A publicly funded system of clinical trials, conducted not by the pharmaceutical industry but by a network of independent companies working on long-term federal contracts, could substantially reduce the inefficiencies and conflicts of interest intrinsic to the existing model for clinical testing, argues a new US report.

The report by Dean Baker, co-director of independent Washington-based think tank the Center for Economic and Policy Research, envisages financing the system through a mandatory 40% cut in the prices paid for pharmaceuticals by the Medicare health insurance programme for senior citizens.

These lower prices would not only more than cover the estimated $20 billion annual cost of trials currently borne by the pharmaceutical industry, they would have ancillary benefits such as eliminating the incentive for heavy marketing expenditure by industry and bearing down on the waste associated with efforts by insurers and other third-party payers to restrict the use of high-priced drugs, Baker believes.

According to the report, The Benefits and Savings from Publicly-Funded Clinical Trials of Prescription Drugs, there are two major sources of economic inefficiency in a system whereby drug trials are financed, and often conducted directly by, the company holding intellectual property rights to those drugs.

The first is that it “creates an obvious conflict of interest, since the party conducting the trial has a direct financial stake in the outcome”. The second is that recovering the investment in the trials through higher drug prices significantly widens the gap between these prices and the marginal cost of pharmaceutical production.

The strong material incentive for drug sponsors to obtain positive results from clinical trials raises obvious issues of potential bias or misrepresentation of research findings. But the current system is also, Baker points out, susceptible to other forms of “rent-seeking behaviour”, such as pursuing trials even when there is little reason to expect that the drug in question will be any better than existing alternatives.

In this way, companies can “hope to capture a portion of the patent rents earned by already approved drugs, and thereby recover a portion of sunk research costs, even if their drug is likely to provide little or no net benefit”, Baker comments. There is also an incentive to overpay physicians participating in clinical trials in the hope of influencing prescribing practices, something that again pushes up the costs of clinical development and, by extension, of marketed drugs.

The publicly funded system proposed by Baker would involve establishing a network of independent companies, which would operate on federal contracts of 8-12 years awarded by the National Institutes of Health, the Food and Drug Administration, the Centers for Medicare and Medicaid Services or a new agency created specifically for that purpose.

Those companies contracted to perform the trials would be expected to select drugs for testing based on their potential to improve public health, as determined by evidence from preclinical research.

The oversight agency “may designate that each contractor restrict itself to drugs designed for a specific class or classes of conditions, but such restrictions should not be overly narrow,” Baker suggests. “A key goal of this system is to ensure there will always be several contractors with overlapping areas of responsibility to ensure there will be competition between them. This should reduce the probability that a potentially promising drug will be overlooked”.

Another spur to competition would be full disclosure requirements for all clinical trial data, which would be made available on the internet “in a timely manner”. This would enable both other researchers to analyse trial results independently and practising physicians to determine better the most suitable drugs for their patients.

As such, Baker notes, the various stages of clinical testing could be taken up by different contractors, since “any contractor would have the full benefit of information obtained through prior-round trials, not just the contractor who performed the trials”.

Strict separation

The system also assumes a strict separation between the companies contracted to conduct trials (plus any subcontractors) and the pharmaceutical companies with intellectual property rights to the drugs concerned.

For example, this would preclude management or employees of contracting firms from having any financial interest in the drug sponsors. Moreover, all contact between the pharmaceutical companies and the contractors “should be in the form of public documents that can be easily accessed over the internet”, the report proposes.

The funds to support this system would be accumulated by negotiating lower payments for pharmaceuticals in US government programmes, most notably the Medicare Part D prescription drug benefit, Baker says.

“If Medicare reduced its payments for prescription drugs to levels comparable to those paid by the Veterans Administration, through a comparable negotiation process, the savings would easily exceed the cost of publicly financing clinical trials,” he claims. “In effect, under this arrangement, the pharmaceutical industry would be compensated for lower drug prices by having the public sector pick up the cost of conducting clinical drug trials.”

While this model is not designed to outlaw privately financed clinical trials, “the lower prices paid by Medicare, and possibly by other government purchasers, would apply to drugs regardless of whether or not the tests were financed through the public system,” Baker observes. “At sharply lower drug prices, it would probably not be profitable for pharmaceutical companies to pay for their own clinical trials.”

In addition to potential savings of around $50 billion to Medicare over a 10-year period, net of the cost of the trials, from a publicly funded system of clinical testing, Baker foresees the following benefits:

- Eliminating both “the incentive and the opportunity” to conceal evidence that a drug may have harmful side-effects or to exaggerate evidence of its effectiveness.

- Reducing trial costs by removing the incentives to “carry duplicative drugs through the trial process in the hope of recovering sunk research costs” and to overpay participating physicians.
- Research could advance more quickly, as “all the results of trials conducted through a publicly funded system would be immediately and fully disclosed, allowing other researchers to benefit from this information”.
- Getting rid of data exclusivity, a mechanism that is “being used to obtain marketing exclusivity, and therefore raise the price of prescription drugs in many developing countries”.

“The main benefit of this system is that it would eliminate the conflict of interest that is inherent when the party that conducts the trial has a direct financial stake in the outcome,” Baker commented.

“Under plausible assumptions, a system of publicly funded trials can easily be financed by the savings from paying lower prices for prescription drugs through Medicare. In addition, the restructuring of the industry that would follow from publicly funded trials could lead to savings on prescription drugs for the population as a whole, which would lead to substantial efficiency gains for society.”