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Thread: Conflict of Interest? Paying for Regulatory Inspections

  1. #1

    Default Conflict of Interest? Paying for Regulatory Inspections

    Anyone else uneasy with this kind of idea? Is this the norm in any other country?

    I don't see this as an easy invitation to corruption. I'm more concerned the FDA will grow to depend on the revenue from fees and will itself focus on generating fees as much as it focuses on regulating an industry.

    August 16, 2011

    FDA Reaps Fees in Generics Pact
    By THOMAS M. BURTON

    The generic-drug industry and the Food and Drug Administration have generally agreed to set up a "user fee" program in which companies would pay as much as $299 million initially to speed up drug approvals and increase the frequency of FDA inspections of foreign drug plants.

    The talks between the industry and the FDA are still going on, and such a user-fee program would need congressional approval. It would parallel programs already in place for makers of brand-name drugs and medical devices. The idea is for generic-drug companies to make payments to the agency when they seek product approvals. The FDA in turn would speed up its review of the drug without the need for more tax money.

    xecutives of generic-drug companies had said in interviews with The Wall Street Journal in February that they supported the creation of such a system, in large part to speed drug approvals that now can stretch to 2½ years.

    In the framework currently agreed to, the drug companies would pay $299 million in the first year to get the program going—coming in large part from companies whose drugs currently are in the backlog waiting for approval. After that initial payment, companies would pay fees each time they seek agency approval for a generic drug.

    Another impetus for this deal is the FDA's concern about the safety of drugs manufactured overseas. That issue isn't unique to generic drugs, but generics make up about 75% of the pharmaceuticals sold in this country.

    A government report last year said that about 64% of 3,700 drug facilities overseas have never been inspected by the FDA. Agency officials say in interviews that they continue to worry about the safety of drug pipelines in countries such as China and India.

    The issue came to the fore in 2008 when about 80 deaths were linked to contaminated batches of the blood thinner heparin, much of which came from raw materials derived from pig intestines in China.

    In recent congressional testimony, Janet Woodcock, director of the FDA's center for drug evaluation, said the agency lacked the manpower to conduct enough inspections overseas to ensure product safety. During the talks, generic drug industry officials expressed the hope that FDA inspections overseas could occur about every two years, roughly the same frequency as in the U.S.

    http://online.wsj.com/article/SB1000...246628560.html

  2. #2
    In principle, I don't have a problem with it, as long as there are no perverse incentives (i.e. to either speed up or slow down approval based on how much they pay). Having industries pay for the regulation required to safely operate is not unreasonable, just like the USPTO should be more or less revenue neutral for the US government. I'm sure there are a whole host of unintended consequences, though, so the rules would have to be carefully designed.
    Last edited by wiggin; 08-17-2011 at 02:25 AM. Reason: principle ~= principal

  3. #3
    I think the perverse incentive is the FDA will inevitably hire lots of people to do these inspections and then feel compelled to keep them hired (even though the flow of approval requests will likely fluctuate). Sort of like how bureaucrats keep line-items on their budgets even if they don't use them just to keep the money there.

    In principle, sure it makes sense and everyone wins. But most government administrators operate under the assumption that preserving headcount is a major priority. Giving the FDA leverage over its operating budget by extracting fees from industries it regulates leads to a lot of wiggle room in places I'm not entirely comfortable with.

  4. #4
    I think it makes more sense for the fee not to be based on inspection frequency, but some flat fee per item approved, so it would hardly cause an incentive to keep additional inspectors on the books. Furthermore, the targeted rate is an inspection every 2 years. That's ridiculously infrequent; the USDA inspects our animal testing facilities every year, and that's for animal welfare, not patient safety. So if there's a transient drop in the sites available for inspection, the worst that happens is they start inspecting every 23 months instead. Not a big overcapacity issue IMO.

  5. #5
    Wig, are you real? What will happen is more coffee breaks. Have you actually seen how bureaucracies work?
    Hope is the denial of reality

  6. #6
    *shrugs* Even if you're right (which you very well may be) a transient overcapacity issue is better than a total lack of oversight. The heparin issue mentioned in the article was a huge deal that could have been caught.

  7. #7
    Quote Originally Posted by wiggin View Post
    *shrugs* Even if you're right (which you very well may be) a transient overcapacity issue is better than a total lack of oversight. The heparin issue mentioned in the article was a huge deal that could have been caught.
    Sure, but no mechanism has been put in place to prevent the over-capacity, which the taxpayer will end up on the hook for at some point in the future (whether directly, or through pensions).
    Hope is the denial of reality

  8. #8
    I fail to see why overcapacity would be a major issue. Isn't the number of inspected facilities likely to grow with time? Certainly the USPTO has a fee structure and isn't suffering from some overcapacity of patent examiners.

  9. #9
    Quote Originally Posted by wiggin View Post
    I fail to see why overcapacity would be a major issue. Isn't the number of inspected facilities likely to grow with time? Certainly the USPTO has a fee structure and isn't suffering from some overcapacity of patent examiners.
    You hire people when you need them, not a decade in advance. Do you realize how bloated most government departments are? Do you really want to contribute toward that trend on the off-chance that the additional workers will be needed in the future?
    Hope is the denial of reality

  10. #10
    De Oppresso Liber CitizenCain's Avatar
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    Personally, I think it's a wonderful idea. For far too long, big corporations have had to struggle very hard at achieving regulatory capture, and it's nice to see an example of government doing something to make things easier on their constituents, instead of just getting in the way of everything.
    "I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them."

    "The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."

    -- Thomas Jefferson: American Founding Father, clairvoyant and seditious traitor.

  11. #11
    Quote Originally Posted by Loki View Post
    You hire people when you need them, not a decade in advance. Do you realize how bloated most government departments are? Do you really want to contribute toward that trend on the off-chance that the additional workers will be needed in the future?
    Uhm... why would they hire more workers than they need right now? I mean, yes, I understand that bureaucracies never shrink, but it should be easy enough to tailor the fee structure to support roughly the needed number of inspectors, not more. If anything I'd imagine you'd get a shortfall.


    I have a question: is there any circumstance whatsoever where you'd feel like having FDA inspections is a good thing? Because that's not really the question here; they already exist and do their jobs, just not in enough places and numbers. The question is whether it's wise to set up a fee structure to pay for it all. I think an appropriately designed fee system can help cover the necessary costs.

  12. #12
    Quote Originally Posted by wiggin View Post
    Uhm... why would they hire more workers than they need right now? I mean, yes, I understand that bureaucracies never shrink, but it should be easy enough to tailor the fee structure to support roughly the needed number of inspectors, not more. If anything I'd imagine you'd get a shortfall.
    There will never be enough inspectors. It's in the interest of the FDA to always find reasons to "need" more.

    I have a question: is there any circumstance whatsoever where you'd feel like having FDA inspections is a good thing? Because that's not really the question here; they already exist and do their jobs, just not in enough places and numbers. The question is whether it's wise to set up a fee structure to pay for it all. I think an appropriately designed fee system can help cover the necessary costs.
    It would be a good thing if each existing inspector carried out more inspections.

    The problem isn't the fee system; it's the incentives for inspectors to actually inspect. I've yet to come across an even remotely productive government agency. Sure, increasing manpower will marginally increase the amount of work being done, but the real effect would be to reduce the amount of time and effort expended by the average inspector.
    Hope is the denial of reality

  13. #13
    I'm sure you could set up a quota system or the like, and the fees (plus required inspections) could be set by an independent board that has no access to the FDA budget (and thus no incentive to make the fees too high).

    Yes, there are problems with bureaucracies, but rather than eliminating needed functions wholesale (or vaguely hoping for efficiencies), why don't we try to structure the system so that it works properly?

  14. #14
    I think it's a good idea so long as it doesn't increase wait time for non-paying users.

  15. #15
    Quote Originally Posted by wiggin View Post
    Yes, there are problems with bureaucracies, but rather than eliminating needed functions wholesale (or vaguely hoping for efficiencies), why don't we try to structure the system so that it works properly?
    Because it just won't happen.
    Hope is the denial of reality

  16. #16
    So... we just won't inspect or regulate them at all?

  17. #17
    Obviously inspections and regulations in this space are crucial. But I do share Loki's concern that the specific size of this infrastructure and the need for ongoing "work" would make the FDA as focused on generating fees to make payroll as on delivering quality inspections.

    Imagine a year where a lot of generic drug factories need to be inspected. Federal work rules (from their quasi-unions) often make re-assigning people extremely difficult. So then imagine another year where the number of generic drug inspections go down, but the number of new drugs awaiting approval goes up.

    The FDA bureaucracy will (and probably already does) have trouble shifting resources. Building an entrenched dependence on fees from the private sector seems like it would exacerbate bureaucratic sluggishness. I would prefer the FDA could keep its costs under control and keep everything in house.

    Not even getting into the threat of regulatory capture that Cain brings up, which is valid enough, although of late the FDA certainly hasn't been too cozy with industry (at least based on what I've read).

  18. #18
    Quote Originally Posted by Dreadnaught View Post
    Imagine a year where a lot of generic drug factories need to be inspected. Federal work rules (from their quasi-unions) often make re-assigning people extremely difficult. So then imagine another year where the number of generic drug inspections go down, but the number of new drugs awaiting approval goes up.
    That's going to be a problem regardless of how you fund the inspections, won't it?

    But more broadly, if the number of sites needing inspections falls (I doubt it will ever fall much, but let's just imagine here), their fees will also fall, which should provide some incentive to keep their workforce lean, yes? I recognize there are problems with 'stickiness' in hiring across all of the government, but that's not really contingent on how its funded.

    The FDA bureaucracy will (and probably already does) have trouble shifting resources. Building an entrenched dependence on fees from the private sector seems like it would exacerbate bureaucratic sluggishness. I would prefer the FDA could keep its costs under control and keep everything in house.
    By 'in house', you of course mean that they will be funded by general revenue. I fail to see why this would be any more likely to produce cost control; at least in some sort of partnership with industry there will likely be an outside body determining the fee structure from year to year.

  19. #19
    I agree it's a problem no matter what, but I think the stickiness of government hiring is a huge issue. Having the private sector subsidize more hiring in government could exacerbate the problem or give private companies undue leverage over the cashflow of a government agency (which I'm really not comfortable with).

  20. #20
    Quote Originally Posted by Dreadnaught View Post
    I agree it's a problem no matter what, but I think the stickiness of government hiring is a huge issue. Having the private sector subsidize more hiring in government could exacerbate the problem or give private companies undue leverage over the cashflow of a government agency (which I'm really not comfortable with).
    They're not subsidizing anything. We need to expand the inspections for obvious reasons (I'm shocked they weren't included to start with), so they need to hire more people. All we're doing is pricing the externality into the market, rather than having these companies be subsidized by the US taxpayer. I don't have a problem with people paying a per-passenger fee to fund the TSA, or companies paying a per-flight fee to fund the FAA, or media/telecom companies paying for EM spectrum space to fund the FCC. Do you?

    (The leverage point is an interesting one, but one could say the same is true of any government organization, since their funding and mandate is determined by elected officials who are bought by companies. You always have to follow the money, regardless of where it's coming from.)

  21. #21
    But if a government can't fund regulation with taxes (even taxes on specific industries), what can it fund with taxes?

  22. #22
    Uh...? Isn't this a tax we're talking about? Oh, the exact amount has been negotiated a bit with the companies, but in principle it's a tax even if it's called a 'fee'. If you'd prefer the tax to be a top-down affair, with the FDA asking Congress to charge an excise tax on every drug sold in the country, that would work just as well.

    And there's plenty of things to fund with taxes that don't have anything to do with regulation. Defense, social programs, education, research, etc. That's what we spend the bulk of our revenue on anyways. It's only industry-specific regulatory agencies that really should have some sort of specific fee structure.

  23. #23
    Can't this complaint be extended in some manner to all government agencies? If they can't find a reason to exist, they need shut down? You don't have to limit it to just inspections and fines being self serving. Even if they had to report to someone, the attitude's displayed and claimed as possible here would play just as large a roll. To justify their place at the table of funding they would fine and inspect as much as they felt they needed to in order to justify their existence.

    And government agencies are more than capable of operating on funding from their own fines without resorting to abusing them. My library system used fines to cover the gap this last year around and, as far as I'm aware we didn't go hellbent on fining people to do it. There were no increases in fine amounts, no reductions in lending periods, and fines (respective to user base) weren't collected any more often.


    I'm also curious how current the claims of government bloat are. I've seen some insane cuts and reductions across the county over the past 3-4 years, entire departments cleaned out, community resources halted, hours reduced to the possible breaking point; yet the attitude hasn't changed what so ever, its still the same sound bite yelled by the same ignorant crazies.
    "In a field where an overlooked bug could cost millions, you want people who will speak their minds, even if they’re sometimes obnoxious about it."

  24. #24
    Quote Originally Posted by Ominous Gamer View Post
    I'm also curious how current the claims of government bloat are. I've seen some insane cuts and reductions across the county over the past 3-4 years, entire departments cleaned out, community resources halted, hours reduced to the possible breaking point; yet the attitude hasn't changed what so ever, its still the same sound bite yelled by the same ignorant crazies.
    A lot of people where I live work for the government. While there has definitely been some cutting of some departments, there's still a lot of slack in certain areas. At least in CMS, SSA, and some state organizations here.

    There's also some stupid stuff that isn't really redundancies in government but more spending more than we need to. A friend of mine used to work as an enlisted soldier in MI. He quit, promptly was hired by a major gov't consulting firm, and was hired at significantly higher salary to do a very similar job, working alongside gov't employees. They pretty much can't eliminate his position because the consultants are too embedded into the working of the unit, so the gov't is stuck with a hefty contractor bill. So, not an unnecessary job, but definitely a waste of resources. (Not that I mind that my friend is making a better salary than he made in the Army.)

  25. #25
    Quote Originally Posted by Ominous Gamer View Post
    I'm also curious how current the claims of government bloat are. I've seen some insane cuts and reductions across the county over the past 3-4 years, entire departments cleaned out, community resources halted, hours reduced to the possible breaking point; yet the attitude hasn't changed what so ever, its still the same sound bite yelled by the same ignorant crazies.
    Florida is sort of the exception. S&P recently upgraded Florida's credit rating to AAA. I'm trying to load the press release (their site is down), but the word in the news is S&P was impressed at the massive stat budget cuts. Florida has since "refinanced" over a billion in state debt.

    That's a pretty exceptional series of events the world of state government, so probably reflective of what you're seeing locally.

  26. #26
    It will increase big companies leads over smaller companies, who can't afford to expedite their inspections, and have to wait the 2 and half years. That's the only major downside I see. I hear this talk of stickiness, I don't see why the company can't hire people with the expectatoin their work will "fluctuate" and that they will on times where they're working and unpaid off times as demand permits. I dont' know why we can't hire on these terms. Or give overtime to current workers, or bump part timers to full timers. It is going to depend on the increase in demand this change causes. However, (i'm not sure how these unions/internal structures work), but they should be able to be creative enough to deal with these other hirings. If they're somehow forced to keep them consistently perhaps they can cut back hours (which is effectually he same as firing people), and then up their hours as demand increases.

    I like the idea overall (but the FEE must be a set FEE based directly on manhours used), I'm always afraid about opening windows for bribes (paying extra for your inspection).

    Our system really needs to be combed with the lense of are bribes possible in these situations, and then adjusted to make it very hard to do so in each case. Perhaps get members of the business that were bribing to generate ideas on how to solve the problem. I view it as a our nations #1 problem, and what's holding our growth back.

  27. #27
    I'm not sure if this is the best thread for it, but I didn't think it quite warranted a thread of its own.

    Obama's unhelpful advice


    'If you hear something is happening, but it hasn't happened, don't always believe what you hear,' Obama said. AP Photo

    At Wednesday’s town hall in Atkinson, Ill., a local farmer who said he grows corn and soybeans expressed his concerns to President Obama about “more rules and regulations” – including those concerning dust, noise and water runoff -- that he heard would negatively affect his business.

    The president, on day three of his Midwest bus tour, replied: “If you hear something is happening, but it hasn’t happened, don’t always believe what you hear.”

    When the room broke into soft laughter, the president added, “No -- and I’m serious about that.”

    Saying that “folks in Washington” like to get “all ginned up” about things that aren’t necessarily happening (“Look what’s comin’ down the pipe!”), Obama’s advice was simple: “Contact USDA.”

    “Talk to them directly. Find out what it is that you’re concerned about,” Obama told the man. “My suspicion is a lot of times they’re going to be able to answer your questions and it will turn out that some of your fears are unfounded.”

    Call Uncle Sam. Sensible advice, but perhaps the president has forgotten just how difficult it can be for ordinary citizens to get answers from the government.

    When this POLITICO reporter decided to take the president's advice and call USDA for an answer to the Atkinson town hall attendee's question, I found myself in a bureaucratic equivalent of hot potato -- getting bounced from the feds to Illinois state agriculture officials to the state farm bureau.

    Here's a rundown of what happened when I started by calling USDA's general hotline to inquire about information related to the effects of noise and dust pollution rules on Illinois farmers:

    Wednesday, 2:40 p.m. ET: After calling the USDA’s main line, I am told to call the Illinois Department of Agriculture. Here, I am patched through to a man who is identified as being in charge of "support services." I leave a message.

    3:53 p.m.: The man calls me back and recommends in a voicemail message that I call the Illinois Farm Bureau -- a non-governmental organization.

    4:02 p.m.: A woman at the Illinois Farm Bureau connects me to someone in the organization’s government affairs department. That person tells me they "don't quite know who to refer you to."

    4:06 p.m.: I call the Illinois Department of Agriculture again, letting the person I spoke with earlier know that calling the Illinois Farm Bureau had not been fruitful. He says "those are the kinds of groups that are kind of on top of this or kind of follow things like this. We deal with pesticide here in our bureau."

    "You only deal with pesticides?" I ask.

    "We deal with other things … but we mainly deal with pesticides here," he said, and gives me the phone number for the office of the department’s director, where he says there are "policy people" as well as the director's staff.

    4:10 p.m.: Someone at the director's office transfers me to the agriculture products inspection department, where a woman says their branch deals with things like animal feed, seed and fertilizer.

    "I'm going to transfer you to one of the guys at environmental programs."

    4:15 p.m.: I reach the answering machine at the environmental programs department, and leave a message.

    4:57 p.m.: A man from the environmental programs department gets back to me: "I hate to be the regular state worker that's always accused of passing the buck, but noise and dust regulation would be under our environmental protection agency, rather than the Agriculture Department," he says, adding that he has forwarded my name and number to the agriculture adviser at IEPA.

    On Thursday morning, POLITICO started the hunt for an answer again, this time calling the USDA's local office in Henry County, Ill., where the town hall took place.

    9:42 a.m.:
    Asked if someone at the office might be able to provide me with the information I requested, the woman on the phone responds, “Not right now. We may have to actually look that up -- did you Google this or anything?”

    When I say that I’m a reporter and would like to discuss my experience with someone who handles media relations there, I am referred to the USDA’s state office in Champaign. I leave a message there.

    10:40 a.m.: A spokeswoman for the Illinois Natural Resources Conservation Service calls me, to whom I explain my multiple attempts on Wednesday and Thursday to retrieve the information I was looking for.

    “What I can tell you is our particular agency does not deal with regulations,” she tells me. “We deal with volunteers who voluntarily want to do things. I think the reason you got that response from the Cambridge office is because in regard to noise and dust regulation, we don’t have anything to do with that.”

    She adds that the EPA would be more capable of answering questions regarding regulations.

    Finally, I call the USDA’s main media relations department, based here in Washington, where I explain to a spokesperson about my failed attempts to obtain an answer to the Illinois farmer’s question. This was their response, via email:

    “Secretary Vilsack continues to work closely with members of the Cabinet to help them engage with the agricultural community to ensure that we are separating fact from fiction on regulations because the Administration is committed to providing greater certainty for farmers and ranchers. Because the question that was posed did not fall within USDA jurisdiction, it does not provide a fair representation of USDA’s robust efforts to get the right information to our producers throughout the country.”

    So, still no answer to the farmer’s question.

  28. #28
    Is this a negative reflection on Obama, or just the state at which our country is in. Showing still the lack of inter-communication.


    As an aside there are pros adn cons to not being too integrated with one another (accessing information becomes easier, but also becomes easier to disseminate misinformation.).

  29. #29
    Quote Originally Posted by Lebanese Dragon View Post
    Is this a negative reflection on Obama, or just the state at which our country is in. Showing still the lack of inter-communication.


    As an aside there are pros adn cons to not being too integrated with one another (accessing information becomes easier, but also becomes easier to disseminate misinformation.).
    It's a negative in-so-far as he, and others like him, push for a top heavy federal solution (which usually involves a new agency, bureaucracy, organization, Czar, or some combination thereof) as a solution to the challenges facing our nation. Creating a large, complex, and patchwork network of federal, state, and local organizations and agencies rarely leads to effective, concise organization.

    This is simply the Kafkaesque result of those policies.

  30. #30
    Stingy DM Veldan Rath's Avatar
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    In other words...like dealing with the IRS...

    But certain members on this board will keep plugging that the Federal Government is THE panacea.
    Brevior saltare cum deformibus viris est vita

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