Quotations: Economists’ Judgments about the FDA

Judgment Tabulations. Table 1 shows the result of an extensive search for economists’ judgments about FDA permitting of new drugs and medical devices. Every cell in Table 1 is pro-liberalization. The cells vary by degree of liberalization and definiteness of the judgment. Every economist in Tables 1, 2, or 3 is quoted in the quotations compendia below. For each cell, there is a corresponding set of quotations. For each listed economist the relevant compendium of quotations contains samples that are sufficient to establish judgment, but does not aim to cover all expressions of that judgment.

Table 1 shows 35 economists favoring liberalization. Surely, the table is quite incomplete. But the argument is one of sufficiency. Omissions that would matter would be ones that oppose liberalization. The few confounding judgments that we have found number just three, passages by Paul Krugman, Patricia Danzon (writing with non-economist Eric Keuffel), and Jerome Rothenberg. Those three exceptions are discussed in Klein (2008).

Table 1

FDA Permitting of New Drugs and/or Devices: Economists’ judgments about liberalizing,
by definiteness and minimum degree of liberalization advocated.

Permitting 1: Significant Liberalization Supported, Definite Judgment

Gary Becker argues for eliminating the efficacy requirements, to improve health and to encourage lower-priced pharmaceuticals:

“[T]he prices faced by Americans can be lowered without price controls while drug development is encouraged, rather than stifled. A major step would be to eliminate FDA regulations introduced in 1962 that raise the cost of bringing drugs to market and artificially slow the process . . . Eliminating all requirements except a reasonable safety standard would vastly reduce drug prices in the U.S., as companies would be encouraged to develop additional compounds to compete for customers.” (Becker 2002)

“[To] return to a safety standard alone would lower costs and raise the number of therapeutic compounds available. 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. In turn, cheaper and more diverse drugs would induce insurance companies and public providers to cover many more new drugs, even when their efficacy was uncertain . . .” (Becker 2004, 94)

“To be sure, some sick individuals would try ineffective treatments that would otherwise have been prevented from reaching market under present FDA regulations. But the quantity of reliable health information now available with only a little initiative is many times greater than when the efficacy standard was introduced four decades ago . . .” (Becker 2004, 94)

“As part of any relaxation of the efficacy standard, the FDA could further facilitate public access to relevant information. For example, it could allow drug labels to list separately claims that are supported by clinical evidence and those that are not. And it could be proactive in reporting what is known about the value of drugs in treating diseases, making data available through the Internet and other consumer-friendly media.” (Becker 2004, 94)

Noel D. Campbell: “There is an alternative to reform: abandon the current regulatory process and embrace the free market that has worked so well for so long in other fields. Free-market third-party certification promises safe and effective devices—quickly and efficiently—and gives consumers the freedom to choose the amount of risk that best suits them. The market provides consumers with the full remedies and protections of our legal system, and it frees businesses from the crippling costs of undue regulation.” (Campbell 2000, 342)

Milton Friedman: “By now, considerable evidence has accumulated that indicates that FDA regulation is counterproductive, that it has done more harm by retarding progress in the production and distribution of valuable drugs than it has done good by preventing the distribution of harmful or ineffective drugs.” (Friedman and Friedman 1990, 205–6)

“The way the FDA now behaves, and the adverse consequences, are not an accident, not a result of some easily corrected human mistake, but a consequence of its constitution in precisely the same way that a meow is related to the constitution of a cat.” (Friedman and Friedman 1990, 209)

“The FDA did far less harm than it does now before the Kefauver amendments altered the pressures and incentives of the civil servants.” (Friedman and Friedman 1990, 210)

“‘The FDA has already done enormous harm to the health of the American public by greatly increasing the costs of pharmaceutical research, thereby reducing the supply of new and effective drugs, and by delaying the approval of such drugs as survive the tortuous FDA process.’ When asked, if you could do anything to improve health in America, what would you do? Friedman replied: ‘No more licensing of doctors. No more regulation of drugs. Not of any kind. Period.’” (Pearson and Shaw 1993, 39, quoting their correspondence with Milton Friedman)

Dale H. Gieringer: “[T]he benefits of FDA regulation relative to that in foreign countries could reasonably be put at some 5,000 casualties [not lives] per decade or 10,000 per decade for worst-case scenarios. In comparison, it has been argued above that the cost of FDA delay can be estimated at anywhere from 21,000 to 120,000 lives per decade. . . . Given the uncertainties of the data, these results must be interpreted with caution, although it seems clear that the costs of regulation are substantial when compared to benefits. However, one conclusion that can be drawn with certainty is that the FDA fails its own criterion for public health: the FDA’s new drug approval system is in no way proven ‘safe and effective.’ ” (Gieringer 1985, 196)

David Henderson: “The tragedy is that these regulations are not necessary. The FDA may have some expertise when it comes to drug safety and efficacy, but on the only issue that matters—your trade-offs between various risks—you are the expert, and the FDA’s scientists are rank amateurs.” (Henderson 2002, 277)

Robert Higgs: “It [the FDA] could issue to products that meet its standards a seal of approval. Consumers would then know that a certified product had passed whatever tests the FDA considered appropriate to demonstrate its safety and efficacy. Consumers would be free, however, to disregard this information if they did not value it. They would be free to purchase products lacking FDA certification, and sellers would be free to sell uncertified products without government obstruction or penalty. Note that no one would be forced to use products lacking FDA certification. Sellers also seek product certification from private testing organizations, whose seals of approval might become more sought after than those of the FDA.” (Higgs 1995c, 99–100)

“The lack of demonstrable benefits from FDA device regulation is hardly surprising. Even if the FDA did not exist, normal market incentives combined with the terrors of product liability litigation are more than sufficient to encourage manufacturers to produce reasonably safe and effective products . . . The emergency care providers, hospital administrators, and medical practitioners who purchase the bulk of the devices have experience and knowledge and access to ample expert information about products from reliable sources such as ECRI, TUV Product Service, and a variety of trade and professional publications. They fervently desire to help, not hurt, the patients they serve, and their reputations depend on their success in doing so. In short, neither device purchasers nor patients need the FDA’s ‘help.’ The agency’s intrusion has clearly created far more cost than benefit . . .” (Higgs 1995b, 81)

Randall Holcombe: “[G]overnment regulation of medical drugs has several negative consequences: it raises the cost of all drugs, it delays the introduction and use of beneficial drugs, it reduces the amount of innovation in the drug industry, and it prevents certain types of drugs from ever being introduced. In exchange for these costs, the government certifies that medical drugs are safe and effective. The policy experts who have evaluated the costs and benefits of drug regulation have almost uniformly concluded that the costs of the regulations are not worth their benefits.” (Holcombe 1995, 116)

Daniel B. Klein: “Even without the government approval systems, voluntary institutions and the tort system would utilize testing and professional certification to screen out unsafe drugs. The government approval process here and abroad is a set of bureaucratic hoops and hurdles often inappropriate or unnecessary for the drug in question. . . . [T]he harms of the FDA are unredeemed.” (Klein 2000b, 95–6)

Sam Peltzman: “[T]he tests required to prove efficacy to the FDA take time, whether the drug ultimately passes those tests or not. In fact, this extra time cost is measured in years, rather than months or weeks. In some cases, it is a cost well spent. Some ineffective drugs are screened out, and the extra testing catches some that are dangerous as well. But every effective drug that ultimately makes it to market also incurs the time cost, including some that can save lives or relieve the suffering of illness. In these cases, the extra time means that some potential beneficiaries of the drug will die or suffer while the FDA sifts the test results.

“My reading of the available evidence was that this latter cost far outweighs any benefit. Indeed, the death toll from this regulatory delay can easily number in the thousands per year. By contrast, the benefits were small.

“I found that the unregulated market was very quickly weeding out ineffective drugs prior to 1962. Their sales declined rapidly within a few months of introduction, and there was thus little room for the regulation to improve on market forces . . . most of the subsequent academic research reached conclusions similar to mine . . .

“The carnage from this regulation, I regret to assure you, will continue for a long time . . . the deaths of which I speak are counterfactual deaths, not deaths that can be directly connected to any regulatory malfeasance . . . the actual victims of the regulation did not swallow a bad FDA-approved pill. They merely failed to swallow a good one in time and never knew what they had missed.” (Peltzman 2005, 15–6)

“I concluded that the proof-of-efficacy requirement was a public health disaster, promoting much more sickness and death than it prevented. Nothing I have seen since has moved me to change that conclusion—the disaster is ongoing.” (Peltzman 2005, 15)

“[T]he estimates imply that the magnitude of the problem of ineffective new drugs prior to 1962 was trivial or that the ability of FDA regulation to reduce the problem is small. At the same time, the reduced flow of new drugs due to the amendments is imposing net losses on consumers which are the rough equivalent of a 5–10 percent excise tax on all prescriptions sold.” (Peltzman 1973, 1079)

“The 1962 drug amendments sought to reduce consumer waste on ineffective drugs. This goal appears to have been attained, but the costs in the process seem clearly to have outweighed the benefits. It was shown that the amendments have produced a substantial decline in drug innovation since 1962. This could have produced net benefits if the impact of the decline had been highly selective against ineffective drugs and preamendment expenditures on ineffective drugs had been substantial. Neither condition is consistent with the data. In the context of this study, the decline in innovation translates into a decline in demand for, and hence in the measured consumer surplus from, new drugs . . . An estimate of the waste saved by post-1962 consumers on ineffective new drugs which the amendments keep from the market . . . proved to be a fraction of the consumer surplus forgone on effective new drugs which otherwise would have been marketed. This waste saving is then simply a by-product of reduced innovation, but it is small enough so that even much more selective regulation would not provide net benefit for consumers. Finally, it was shown that the new competition preempted by the amendments has led to slightly higher prices for all drugs.” (Peltzman 1973, 1089–90)

“The incidence of ineffective new drugs does not appear to have been materially reduced.” (Peltzman 1974, 48)

“If our estimates of the gains and losses from exceptionally beneficial and unsafe drugs, respectively, are at all reasonable, there was already a costly bias in the pre-1962 proof-of-safety requirement . . . The risk-return tradeoff was already biased against drug consumers in 1962. The amendments have simply exaggerated the bias.” (Peltzman 1974, 82)

Paul Rubin: “When we think of the FDA and overregulation, we tend to think of the inexcusable delays in approval of new drugs. Scholars have long been aware that the agency causes unnecessary deaths and suffering by this policy. Nothing in this chapter is to be interpreted as minimizing this cause of needless suffering. But this is only part of the problem with the FDA. . . .” (Rubin 2000, 306)

Russell S. Sobel: Russell Sobel (2002) identifies a further potential source of harm stemming from the FDA’s efficacy standard. While European officials require drugs to be proven effective relative to existing therapies, “the FDA more often uses a placebo comparator, except where placebo would imply unethical treatment of patients” (9). Sobel concludes that, due to the existence of a real placebo effect in clinical trials: “the FDA definition of effectiveness as ‘effective beyond a placebo’ is an improper policy that is detrimental to public health. The effectiveness standards deny consumers the benefit of a proven placebo treatment that would improve their condition, even when this may be the only, or at least the safest treatment available” (Sobel 2002, 478). Sobel writes: “A free market in over-the-counter medicines, with laws regarding only the factual content of statements would result in an improvement in public health.” (Sobel 2002, 478) At pp. 464–65, Sobel challenges the presupposition that there is any market-failure rationale for pre-market approval.

Alexander Tabarrok: “I find that the largely unregulated system of off-label prescribing has large benefits and few costs. Off-label prescribing speeds medical innovations to patients, it increases the number of drugs available to doctors, and it lowers the costs of medical innovation. Consistent with these benefits, off-label prescribing is widespread and common in the United States today. The largely unregulated system of off-label prescribing is thus working well and should be extended. . . . [A]n analysis of off-label prescribing strongly suggests that the FDA’s authority over new drugs, particularly the requirement that new drugs be tested for efficacy[,] appears to be detrimental to the health and welfare of U.S. health consumers and thus should be ended.” (Tabarrok 2000, 48)

Robert D. Tollison: “The model of government oversight with private certifiers has several advantages. It would bring state of the art scientists and scientific methods into the process of drug and device certification. It would foster innovation in drug and device evolution, oversight, and certification procedures, leading to lower costs, faster approval rates, and enhanced safety and effectiveness. It would cut down on bureaucratic red tape and delay. It would not require any changes in the existing legal standards applied by the FDA. For these and various other reasons, movement to a system of competitive certification performed by private laboratories and testing groups commends itself for the consideration of policymakers.” (Tollison 1996, 37)

W. Kip Viscusi: “There is a widespread consensus in the literature that the current FDA drug approval process establishes safety incentives that are excessive. The stringency of the process and the meticulous review of new pharmaceutical drugs are reflected in the substantial delays that U.S. consumers have experienced with respect to the introduction of new pharmaceutical products. . . . Studies have also shown that because of these delays Americans have been prevented from having access to new drugs with beneficial effects, as the agency places a greater weight on errors of commission rather than errors of omission. This imbalance in the emphasis for these two types of errors has led to excessive deterrence of new risks that may be created by pharmaceutical products and inadequate weight on reducing existing risks that patients now experience.” (Viscusi 1996, 90)

Michael R. Ward (1992): “The proposed drug approval reforms will better align the FDA’s incentives with social objectives. The use of surrogate endpoints and approval after the second testing phase for treatments for serious diseases will constrain the FDA from imposing unnecessary delay. Outside review of new drug applications, expanded use of institutional review boards and advisory committees, and international drug approval reciprocity place the decision to approve a drug in the hands of agents with a less pronounced incentive to minimize political risks and thus provide the best hope for lasting reform. Taken together, those reform measures will shorten the drug approval process, increase the number of drugs available while reducing their cost, and improve the quality of life for Americans.” (Ward 1992, 53)

Walter E. Williams: “Here’s the modus operandi: If FDA officials mistakenly approve a device that has unanticipated harmful effects, their necks are on the chopping block because the victims are highly visible. Career-minded FDA officials don’t like that kind of exposure. They prefer the hidden mistake, erring on the side of overcaution by needlessly delaying approval. When FDA officials err on the side of overcaution, their victims are invisible. After all, you didn’t know there was a device available that could have saved a loved one’s life, as would have been the case had the angioplasty procedure occurred in Belgium or some other European country. . . . The FDA is long overdue for overhauling. In the process, Congress should allow for private medical-device certification.” (Williams 1996)
Permitting 2: Significant Liberalization Supported, Fairly Definite Judgment

Henry G. Grabowski and John M. Vernon: “Our results indicate that FDA regulation of ethical drugs has had some significant adverse effects on the structure of pharmaceutical innovation. In effect, the higher costs and risks of drug innovation in the more stringent post-1962 regulatory environment have operated as a barrier to competition through new product introduction. Consequently, the supply of new drugs has not only declined, but it has also become more concentrated over time in the larger multinational firms better able to deal with this more stringent environment. Given the rapid spread of health and safety regulation controls throughout all sectors of the economy, further attention to all the adverse effects of regulation on industry competitive structure would seem highly desirable. They constitute a potentially important source of long-run indirect costs to society that must be weighed against the benefits of these new regulatory controls.” (Grabowski and Vernon 1977, 363–4)

“A more fundamental kind of regulatory reform could be accomplished through congressional change in the FDA’s regulatory mandate. It is possible to envision an FDA regulatory structure that would operate more as a certifier and disseminator of information for the vast majority of new products introduced. . . . Manufacturers would have the option to market a new drug even if it failed to be certified by the FDA.” (Grabowski and Vernon 1983, 71)

Charles L. Hooper: “The available medicines are what the FDA experts think we should have, not what we think we should have. . . . Of course, not all patients make competent decisions at all times, but FDA regulation treats all patients as incompetent. . . . Some economists have proposed that the FDA continue to evaluate and approve new drugs, but that the drugs be made available—if the manufacturer wishes—during the approval process. The FDA could rate or grade drugs and put stern warning on unapproved drugs and drugs that appear to be riskier. Economists expect that cautious drug companies and patients would simply wait for FDA approval, while some patients would take their chances. . . . Cautious patients get the safety of FDA approval while patients who do not want to wait don’t have to.” (Hooper 2008, 390)

F. M. Scherer: “If uncertainty is high but the possibility of life-saving benefits is also substantial, shouldn’t a regulatory agency illuminate the problematic tradeoff and let individual physicians and/or patients make their own risk-taking decisions, rather than being restrained by the choice of a bureaucracy? . . . Recognizing such exceptions [as terminally ill patients], one must ask the further question, why should a regulatory agency be the ultimate decision-maker on whether any new drug can be used? To be sure, absent regulatory requirements, drug manufacturers might perform too little clinical testing to ascertain whether a drug is superior to existing alternatives. Meager testing was the norm in the pre-thalidomide era. An information market failure may need correction. But why doesn’t the regulator merely require appropriate testing and disclosure of test data, letting physicians decide from the data whether the drug is safe and efficacious? If there is an argument for regulation of whether new drugs may be marketed, it must lie in a further information market failure—e.g., from the possibility that most physicians are too busy to make well-informed independent decisions.” (Scherer 2000, 1315)

Permitting 4: Some Liberalization Supported, Definite Judgment

J. Howard Beales III: “[My study] suggests that there is considerable room for improvement in the existing process. Changes to accelerate approval of new drugs would offer significant health benefits to patients.” (Beales 1997, 15)

Philipson, Tomas J. and Ernst R. Berndt: “By the most plausible measure, the [1992 PDUFA] act did not, in fact, have any effect on drug safety: neither the proportion of drugs eventually withdrawn (2 to 3 percent), nor the speed with which they were withdrawn, changed in any statistically significant way since the law’s passage.” (Philipson et al 2006b, 44)

“[Nonetheless,] we compute an extreme upper bound on the adverse safety effects induced by PDUFA by assuming that all NME withdrawals after 1992 were due to PDUFA and that there were no benefits associated with the drugs.” (Philipson et al 2005, 7)

“Using this extreme upper bound on the adverse safety effects of PDUFA, we find that the drugs approved and withdrawn during PDUFA cost about 56 thousand life years as compared to the gains in health implicit in the greater speed generated by PDUFA, which are estimated at the equivalent of 180 to 310 thousand life years. . . . Note that these calculations include Vioxx (rofecoxib) and Bextra (valdecoxib), which were both recently withdrawn, and whether any of them will eventually return to the market is as yet unclear. Additionally, we include Alosetron in our calculations; this drug has been returned to market with a more restrictive label.” (Philipson et al 2005, 30)

“If earlier U.S. approval encouraged more rapid approval abroad, then the NPV social surplus benefit of PDUFA would be greater than we have calculated.” (Philipson et al 2005, 32)

“Since the clinical development time between filing of the Investigational New Drug application and submission of the NDA/BLA is two to four times larger than review time of the NDA/FDA at the FDA, the framework developed here might be useful in examining potential costs and benefits of various other policies that could affect the critical pathway from pre-clinical discovery through submission of an NDA/BLA. More generally, in our judgment much more work is warranted providing more evidence-based and quantitative assessment on the many types of FDA policies that affect the US and other populations.” (Philipson et al 2005, 33)

Finally, the authors place their findings within the broader context of FDA regulation of new drugs:

“By one interpretation, the analysis suggests there was no trade-off between safety and speed: the increased speed in reviewing applications had no measurable impact on the quality of the review process. But even if there was a price—that is, if hanging on to review procedures before 1992 would have reduced errors that led to deaths—there are very good reasons to believe that the price was worth paying. Faster access to new drugs saved more lives than the release of dangerous drugs could possibly have claimed.

“More to the point, in a world of finite resources, people are effectively forced to place a finite value on their own lives. And the value they placed on accelerated access to new lifesaving and life-enhancing drugs far exceeded the highest estimate of the cost in terms of greater risk of premature death and morbidity. Indeed, the value of accelerated review was so great that one must ask whether additional measures—measures that actually did allow more bad drugs to make the cut—would be justified.

“The catch, of course, is that neither the public nor the politicians who represent them have openly acknowledged the relevance of cost-benefit analysis in the context of life-and-death medical-policy decisions. Are Americans willing to sacrifice statistical lives in order to maximize an abstraction like social welfare? Perhaps not. But until the debate over prescription drug regulation is put in cost-benefit terms, drug policy is bound to fail society’s most basic needs.” (Philipson et al 2006b, 45)

John Calfee: “Economists have long argued that this one-sided situation creates a fundamental bias toward excessive drug safety. FDA staff knows that if it errs on the side of approving a drug that turns out badly, the effects will be obvious to all, whereas the effects of the opposite error of retarding new approvals will be seen only by a few insiders at the agency and among a few pharmaceutical firms and their friends (Peltzman 1973, 1974). In fact, highly public drug safety “crises” are a fixture in the modern history of the FDA, an example being events of the late 1990s. Crises over slow drug approvals, on the other hand, are rare. Recent events have reinforced these pressures. The Vioxx episode makes clear that the incentives for FDA staff to maintain drug safety standards at reasonable or higher-than-reasonable levels remain largely undisturbed. Events have made clear that the FDA did not slight safety when it approved Vioxx . . . Nonetheless, the fusillade of criticism directed at the agency over Vioxx and Cox-2 inhibitors—especially criticism from its most reliable bases of support, the academic medical community and the most prestigious medical journals—vastly exceeds any criticism it has received in recent years for being too slow to approve new drugs or too quick to remove them. The Vioxx episode has made it even more difficult for the FDA to do its job without tilting toward excessive caution in drug regulation.” (Calfee 2006, 5)

Murray Weidenbaum: “The first [lesson of this article] is that while some drugs are very profitable, many more are not. The second is that price controls would be a mistake. The third is that what’s needed is more competition. Warts and all, the competitive marketplace is the best protector of consumers.” (Weidenbaum 1993, 89)

Permitting 5: Some Liberalization Supported, Fairly Definite Judgment

Ronald Hansen: “There does not appear to be room for a product that is almost as safe as or almost as effective as existing products but cheaper. If there are Cadillacs on the market, then Chevrolets are not approvable . . . The purchasers of pharmaceuticals may be willing to trade away some medical effectiveness to obtain cost savings. In markets where the existing technologies are relatively expensive, market forces could encourage firms to devote R&D to developing less expensive technology even if it were slightly inferior in terms of safety or efficacy. However, these technologies may not be approvable by the FDA using past criteria.” (Hansen 2000, 282)

Joseph E. Harrington, Jr.: “Although a few critics have charged that the FDA has been too lax, the consensus in the economics literature is that the FDA has placed too great an emphasis on Type II errors.” (Viscusi, Harrington, and Vernon 2005, 795)

David Schwartzman: “It is also disturbing that public policy changes have increased the cost of pharmaceutical R&D. . . . I am suggesting that the increase in R&D expenditures would have been larger had it not been for the increased restrictiveness of Food and Drug Administration regulatory policy. There is no doubt that the discovery component of R&D spending would have been larger.” (Schwartzman 1975, 48–49)

“Current public policy proposals threaten further reduction in the industry’s expected rate of return from R&D investment and therefore threaten to reduce the industry’s spending and its overall rate of innovation.” (49)

“[T]he social and economic benefits from mobilizing the industry’s resources in the war against disease and in reducing the costs of medical care are potentially enormous. The development of new drugs in the last three decades has already resulted in great social benefits. The potential gains from further advances remain large. To risk such gains is unwise. Our major objective should be to encourage a continued high level of industry investment in pharmaceutical R&D.” (54)

Meir Statman: “A number of alternatives have been suggested to counter the trend of decreasing incentives for pharmaceutical R&D caused by FDA regulations. The more modest of these alternatives involve increasing the efficiency of the regulatory process, thereby reducing some of the regulatory costs. More radical alternatives involve the abandonment of the requirement for FDA approval of drugs in favor of a new role for the FDA as a provider of information on drugs. Since consumers can sue for damages the manufacturers of drugs that are not safe or effective, there may be sufficient incentives for drug firms to introduce only safe and effective drugs even without FDA regulations.” (Statman 1983, 62)

Peter Temin: “Current drug policy ignores [the trade-off between a therapy’s effectiveness and its painfulness]. By denying this choice [a less-effective but less-painful therapy], the policy restricts people more than it should. I would favor allowing people to choose this intermediate treatment position, although I would try to make sure that their choice was an informed one. But whether or not people are capable of understanding the relevant information, I still would favor giving people more choice for their own well-being than the current system allows. . . . The [program] I have in mind combines less surveillance at the premarket level and more surveillance, of a particular kind, at the prescription level.” (Temin 1980, 206, 213)

Steven N. Wiggins: “The results [of this paper] indicate that regulation has had a major direct impact on [drug] introductions as well as a significant indirect effect through a reduction in research spending. These estimates indicate that regulation has reduced introduction rates by approximately 60% . . . The results indicate a steep trade-off between greater certainty about drugs’ effectiveness and the rate of drug introductions . . . This trade-off needs to be taken into account by regulators in their attempts to set appropriate standards for the marketing of new products.” (Wiggins 1981, 619)

Moreover, Wiggins found “that this effect has not been smaller for the more important new drugs” (Wiggins 1981, 615).

Permitting 6: Some Liberalization Supported, Mild Judgment

Dranove and Meltzer: “Our results indicate that, beginning in the 1950s, more important drugs—especially drugs that proved to be successful in the marketplace—have been developed and approved more rapidly than less important drugs. Despite this, the overall trend of increasing average development and approval times implies that even drugs two standard deviations above the mean level of importance are taking longer and longer to reach the market.” (Dranove and Meltzer 1994, 403)

After suggesting that Gieringer overstated costs of FDA restrictions and that factors besides FDA reform may better explain recent accelerations of important drugs, they write: “This is not to say that changes in FDA policy could not significantly alter the approval rate of important new drugs. For example, recent FDA reforms allowing more widespread access to drugs treating fatal illnesses such as AIDS before the completion of clinical trials may succeed in expanding the availability of new treatments for these conditions. Likewise, the decisions by the FDA to accept data from clinical trials performed overseas and to contract with outside reviewers should further reduce development and review times” (421).

Charles Phelps: “It seems worth noting at this point the considerably different treatment of drugs (under the FDA law) and ‘medical interventions’ in general . . . Drug regulation in general . . . inhibits market entry. Nothing inhibits entry of a new surgical technique, however. This distorts the economic incentives regarding these alternative forms of therapy, probably tipping us toward ‘too much surgery’ and not enough pharmaceutical treatment. This is a highly relevant comparison for many diseases, ranging across a wide spectrum of illnesses for which both surgical and nonsurgical approaches are feasible.” (Phelps 2003, 543)

Eric Sun: “If, on net, these acts [PDUFA] improved patient welfare, this would suggest that prior to the acts, the FDA erred too heavily on the ‘safety’ side of the speed-safety balance, and that there may be potential gains to moving towards the ‘speed’ side of the balance. Our research suggests that this is the case.” (Philipson and Sun 2008a)

The next two tables follow the same scheme. Table 2 shows the results for FDA permitting of manufacturer speech about their products, in advertising, labeling, packaging, or promotion. It shows 12 economists favoring liberalization.

Table 2

FDA Speech Restrictions: Economists’ judgments about liberalizing,
by definiteness and minimum degree of liberalization advocated

Speech 1: Significant Liberalization Supported, Definite Judgment

John E. Calfee: “[Where an examination of the effects of the FDA’s pharmaceutical advertising policies is possible,] the evidence is very strong that the FDA suppresses a great deal of useful information. Experience from related markets in this nation and abroad also strongly indicates that informational competition involving drugs and devices is likely to work well, and that the pharmaceutical market does not pose unique problems that make it unsuitable for traditional competitive dynamics.” (Calfee 1996, 318)

“The FDA consistently misunderstands the workings of competitive markets, especially their informational aspects . . . The FDA has never sought to accumulate experience in economics (except perhaps the economics of pharmaceutical research and development). One result has been a persistent tendency to over-regulate the use of information in advertising and promotion. That tendency has greater consequences in the pharmaceutical market than it would in nearly any other market.” (Calfee 1996, 317)

“[P]harmaceutical firms are unwilling to challenge the FDA on matters pertaining to speech, because the FDA wields highly discretionary power over the introduction and manufacture of drugs and devices . . . Because the FDA’s regulatory regime for information has been constructed more or less without constraint, there is little reason to think that the result is close to a reasonable balance of costs and benefits . . .” (Calfee 1996, 309, 311)

“Like the widely noted drug approval lag, the information lag tends to be hidden from view because outside observers cannot easily appreciate what is suppressed from the marketplace.” (Calfee 1996, 318)

“Neither theory nor history provides reason to think that the pharmaceutical market would work badly if information could be used more freely in advertising and promotion. The problems of information in the markets for, say, automobiles, ski boots, or executive aircraft are probably just as difficult to deal with as the analogous problems of the drug market. What makes those diverse consumer markets work—and little evidence has ever emerged indicating that the information aspects of most consumer markets do not work well—is a combination of third-party informational sources and vigorous competition among product sellers, augment (perhaps necessarily, perhaps unnecessarily) by an FTC advertising regulation process characterized by an absence of prior restraint and a substantial amount of litigation (all the way to final judgments) on the merits of the advertising and the regulation under review . . . Even in markets for risky products, competitive advertising spontaneously devises mechanisms to overcome the most essential informational problems.” (Calfee 1996, 312)

“The documented benefits of direct-to-consumer advertising of prescription drugs indicate that consumers have probably suffered from the FDA’s historic reluctance to allow such advertising and from the agency’s insistence on burdensome disclosures.” (Calfee 1996, 315)

Milton Friedman: See quotations listed at Pemitting 1.

David R. Henderson: “The solution, both for safety and for lower-cost, more available drugs, is to strip the FDA of its monopoly power over drugs and let any patient use any drug that a doctor is willing to prescribe. The FDA would then be a certifier of drugs, but not a regulator. Any drug not certified by the FDA would have to carry a warning label, similar to that on a cigarette package, saying: “WARNING: This drug has not been certified by the FDA.” (Henderson 2002, 278–79)

“When I testified at FDA hearings on its marketing restrictions in 1995, much of my testimony consisted of quotes from the FDA’s own warning letters. Predictably, my testimony was much harder on the FDA than that of various drug companies, because I had so much less to lose.

“After my testimony, a number of drug-company employees came up and thanked me for saying what they couldn’t say. Some told me that they wanted to applaud but didn’t dare. However, one drug-company employee approached me, looking pale and drawn, with his company’s chief lawyer beside him. He expressed his anger at me for quoting his criticisms of the FDA in my testimony. . . . He explained that their company had a major new drug up for approval with the FDA and that the agency could delay its approval and cost his company a lot of money.” (280)

Alison Keith: “The benefits of direct consumer advertising of prescription drugs have been overlooked or understated. Because consumers have knowledge about themselves that prescribers do not have and cannot easily obtain, providing consumers with information about drugs can serve to improve the match between drugs and patients; sellers with an incentive to advertise are practiced in communicating effectively with potential buyers. In addition, advertising is likely to cause drug prices to fall. Evidence from other markets predicts this result, and several price-reducing channels in the pharmaceutical industry itself can be identified. The combination of probable health benefits and reductions in price suggest that the net benefits of direct consumer advertising of prescription drugs may well exceed the costs.” (Masson [Keith] and Rubin 1985, 515)

“Under the current regulatory regime, where there is almost no direct-to-consumer prescription drug advertising, consumers forgo valuable information on drugs and drug prices, and on disease symptoms, treatments and preventatives. The prescription drug market, in turn, is spared the competitive pressures that would result were consumers better informed. And drug manufacturers and retailers, deprived of an important medium of communication, are restricted to other, possibly more costly marketing strategies. By eliminating excessive disclosure requirements, the advertising of prescription drugs would be encouraged. This would increase the amount of information made available to consumers, improve the match between patients and drugs, and lower drug prices. The gains to consumers—both financially and in terms of their health—could be substantial.” (Masson [Keith] and Rubin 1986, 44).*

“A more widespread consumer understanding of the benefits and risks of routine aspirin use could produce substantial medical benefits. Suppose that most of the 1.5 million Americans expected to have heart attacks in 1994—and the one-third of those who were expected to die—had taken aspirin routinely. Surely the number of people avoiding heart attacks and staying alive would have been large. On the other side, the medical risk associated with a less restrictive information policy toward consumers is an increase in serious side effects, but for a substantially smaller number of people, since both baseline and aspirin-caused increase[s] in risk of serious side effects are apparently small. The current policy appears to put a much greater weight on the side-effect risk of allowing more information to consumers, relative to the expected benefits.” (Keith 1995, 99)

Daniel Klein and Alex Tabarrok: “In addition to permitting drugs on the market, the FDA controls advertising and promotion. The costs of such control parallel the costs of restricting drugs. They include (1) reducing the speed at which consumers learn of and adopt important new therapies; (2) reducing the size of the market for drugs, thereby reducing the incentive to research and develop new drugs; and (3) reducing the number of treatment options, making it more difficult for physicians to provide therapies tailored to each individual patient. . . . In numerous instances, the FDA has reduced the speed at which patients and their agents have learned of and adopted new drugs or new uses of old drugs.” (Klein and Tabarrok 2002)

“In these matters, we favor adult freedom and hence the repeal of all forms of premarket approval. We believe that nongovernmental parties and tort law should generate and administer all of the rules, standards, institutions, and practices that make up drug affairs.” (Klein and Tabarrok 2002)

Keith B. Leffler: “The empirical results presented here show that product promotion has a significant positive effect on the entry success of therapeutically important new drugs. Given the large potential social benefits from the more rapid adoption of superior drug therapies, restrictions on pharmaceutical promotion appear to risk large losses in consumer welfare for the promise of unproven and perhaps nonexistent gains.” (Leffler 1981, 74)

Paul Rubin: “[The] FDA’s policies greatly retard the spread of [drug] information. . . . The FDA should allow manufacturers to advertise any claim for which reliable scientific evidence exists, whether or not this claim has been approved for the label, and this advertising should be allowed for both consumers and physicians. No policy requiring prior approval of advertisements should be mandated, by Congress or by the FDA. With respect to ads to consumers, the requirement of the ‘brief summary’ should be abolished for print as well as TV advertising. The FDA should allow free and unrestricted advertising of pharmaceuticals on TV and in print, subject only to regulation for ‘falsity,’ but not for ‘deception’ as currently defined. The results will be greatly improved health of consumers, and reduced prices of pharmaceuticals.” (Rubin 2000, 307)

“There is no evidence in the literature of harm to patients from pharmaceutical marketing and promotion. There is weak and ambiguous evidence of improper prescribing based on one uncontrolled study in the Netherlands in 1982, but that study’s age and circumstances raise questions about its use in meaningful policy decisions. Indeed, it seems ironic that researchers who are skeptical of information provided by pharmaceutical companies are willing to advocate major policy changes based on much weaker evidence of harm from promotional activities.” (Rubin 2005, 38)

“There currently is no objective basis for any belief that pharmaceutical marketing is always or even mostly harmful. Of course, drug companies undertake such activities for the purpose of selling drugs and making money; they do not provide information to physicians in order to advance the public interest. But one of the major bases for a market economy is the understanding that activities undertaken for private profit often lead to public benefits. There is no evidence that this is not true in the pharmaceutical industry, and no reason to believe that it is not.” (Rubin 2005, 38)

[For Rubin, see also quotations for Alison Keith in this subsection.]

Russell Sobel: See quotations listed at Pemitting 1.

Speech 6: Some Liberalization Supported, Mild Judgment

Davina C. Ling, Ernst Berndt, and Margaret K. Kyle: “Finally, a very important set of issues, likely involving even more challenging modeling and measurement problems, involves examining the effects of [direct to consumer] marketing not only on consumption patterns, but also on the health status of individuals. To the extent DTC marketing provides information of value to individuals concerning the prevalence of ailments and the availability of medications to treat these ailments effectively, the benefits to consumers from deregulation of DTC marketing could be very substantial.” (Ling, Berndt, and Kyle 2002, 719–20)

Suppose a drug has been permitted by the FDA. Prescription requirements say that retailers cannot sell the drug without the buyer presenting a doctor’s prescription. The FDA decides whether the drug will be prescription-only or “over the counter.” Table 3 shows the results about FDA imposition of prescription requirements. It shows eight economists favoring liberalization.

Table 3

FDA Prescription Requirements: Economists’ judgments about liberalizing,
by definiteness and minimum degree of liberalization advocated

Prescription Requirements 1: Significant Liberalization Supported, Definite Judgment

Milton Friedman: See quotations listed at Pemitting 1.

Daniel Klein and Alex Tabarrok: “The main effect of a prescription requirement is to make it more difficult to obtain the drugs that consumers would otherwise obtain without a prescription. Consumers do not have the scientific knowledge that doctors have, but they do have the best knowledge of their own personal situation, history, and costs of going to see the doctor. Moreover, they are the ones who taste the consequences of properly or improperly treating their sickness. So, in a world without prescription requirements, they would still have motivation to improve their practical knowledge of whether it is necessary to see a doctor and get a prescription (Peltzman 1987). Drugs they would buy without a prescription, if permitted, would tend to be drugs for which the doctor’s advice is not particularly necessary. But prescription requirement often prevent consumers from obtaining simple remedies. By raising the costs of obtaining drugs, prescription requirements raise the cost of health care and thereby reduce treatment and injure health. . . . Peltzman’s and Temin’s results suggest that, with the exception perhaps of antibiotics, prescription requirements should be abandoned or at least loosened.”

“In these matters, we favor adult freedom and hence the repeal of all forms of premarket approval. We believe that nongovernmental parties and tort law should generate and administer all of the rules, standards, institutions, and practices that make up drug affairs.” (Klein and Tabarrok 2002)

Russell Sobel: See quotations listed at Pemitting 1.

Prescription Requirements 2: Significant Liberalization Supported, Fairly Definite Judgment

F.M. Scherer: “Carrying the debate one step further, why should prescriptions be required to obtain drugs? They are not required for over-the-counter drugs or, in many less-developed nations, for any available drug. The prescription system implies that patients are unable to make well-informed decisions about their own welfare, so physicians must act in loco parentis. That may be true, but obtaining prescriptions imposes costs, and Sam Peltzman’s (1987) statistical analysis suggests that there is no clear indication of higher poisoning or mortality rates in middle-income nations where prescriptions are not required.” (Scherer 2000, 1316)

Prescription Requirements 4: Some Liberalization Supported, Definite Judgment

Kathleen Johnson and Shirley Svorny: “Allow pharmacists to dispense certain drugs without a prescription from a physician? The Food and Drug Administration is inviting comment on just such a proposal. The idea is to add a new class of ‘behind the counter’ drugs that consumers could buy after consultation with a pharmacist. . . .

“Adding pharmacists to the list of individuals who may prescribe medicine independently makes sense. We have already taken some steps to liberalize prescriptive powers of so-called non-physician clinicians. To improve access to healthcare in underserved rural areas, many states passed laws to allow nurse practitioners (nurses with special training) and physician assistants to prescribe drugs in specified areas. . . .

“Expanding responsibility for pharmacists, as proposed by the FDA, would lower the cost of healthcare. Costs fall when individuals take on specialized functions. In this case, by shifting some tasks to pharmacists, physicians are freed to focus on tasks that require more specialized skills (diagnosis, for example).

“Despite what the American Medical Assn. and state medical associations will say, highly paid physicians don’t need to be called on for every task. By moving certain drugs to the proposed behind-the-counter status, we can take one more step away from the restrictive rules that have limited the contributions of non-physician clinicians and hamstrung efforts to improve efficiency and access in the healthcare system.” (Johnson and Svorny 2007)

Prescription Requirements 5: Some Liberalization Supported, Fairly Definite Judgment

Sam Peltzman: “The main conclusion that emerges from my analyses of American and international data is that enforcement of prescription only regulation does not significantly improve the health of drug consumers. This shows most clearly in poisoning mortality. Accidents (and suicides) related to drug consumption have been an important source of poisoning deaths in the United States both before and after the adoption of prescription-only regulation in the late 1930s. However, my analysis of American time series suggests that regulation did not reduce—indeed, may have increased—poisoning mortality from drug consumption.” (Peltzman 1987b, 235)

“In countries enforcing the [mandatory prescription] requirement, infectious disease mortality is no lower and poisoning mortality is higher than in those not enforcing the requirement.” (Peltzman 1987a, 41)

“The investigation [in this paper] reveals, with some twists, that there is little effect of these [mandatory prescription] requirements on health. Specifically, the life-saving benefits of modern drugs do not seem to be enhanced by the prescription requirements, and the life-threatening risks from improper use of these drugs are not reduced and may even be increased by this requirement.” (Peltzman 1987b, 207)

“When left to decide on their own how much professional advice to seek, consumers seem sufficiently responsive to the risks of both overconsumption and underconsumption of drugs. Accordingly, they surely do not seem either to poison themselves more frequently nor do they appear to die more frequently from treatable infectious diseases than consumers who must seek the advice and consent of a doctor to get access to many drugs.” (Peltzman 1987a, 44)

“[T]here appears to be a moral hazard in this form of regulation much like that found in other forms of safety regulation: the regulation may lower the risk-cost per-pill, but this shifts consumption toward riskier pills.” (Peltzman 1987b, 235)

“I did, however, find a potential indirect benefit of this regulation. Making prescriptions compulsory appears to raise the demand for (and equilibrium supply of) doctors’ services, and I found that more doctors are associated with lower infectious disease mortality. Now, if doctors help cure infectious diseases by prescribing the appropriate antibiotic, how can a legal requirement for antibiotic prescriptions fail to help in the cure of these diseases? The implicit answer would be that a patient with such a disease and with a given income and price of a doctor’s services is no less likely to seek a doctor’s advice if he can get antibiotics without a prescription. Apparently, consumers are able to understand the value of a doctor’s advice even if they are not required to seek it.” (Peltzman 1987b, 235–6)

Peltzman (1987b) cautioned that “The usual caveat about the tentative character of results applies with special force here” (235).

The works cited in this appendix are referenced in the Reference of the main article, “Where Is the Market Failure? Economists on the FDA.