Politics & Policy

Freeing the Drug Market

The FDA could do more by doing less.

With health-care costs rising year after year — and drug costs rising faster than any other aspect of health spending — Americans wonder how to make drugs cheaper and more accessible. Politicians are listening: During the campaign, for example, Democrats promised seniors a better deal on drugs. But rather than embracing measures that could undermine the innovation of the industry, Congress can quickly and easily reduce the cost of drugs: Return the FDA back to its original mandate.

How much will that medicine cost? It’s a question patients ask me every single day. We love prescription drugs, but bemoan the price of pharmaceuticals. It’s no wonder that Speaker-Designate Nancy Pelosi promises that Washington will “negotiate” drug prices for Medicare, and that she has flirted with reimportation. Not long ago, I might have favored these ideas too — it’s tempting, after all, to think Congress can offer American pharmaceuticals at, say, Canadian prices. But Congressional meddling in the price of drugs would end up destroying the innovation and capital needed to develop new pharmaceuticals, leaving us with Canadian prices and Canadian innovation (or the lack thereof).

How then to reduce costs? In writing my new book, I’ve come to the conclusion that many government policies end up doing more harm than good in health care. Nowhere is that more true than in the development of pharmaceuticals. Washington could do more by doing less.

Consider the regulation of drug development.

2006 marks the 100th anniversary of the Food and Drug Administration. While the agency started off as relatively small, today the FDA oversees the regulation of roughly 25 cents of every dollar spent by consumers, including the approval of all new pharmaceutical and biotech drugs. Created by the Food and Drugs Act of 1906, the FDA’s early focus was on drug safety. To that end, the agency required proper labeling for medicines. This makes sense. Soon after, the FDA began requiring pre-market safety approval. Again, few would argue against the importance of this role — consumers, after all, should be assured that the medications they take don’t end up causing them harm.

But at the height of the thalidomide scare in the early 1960s, Congress dramatically expanded the scope of the FDA’s regulatory mission, requiring that drugs be tested not only for their safety but also for their efficacy. At first glance, this seems reasonable enough: After all, the whole point of taking a medication is to recover.

But we don’t apply this government-mandated, two-pronged standard to practically any other consumer products. The government, for example, demands that GM’s latest model meets certain basic safety standards (e.g., in airbag design). But it doesn’t require that a new Taurus makes for a good drive. Similarly, if Kellogg’s wants to sell a new breakfast cereal, it must meet food-safety regulations; the company doesn’t need to show that the cereal is nutritious. The latest pharmaceuticals are more technologically sophisticated than a new car or cereal, but the point is that the lack of an efficacy requirement doesn’t make your breakfast or morning commute any less safe.

The problem with requiring tests for both safety and efficacy is simple: The costs of the extensive testing are passed on to consumer, and the number of chemical compounds that actually make it to the nation’s drug cabinets declines. How much does the efficacy standard cost? Economist Gary Becker, a Nobel laureate, pegs it at roughly 40 percent of all research and development costs.

But here’s the irony. After the FDA approves a drug, nothing prevents doctors from prescribing it as they see fit. Once a drug is in the field, in other words, all of the time and money its makers spent on efficacy testing evaporates, for all practical purposes. And I confess: I, too, am an off-label prescriber. I routinely write my patients scripts for Risperdal, Elavil, and a host of other drugs without giving much thought to what uses the FDA has approved them for. Of course, there’s method to my madness. I pick these drugs because I think my patients will get better, based on my past experiences and the latest literature. Risperdal, an antipsychotic, is a case in point. The FDA has only approved this medication for treatment of schizophrenia and bipolar affective disorder. But new literature suggests it may be helpful for patients with refractory depression.

I’m not alone. It seems that many of my colleagues also write off-label prescriptions. In 1991, the General Accountability Office considered off-label uses of cancer drugs. Focusing on 46 drugs and hormonal agents, the GAO studied the prescribing habits of oncologists. Their conclusion? 44 of the 46 drugs were prescribed “off-label,” with about half of cancer patients receiving at least one medication for an off-label use.

In a 2006 study published in the prestigious Archives of Internal Medicine, investigators reviewed millions of prescriptions for 160 commonly prescribed drugs. They found that 21 percent of prescriptions were for off-label uses. For some drugs (including Risperdal and Elavil), two-thirds of the scripts written were for non-FDA approved purposes.

This raises an obvious question. Given that the painstakingly obtained results of efficacy testing have limited consequence in the real world, what would happen if the FDA, as it once did, focused solely on safety? Clearly, there would be more medications available, and at lower cost. Prof. Becker recently wrote: “In particular, this would include more drugs from small biotech firms that do not have the deep pockets to invest in extended efficacy trials. And the resulting increase in competition would mean lower prices — without the bureaucratic burden of price controls.”

Critics suggest that if the FDA didn’t certify efficacy, patients would be exposed to ineffective treatments. That is, indeed, possible. Doctors and patients would try medications in certain situations, unguided by FDA data — mind you, they already do that. Some argue that by demanding further testing of drugs to establish efficacy, drug makers uncover safety issues (the original argument after the thalidomide debacle). But there is little evidence to support this — drug trials, after all, typically involve hundreds and at most thousands of people. Problem drugs, like thalidomide in the 1960s or Vioxx today, are discovered to have adverse side effects only after they are tried by millions. An efficacy standard, in other words, is a costly regulation that buys us little new or important information. In contrast, consider if it were easier to bring a drug to market: We would all benefit from greater innovation in pharmaceuticals and biotech drugs.

Certainly, there are other ideas to make the FDA more functional. Congress could start by approving the nomination of Dr. Andrew von Eschenbach, the White House’s inspired choice to lead the agency. It’s time to end tenure for FDA staff — originally meant to encourage diligence, tenure protects incompetence. Finally, Congress should pressure the FDA to work more closely with regulatory agencies in other Western countries, helping to reduce the overlap (and thus the overall cost) of drug approvals. But, ultimately, if we want innovative drugs at lower prices, we need to address the hyper-regulation of American pharmaceuticals.

The principle is simple enough: Treatment decisions would be made by patients and their doctors — not FDA bureaucrats. Less regulatory interference is a prescription for cheaper, better medications. And there is no better way for Congress to honor the legacy of the original proponents of the FDA than to restore the agency to its original purpose: protecting the public from dangerous drugs.

Dr. David Gratzer, a physician, is a senior fellow at the Manhattan Institute. He is the author of The Cure: How Capitalism Can Save American Health Care (Encounter Books, 2006).


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