Using Regulation to Improve Private Sector Performance in the Pharmaceutical System

1. Using Regulation to Improve Private Sector Performance in the Pharmaceutical System MARC J. ROBERTS Professor of Political Economy and Health Policy Harvard School Of Public Health Nairobi, Kenya 14 April, 2011

2. Key Lessons on Using Regulation • Regulation involves coercion—it gives individuals and organizations reasons to change their behavior • Those regulated don’t want to change, if they did they would, and regulation would not be needed • To avoid change, those regulated often try to resist or undermine regulatory efforts • Effective regulation thus depends in part on effective enforcement—which is not easy to do • Countries should avoid regulation if they are not willing and able to meet the enforcement challenge

3. Decide to Regulate Evaluate System Performance Secure Legal Authority Impose Penalties for Violators Write Rules Monitor Compliance The Regulatory Cycle

4. Each Stage Has its Difficulties • The regulated can try to block legislative action needed to strengthen regulation • Writing rules often requires mastery of complex technical details • The behavior being regulated can be undocumented and difficult to monitor--data can be misreported or destroyed • Inspectors can be corrupted or pressured politically • Imposing penalties can require much effort and require cooperation from an unresponsive judiciary

5. The Role of Administrative Discretion In Regulatory Implementation • Legislative language is often vague to appeal to diverse constituencies • Rules cannot anticipate all situations or contingencies—the limits of language • Applying rules to specific cases may require/allow case-by-case judgment The impact of regulatory efforts depends critically on specific judgments and interpretations—on regulatory implementation

6. Forms of Resistance from Those Being Regulated • Weaken legislative language • Reshape the rules • Limit regulatory agency resources • Undermine accurate reporting and monitoring • Corrupt or politically pressure inspectors and enforcers • Capture the regulatory agency administratively Sometimes an interest group pushes for regulation to disadvantage its competitors

7. Voluntary Compliance and Deterrence • Enforcement only deters possible violators when they fear detection and punishment • When violations are widespread, inspectors cannot catch and punish most violators • Would-be violators then know they are not likely to be caught and punished • Enforcement only creates effective deterrence when voluntary compliance significantly lowers the rate of violations • Only then will the probability of being caught be high enough to deter potential violators

8. The Role of “Regulatory Legitimacy” • Voluntary compliance depends on those regulated accepting the rules-- “regulatory legitimacy” • Successful enforcement requires inspectors, judges etc. to believe in the rules they are enforcing • Political leaders have to believe in the effort to provide resources and protect the regulators • Political support and administrative energy are influenced by popular acceptance of the regulatory effort • Popular acceptance will vary with a nation’s culture and attitudes toward government—and with the rules being imposed

9. The Risks of Regulatory Distortion • The data you want may be difficult to collect • The available data may not measure the behavior you want • The regulated may distort their behavior to look good—to meet the “letter” but not the “spirit” of the rule

10. Enforcement Issues • Numerous, small, dispersed regulated entities are difficult enforcement targets (think small medicines vendors) • If testing is expensive, it will be infrequent and hence have less deterrence value • The greater the rewards from non-compliance, the more likely it becomes • Larger regulated entities may then make major efforts to avoid compliance—e.g. maintaining duplicate false records

11. Self Reporting Issues • Those regulated may be the only ones with data on their own performance— e.g. the ingredients in a particular batch of medicines • If the penalties for small violations are too large, those regulated will not report honestly • Self reporting works best when regulatory targets maintain records for their own purposes—their reports are then “auditable” • The higher the costs of accurate self-reports, the less likely they will be made

12. The Key Role of Agency Leadership • Effective regulation requires strong agency leadership • To motivate staff • To resist pressures from those being regulated • Effective agency heads in turn need strong political support • Delegating inspection and enforcement to local governments, whose citizens care about compliance, is one option

13. The Diverse Targets of Pharmaceutical Regulation • Regulation is the main instrument for governments to influence the private sector • Sellers • Importers/distributors • Manufacturers • Because of pervasive “market failures” the medicines sector is extensively regulated • Governments can also regulate the public sector—e.g. the behavior of public doctors • Governments can also regulate citizen behavior

14. The Diverse Settings of Pharmaceutical Systems Regulation • Limiting what drugs can be sold in a country (registration) • Limiting which companies can manufacture registered drugs (G.M.P. surveillance) -- either imported or domestic sources • Preventing counterfeit , substandard and unregistered drugs from being sold • Regulating who can prescribe or administer what drugs • Regulating who can sell what drugs

15. The Problems of Regulating Medicines Quality • Countries may have difficult-to-police borders • Numerous overseas sources are difficult to inspect • Many different items require inspection and testing • Quality testing is expensive and countries often lack sufficient capacity and trained personnel • Sellers are numerous, widespread and often small • The rewards for fraud can be substantial—attracting significant criminal enterprises • Consumer preferences may not match expert views

16. Accreditation/Certification/Franchising • These strategies allows either government or a private entity to identify or “brand” retail outlets that meet certain regulatory standards • The goal is to give customers options that offer more reliable goods and services • Participation can be voluntary, or mandatory (e.g. ADDO) • The added costs have to be born by someone: shop owners, donors, government etc. • Need for some process to check on-going compliance with standards

17. Develop a Regulatory Strategy • Look for the “low hanging fruit”– the easier targets in terms of technical and administrative resources • Look to where regulation can make a difference in outcomes—the high value targets • Consider what will receive public and political support—what will have “regulatory legitimacy”? • Explore monitoring issues—what behavior will be easiest to notice? • Design systems for imposing penalties that are inexpensive and reliable to operate

18. Summary • Successful regulation is not easy • Writing rules is not enough • Effective implementation depends on leadership, administrative and technical capacity, data and legal systems, political support etc. • Proceed in ways that increase voluntary compliance and “regulatory legitimacy” • Beware distortion and deception • Begin with the “low hanging fruit”: behavior generally agreed to be undesirable and which is relatively easy to observe