Large pharmaceutical companies are difficult to regulate. The major drug companies generate billions of dollars in annual revenues, rendering old-school command-and-control enforcement tools, particularly monetary penalties, largely ineffective. Regulatory shaming is an intriguing new regulatory tactic that is now emerging in the health industry and in other regulated sectors, with the potential to change traditional corporate regulation.
In a new essay recently published in Yale Journal on Regulation Bulletin, I discuss a recent list of big pharma companies that was published by the FDA on their website. The list includes the names of more than 50 top branded drug companies that allegedly tried to block competition from generic drug companies, exacerbating the serious problem of high drug prices in the U.S. In my essay titled Shaming Big Pharma I classify this tactic employed by the FDA as a form of “regulatory shaming.”
Shaming initiatives by regulatory agencies are becoming more and more common. These policies take many forms, including “naming and shaming,” star ratings, color ratings, league tables, public statements, publication of enforcement actions, and publication of inspection results. All of these aim to harm the reputation of companies that fail to comply with regulation or that are thwarting regulatory goals in some other way. Shaming highlights actions by regulated entities that may be illegal or unethical and allows the administrative agency to publicly condemn a specific action (or non-action) of a named company or companies. For instance, regulators shame companies for non-compliance with workplace safety regulations, environmental regulations, or health regulations. They also shame companies for “gaming the system” through legally grey-area tactics, and for overly high salaries paid to executives.
The idea of regulatory shaming is to convey a message to a shaming community—such as employees, investors, peers, consumers, interest groups, politicians, or the general public—which will then act in accordance with the negative feelings invoked by the adverse publication. The relevant shaming community can feel betrayed, disgusted, appalled, outraged, or otherwise disappointed with the shamed organization or with its behavior. But most importantly, these feelings are then translated into action. Without some form of response from the public or other third parties, regulatory shaming cannot work. Customers can protest, file complaints, or boycott products sold by the condemned regulatee; shareholders may withdraw investments; employees can protest or even strike; peers and competitors may refuse to engage in business ventures with the company; and suppliers may refuse to work with it.
In this essay, the second in a series of forthcoming articles that form my “regulatory shaming” research project, I point to several components essential to the regulatory shaming process:
- Choosing a topic for regulatory shaming that third parties (shaming communities) will be interested in or passionate about
- Identifying the right shaming group—those people who can and will act in order to influence the company’s behavior
- Taking a regulatory moral stand that is non-controversial and that the shaming community can easily agree with
- Properly shaping a shaming message that is well-communicated and specifically designed for the chosen shaming group
- Disseminating the shaming message through suitable media channels
These are important steps that need to be carefully implemented in order for the shaming action to fulfill its public interest goal. Shaming initiatives that fail may cause more harm than good. The essay shows that while in theory shaming big pharma could work, the recent “shame list” posted by the FDA was not properly constructed. In a nutshell, I find that the FDA’s shaming list is extremely uncommunicative in both the language used and in the ways in which the data has been processed, organized, and presented, and it was not distributed through appropriate channels for effective impact. These findings suggest that the agency has not fully considered the shaming process, its relevant participants, and its intended results and effects. For instance, terms like RLD, REMS, and ETASU were used in the FDA’s list and its explanatory text, making it inaccessible for the general public, which is not fluent with the pharma regulation terminology. For a person from outside the pharma industry to understand the FDA’s publication would require reading and re-reading the accompanying text (over 2,000 words) as well as the data provided in the table. Even for those who are able to decipher the lingo used by the FDA to describe the condemned behavior of big pharma, the data itself is very confusing.
I then compare the FDS’s list to other forms of regulatory shaming implemented by other regulatory agencies, such as the EPA and OSHA. These agencies use far more direct, simple and effective methods for communicating with the public regarding “shameful” activities of regulated industries, including star and color ratings, infographics and daily tweets.
Thus, I argue that the FDA publication obscures, diffuses, and dilutes its main message, and thereby fails to realize the full potential of regulatory shaming in the pharma industry. While the FDA has shown real initiative in the regulatory tools arena, experimenting with “naming and shaming,” key parts of its implementation of the tactic lack in form and design. I conclude that in the future the FDA should take under consideration regulatory shaming theory and principles. Specifically, the agency has to properly identify the intended shaming group (the general public, the pharma industry, investors, etc.) and then both correctly formulate the shaming message and select the appropriate media channels, so as to communicate its message in an efficient and accessible manner. I strongly believe regulatory shaming holds great promise for curtailing bad behavior by big pharma and this subject is, therefore, worth further exploration both by legal scholarship and in regulatory practice.
Many pharma companies, including those listed in the FDA’s shame list, also sell generics and are thus in competition with other companies in a manner that facilitates consumer leverage.
Dr. Sharon Yadin (@Sharon_Yadin) is an associate Professor at PAC School of Law in Israel. She has published 20 articles and two books in the fields of law and regulation, contractual regulation and regulation by shaming. firstname.lastname@example.org sharonyadin.com/index_e.html