By Marc Joffe of Mercatus.
"In the early 1960s, pictures of babies
with tragic birth defects, including shortened or missing limbs, caused
an international scare. The malformations were quickly linked to the
drug thalidomide, an over-the-counter sedative that had recently been
developed in Germany and was being used by pregnant women to alleviate
morning sickness.
One result
of the thalidomide crisis was the passage of a new law, the Kefauver
Harris Amendment, that gave the U.S. Food and Drug Administration most
of the power it now exerts in regulating drugs.
Today,
we face a drug crisis of a much different sort. Recent drug pricing
scandals are leading to calls for government action. But the prices
causing so much outrage today are often then unintended result of that
1962 law and others that gave the FDA its current power. By limiting the
number of drugs and other treatments available, the FDA reduces the
options available to patients and gives pharmaceutical firms excessive
pricing power.
Some have responded to soaring drug prices by calling for government price controls. That’s a risky option, as we can see in Venezuela, where residents are struggling
to find daily necessities because of government price restrictions. In
our country, gas lines, common during the 1970s owed their origins to
price controls imposed
by Richard Nixon. The problem with price controls is that the
government entity imposing them lacks the information on supply and
demand necessary to set them optimally. Thus, price ceilings will most
likely be set either too high to have an impact or so low that they
trigger a shortage.
A better
alternative is to rely on competition to drive prices down. As many of
us learned in our introductory economics classes, price equals the marginal cost
of production in a perfectly competitive market. While this may not
happen in the real world of imperfect competition, prices well above
production costs represent an invitation to new firms to enter the
market.
But FDA regulations
restrict market entry. Often, the FDA gives only one company the right
to produce a generic drug, creating an artificial monopoly not justified
by the usual intellectual property arguments. In some cases, under an
FDA program launched ten years ago, drugmakers have been granted
exclusive rights to market medications that have been commonly used for decades or longer — typically at increased prices.
A
drug whose patent has expired has already financially rewarded its
inventor. Once patent protection lapses, any company that manufacture
the drug safely and inexpensively should be free to do so. Yet in a
number of cases, pharmaceutical companies have been able to raise prices
on older drugs that no longer enjoy patent protection because of a lack
of competition. Before the recent outrage over Mylan’s EpiPen price
hike, Turing Pharmaceuticals raised the price of Daraprim, used to treat parasitic infections, from $13.50 to $750 per pill and Valeant Pharmaceuticals jacked up the price of Isuprel, a heart medication, by 525 percent.
The
FDA has also imposed an expensive and onerous new drug approval process
that is preventing patients from accessing many life-saving and
life-enhancing tests and treatments. Among the examples that Richard
Williams, Ariel Slonim and I report in a new Mercatus Center study
are a treatment for diabetic foot ulcers, cultured stem-cell therapies
for orthopedic conditions, genetic tests and anti-aging treatments.
This
last category is particularly telling. Because the FDA has not
considered aging to be a disease, it is not clear what criteria the
agency might apply to anti-aging treatments or whether it would consider
them at all. Much the same is the case with treatments that increase
our physical capacity: They don’t treat a specific disease, so they lack
a clear path to approval.
In
other cases, FDA restrictions prevent terminally ill patients from
taking new medications that are under review. Since these patients may
not survive through the clinical trial period, they should have the
opportunity to try new medications before it’s too late. The FDA
provides exceptions to some terminal patients under its expanded use
program, but qualifying for expanded use involves a lengthy bureaucratic
process of its own. A more promising alternative is “right to try” laws enacted at the state level, which allow patients to take investigational new drugs without FDA approval.
The
justification for the FDA’s drug approval process is that it protects
patients from dangerous or ineffective drugs. But the FDA cannot
guarantee safety: Approved drugs used individually or in tandem can have
unexpected, and sometimes fatal, side effects. Meanwhile, overly
restrictive regulations can kill patients by preventing them from
accessing new medications.
Even
thalidomide, the widely vilified sedative, ultimately proved to be a
useful treatment. In 1964, an Israeli doctor gave thalidomide tablets to
a leprosy patient suffering extreme pain. The medication not only
allowed the patient to sleep, but reversed his symptoms. Eventually,
thalidomide became a common treatment for leprosy and was later found to
be effective against AIDS and cancer. None of these indications would
have been possible had thalidomide not been approved in Germany (and
elsewhere) in what proponents of the Kefauver Harris Amendment regarded
as an overly lax regulatory regime.
Congress is considering legislation
that would expedite FDA approvals for new drugs. But even if this
legislation is enacted, securing new drug approvals will continue to be
an expensive and onerous process for pharmaceutical companies, with many
choosing not to undertake the effort at all. The result will be
continued monopoly pricing of off-patent drugs and delays in the
availability of new medical innovations.
Some
more fundamental reforms would be more effective. One would be to allow
multiple organizations to approve drugs, providing competition to the
FDA. A private drug adjudication industry would have to be carefully
structured and regulated to ensure that approving organizations do not
have perverse incentives. Another option is to rely on the courts: Let
pharmaceutical companies sell whichever medications they believe to be
safe and effective — with the understanding that patients can win large
judgments if the companies fail to produce and market their treatments
responsibly.
The American
people deserve access to the widest variety of affordable treatments.
Rather than demanding that the government do more to achieve this goal,
perhaps it is time that we ask one government agency — the FDA — to do
less."
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