private entities undermines the ability to rely on reputation in substitution for quality in purchasing/commissioning medicines.
Online forums and patient groups accessible through the internet lend reputation to negative messages about credence goods, but this does not extend to positive messages (Pan and Chiou, 2011). Without reputation, both types of messages are distrusted in purchasing credence goods and industry providers are advised to “pay attention to the information-processing ability and motivation of their consumers” (Pan and Chiou, 2011). However, social bonds within patient communities, together with the structural bonds created by industry: (1) marketing over time; and (2) providing professional and reliable information are key factors in retaining credibility either as a source of information or as a provider. This is because these reputational bonds have a greater impact on encouraging purchasing of credence goods than even financial bonds (Hsieh et al., 2005).
Reputation does not entirely negate the significance of pricing, as getting the price-point properly positioned in the market (e.g. discount, premium or exclusive) remains important. For example, pitched too low relative to comparable medicines, price “may be a cue for poor quality” (Hsieh et al., 2005). Pitched too high, it becomes a cause of public outrage which is seen far more frequently in recent years. For example, the 5000% increase in price for a life-saving AIDS drug, which prompted claims of criminality and spurred the public to lobby government (Long, 2016). Reputation, even where marketing is not direct-to-consumers, remains a key determinant of take up. In the context of barely different medicines, reputation affects the decision to a greater extent than their actual innovatory medical benefits, price or competitors’ offerings. This incentivises industry to groom patient groups and to increase info advertising in order to create/support their trustworthiness with the public/patient-consumer. The responsibility for ensuring that health care industry producers comply with honest trading practices falls on competition authorities and this requires some exploration.
While the European Commission sets EU policy on competition regulation, National Competent Authorities within Member States govern practice. In the United Kingdom, this is now the role of the Competition and Markets Authority, which is empowered to impose penalties such as fines, disqualification of directors or imprisonment. Unfortunately, all of these bodies share a general presumption that trading practices should be the preserve of industry, needing only a light regulatory touch.
Irrespective of whether it is trade between European countries or within them, there are formal competition rules against: (1) unfair competitive practices (exemplified as price fixing, creating competitive disadvantages for others or creating closed networks, etc.), unless the practices can be mitigated by economic benefits or the proliferation of products/technology, and consumers benefit; and (2) abusing a dominant market position, and abuse is defined in broadly similar terms to unfair competitive practices,Footnote 26 making the key difference between the rules hinge on the level of market share. So while some unfair practices can be mitigated, being in a position of market dominance necessarily means more practices can have abusive effects.
The European Commission’s Pharmaceutical Sector Inquiry Report and the subsequent 4th Report on the Monitoring of Patent Settlements identify a commitment to increasing competition law scrutiny in the pharmaceutical industry and regulating practices falling short of the rules. But monitoring and enforcement are intended to be a co-operative endeavour between the industry, ‘market participants’ and regulators (European Commission, Reference Dutfield2009, 2012).
Cases arising since this commitment suggest that competition authorities are still failing to ensure the health care industry maintains a credible reputation for honesty. For example, in 2013 AstraZeneca lost its challenge against the €52.2 million fine imposed by the European Commission for abusing the Supplementary Protection Certificate system in order to prevent generic competitors entering the market.Footnote 27 In the United States, GSK’s record $3 billion fine demonstrates that abuse of regulatory mechanisms also extends to providing misleading information about safety and pricing in order to obtain a market advantage (US Department of Justice, 2012). The same company also faced $490 million fines and suspended prison sentences for executives over an alleged £320 million of bribes to Chinese officials and health care providers to secure market share and charge higher unit costs (BBC News, 2014; Roland, Reference Rawlins2014). How can such financial penalties deter where profits far outstrip them?
Regulators fail to identify or address much of the game playing and consider industry should be an active participant in the regulatory process. Public trust in the industry to provide credible information/products is dangerously low, making it insufficient to ensure market sustainability in the face of evidence that product quality does not meet public expectations. Perhaps of greater concern is that regulators run a real risk of being seen as duplicitous and equally untrustworthy simply by regulating collaboratively rather than confrontationally, in turn affecting their own credibility in vouching for product quality.
Conclusion
There may be arguments that health should not be conceived of as a market, or that it is not a normal competitive market. Certainly, the public have been omitted from assessments of regulation and replaced by consideration of regulatory bodies and industry in identifying economic interests and profitable markets. This analysis identifies that the absence of the public represents a crucial oversight, because they have a commercial interest in sustainable markets irrespective of what the market is. Assessing the public’s tolerance for market flexibilities – notably product quality relative to provider reputation/credibility – identifies the public are far less motivated to continue engaging in a market of diminishing returns in comparison with regulators or industry. As such, regulation which fails to take account of the public’s commercial interest in the quality of goods, the need for them and the price that is paid risks the market becoming unsustainable.
This risk of unsustainability is demonstrated in the context of a market deemed virtually invulnerable to such failure, because it concerns health – an essential need – and specifically medical innovation, which engages consumers’ presumptions of product superiority. Assessing the qualities the public expect of these products – innovatory; market value; safe, effective and reliable – reveals critical failures by regulators to ensure those qualities.
Changing markets and patent policies are prompting the creation of rights to barely different innovation and ostensibly equivalent technology. This responds to the economic lag between the patent cliff and bringing novel biomedicines to market, justifying regulation as essentially reserving global markets to Western innovators (exemplified within Europe). Yet, it is the public who are expected to pay a premium price for medicines with minimal innovatory value or which are evergreened, fraudulently claiming new patents for existing innovation. The biggest cost is the risk to the sustainability of health care markets from granting rights which are so totally unrepresentative of the innovatory value of the product. In the short term, this practice risks high profile media condemnation and public rejection of specific products, but in the long term the failure to assure quality undermines the public trust in the credibility of patent bodies to vouch for the innovatory value of products. Collaterally, barely different rights impose costs on competing producers being unable to effectively compete where narrow rights are layered to provide broad market exclusion; and generic producers must moderate goods as patents expire. There are also costs for health care providers with already strained resources, who are required to ensure that medicines are prescribed relative to diminishing lists of patented indications.
This failure to consider the public interest in market sustainability is proven to be more than an isolated incidence, because remunerative bodies vouching for market value; and market authorisation bodies vouching for safety, efficacy and reliability, are similarly not meeting public expectations of quality assurance. For these regulators there is no consideration of innovation valued relative to its contribution to mankind’s technological knowledge, because this is beyond their expertise and the information they capture.
Remunerators’ awareness of market value is failing to identify cost-to-demand, because value is understood as ‘new context of use’ and this opens the door for existing medicines to be minimally developed and yet marketed at premium prices. Similarly, cost-to-medical value is lost by ‘substantial health gains’ being interpreted as slim variations on existing medicines, which simply cannot justify the exorbitant prices charged. In consequence, industry is not being regulated to ensure against strategic gains from undertreatment, overcharging or overtreatment.
Market authorisation bodies are not insisting upon the best therapeutic/clinical medicines, instead prizing ‘unmet medical needs’ which has only incentivised industry to innovate nominally. Yet, this is undetected in the push for speed to market, and safety standards will likely slip further in the implementation of a lifecycle management system, with variable criteria which frustrate transparency and undermine validity. These regulatory bodies risk damaging their credibility catastrophically in failing to consider public expectations that only the best, safest and cost-effective medicines are marketed.
The potential for market failure from these quality assurance failures is also enhanced where providers already have low reputation/credibility. Health care professionals are often in no better position than the public to discern the quality of medicines, diminishing their reputation in health care decision-making and increasing the need for credibility in health care institutions. Institutions with poor records, exemplified in the United Kingdom, inevitably undermine public tolerance for failures elsewhere in the system. So identification there are failures to assure product quality, especially where the credibility and reputation of providers is questionable, risks prompting the public to disengage from the market unless alternative sources of reputation/credibility can be found. Patient groups are limited to reputation which only vouches for negative information and the health care industry may require more than info-advertising to ameliorate a trust profile defined by strategic practices which prevent competitors entering markets; creating products with no/little value; flouting regulation; misleading and bribing.
The sustainability of health care markets is being eroded by the failure to take account of the public interest in quality medicine. This risks reaching the point at which the public will cease to find health care goods and their providers credible at all, prompting markets to fail completely. As patient-consumers disengage from mainstream medicine, economies of scale will be lost and the investment in innovation will disappear. So the question is, when are regulators going to enforce the public interest in obtaining quality medicines and stop rewarding industry for offering snake oil?
Acknowledgement
The author wishes to thank in particular the helpful comments of the journal reviewers in clarifying the contribution of this paper.
