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Why should the FDA ban drugs?
305 Economists Called to Smart Questionnaire on the FDA:
Daniel Klein, Jason Briggeman, and Kevin Rollins have designed a questionnaire about the economic rationale for the policy that makes new drugs and devices banned until individually permitted by the FDA. Klein and Briggeman present the questionnaire and the list of economists. Will anyone provide a sensible market-failure rationale for the policy?
The link is here, take a look. I believe Congress should eliminate the "effective" part of the "safe and effective" clause, dating from 1962. If the question is allowing people to experiment with all pharmaceutical products, I see a few possible arguments (I'm not necessarily endorsing them) against doing that:
1. There will be more successes but also a greater number of bad events. This will possibly cause people to lose confidence in pharmaceuticals, just as many crazy theories circulate about vaccines and many people refuse them or refuse them for their children.
2. Our courts are not up to handling a greater number of liability suits, whether in terms of the quality of those courts or their ability to handle the case load. See Andrei Shleifer's recent paper on regulation as a substitute for an imperfect court system.
3. I am a fan of Robin Hanson's paper "Warning Labels as Cheap Talk: Why Regulators Ban Products." This was the piece Robin presented when we hired him, and it later appeared in JPubEc. The main point is that a verbal governmental warning: "We're really not sure this is safe, caveat emptor!" is not usually credible and people will regard the product as safe, thinking the government would not have otherwise let it come to market.
4. Parents cannot be trusted with their children.
Still, I think there is a good case for greater freedom for choice when it comes to pharmaceuticals.
Posted by Tyler Cowen on January 27, 2010 at 07:45 AM in Economics, Law | Permalink
Comments
If the question is allowing people to experiment with all pharmaceutical products, I see a few arguments against doing that...
And my response is that people are going to do that whether the FDA likes it or not; people do it on a daily basis with all manner of products.
Posted by: Seward at Jan 27, 2010 8:11:24 AM
" ...regulation as a substitute for an imperfect court system." I have usually though the reverse.. The US court system as a substitute for an imperfect regulatory state.
Posted by: R S at Jan 27, 2010 8:31:23 AM
One should note that the FDA does not actual ban doctors from prescribing substances off-label or individuals taking any substance that they want to cure their condition. Furthermore, the first amendment even provides protection for doctors and individuals that want to disseminated information about the use of substances off-label or unapproved substances (e.g., See Natural Cures "They" Don't Want You to Know About).
What FDA prohibits is a company promoting and selling a substance that claims to cure or treat a disease or condition when that substance has not been approved to be safe and effective (I won't get into the GRAS/E and grandfather exception to this rule). Thus, individuals and doctors are allowed to freely practice medicine as they see fit, but companies cannot promote cures for which there is inadequate substantiation (as judged by FDA).
I think that the fundamental problem with drug products is one of asymetric information. The patients (and even the doctors sometimes) are poorly informed and don't have the time or ability to understand complex clinical studies and judge their reliability. To get around the asymetic information problem you need a third party that can provide a reliable signal that a product is a proven safe and effective treatment and that the supporting clinical trials that were conducted were solid. While this signal could have been created by a some sort of private third party rating agency, I think that the public is general skeptical of private industry rating drugs as safe and effective for other private companies. Additionally, as we recently saw in the case of mortgage backed derivatives, rating agencies can be captured by the private parties they are intended to rate and this would undermine confidence in the whole entire evidence-based medicine approach. Therefore, while the FDA may not be the best option for providing a signal of quality for drug products, it may be the best option that ensures consistant confidence in evidence based medicine.
Posted by: Will at Jan 27, 2010 8:45:02 AM
I think off label use of drugs negates your concerns about a rise in adverse events. On point 3, how many people listen to government? Given the number of licensing programs run by the state that people ignore, I can't see this having a big effect (e.g. childcare, restaurant, etc. - how many people check - how many would leave their child based solely on license - how many would eat in dirty restaurant that was licensed - how many have seen dirty restaurants that were licensed, etc.). Point 4 is ridiculous.
Posted by: mdb at Jan 27, 2010 8:49:48 AM
Private benefits (huge profits for good drugs) >> private risk of costs (liability is limited by bankruptcy).
Posted by: John D at Jan 27, 2010 9:10:29 AM
Last evening I taught my antitrust class and used the "Market For Lemons" in an antitrust case involving a dental association seeking to restrict certain forms of advertising as a way to increase output (efficiency).
You see, if you permit Lemons to get into the market, then the value of non-Lemons goes down; people are resistant to purchase the product because it might be a Lemon. If you are an economist, you know the story about used cars, and you also know that if I offer a warranty, the price of the car will go up, because it is a signal of its quality. Similarly, a third party who certifies the car is not a Lemon will also increase its value and purchase.
I can't think of a more idiotic, more crass commercial, and stupid idea than removing the effective label from drugs.
First, as above, if the pool of drugs is now expected to contain lemons, consumers may not purchase or use them.
Second, consumers believe placebos are effective as well. So, if you send out drugs that are not effective, some consumer will say it is effective....and, some drug company will pick up the statement and sponsor a viral marketing campaign. This kind of placebo medication is subject to virality, and viral marketing. If the purchase of placebos drives out the purchase of effective drugs--which it could--you are responsible for the death or injury of another human being.
Think about it.
Posted by: Bill at Jan 27, 2010 9:17:32 AM
Will: no, you cannot take (and doctors cannot prescribe) any medication that has not been approved by the FDA as 'safe and effective'. For example, it is not enough that it has been approved in Europe to treat your condition, if it has not been approved in the US, you cannot get it in the US.
What I think Tyler argues for is to allow use of drugs that have been proved safe (completed phase two trials), rather than wait for the completion of much more expensive phase three (effectiveness). The argument against this is that it won't ever be possible to establish effectiveness, since noone would enroll in double-blind stage three trials, where you may be treated with a placebo, if you can get the drug yourself. My answer to that, especially for deadly diseases, is that we already know the prognosis and progression sequence (unless it is a completely new disease), so we can compare existing data to results with the new drug (placebo effect presumably would be small for most deadly diseases).
Posted by: JamieNYC at Jan 27, 2010 9:22:03 AM
Should my insurance company -- meaning me ultimately -- be required to reimburse for medications that have not been proven to be effective?
If I decide that this copper band around my wrist is effective, shouldn't I have the freedom to choose and stick you with the bill?
Posted by: Bill at Jan 27, 2010 9:36:00 AM
Another reason not to let the federal government ban drugs is that it has no Constitutional authority to do so. If it did, the 18th Amendment would not have been necessary.
Posted by: Noah Yetter at Jan 27, 2010 9:36:22 AM
Private benefits (huge profits for good drugs) >> private risk of costs (liability is limited by bankruptcy).
You don't have to take the drugs. Problem solved.
Posted by: mdb at Jan 27, 2010 9:41:34 AM
JamieNYC, I agree that under the realities of the situation that certain substances that are available in other countries are not available in the United States. But that does not mean that FDA is prohibiting the wholesale introduction of that chemical substance into the United States. Instead, it means that there is no other market for that substance in the United States (e.g., as some sort of chemcial agent unrelated to that specific therapeutic use). Additionally, individuals can travel abroad and purchase substances approved in other countries and then return to the United States and take those substances (as long as they are not controlled substances) and FDA allows that under their indvidual exemption for importing uncontrolled substances. So my position would be that physicians can prescribe any drug off-label and patient can take any drug off-label, you just may not have access to the drug in the United States because no one is selling that substance in the United States.
As for the idea that we should allow for individuals to take substances when they have past phase II testing, it should be noted that FDA already has a compassionate use program under which an individual can get access to drugs under an IND. See here - http://www.fda.gov/ForConsumers/ConsumerUpdates/ucm176845.htm.
As for your theory that we can use compassionate use data to support efficacy for a drug product, the problem is that you are not running a double-blind placebo controlled (or active control) study and therefore, your data is not as good as one where the patient treatment is blinded.
Posted by: Will at Jan 27, 2010 9:41:52 AM
For those who might be concerned about a doctor getting a fee for dispensing and supervising a drug that has not been proven to be effective -- or a installation of a medical device -- consider this piece by Dan Ariely: http://www.predictablyirrational.com/?p=703&date=1
Posted by: Bill at Jan 27, 2010 9:42:57 AM
I think everyone needs to realize that millions of times a week people take drugs for ailments that the been proven or certified by the FDA as effective. Yes, insurance does cover it.
Do people honestly think that there is only 1 use for a drug?
Posted by: mdb at Jan 27, 2010 9:45:19 AM
Consider this: someone can go to prison for many years for taking a substance that the state proffers is dangerous. It borders on throwing someone in prison for not being a member of the state religion.
Will,
Additionally, as we recently saw in the case of mortgage backed derivatives, rating agencies can be captured by the private parties they are intended to rate and this would undermine confidence in the whole entire evidence-based medicine approach.
The ratings agencies in that arena have a government backed oligopoly.
Posted by: Seward at Jan 27, 2010 9:55:04 AM
Speaking as a scientist active in a non-medical field, but one that has exactly parallel issues (is it safe? is it effective?), I cannot but hold that this is an extraordinarily wrong-headed approach. The fundamental problem is that safety and effectiveness are never orthogonal and completely separable. There are no products that are effective and safe. There are, for example, products that are mildly effective and somewhat safe (ie AIDS drugs), and those that are very effective and very damaging (ie chemotherapy). Striking "effective" from the regulations is a seemingly simple answer that will will have bad knock-on effects that you have not considered.
A regulator or operator always must balance benefit with harm. In the industry I work in, these decisions follow codified frameworks for use, assessing environmental benefit with possible harm. A taste fo the problems can be found in the following two articles:
http://www.springerlink.com/content/a4nx8fc5te1rmpyb/
http://www.redorbit.com/news/science/56356/approaches_to_ecological_risk_characterization_and_management_selecting_the_right/index.html
Striking out the benefit side of the equation would be very unhelpful; many beneficial treatments would not be deemed "safe". Would x-rays qualify? They increase cancer risk. Would Tylenol pass? It can easily cause liver damage with even a small overdose. I've had informal discussions with health regulators to the effect that Tylenol, were it submitted today, would be considered too unsafe, ie provide too little benefit for the risk, to pass current standards.
Contrarywise to your argument for greater choice, I think that this would reduce the options available for higher-risk interventions, while at the same time open the floodgates to (literal) snake-oil salesmen whose products are "safe". If you want more herbal remedies and less cancer drugs, by all means, throw away the "effective" provision in the regulations.
Posted by: bonehead at Jan 27, 2010 10:04:15 AM
Tyler writes:
Still, I think there is a good case for greater freedom for choice when it comes to pharmaceuticals.
Are you planning to make that case?
Best,
David
Posted by: David R. Henderson at Jan 27, 2010 10:06:23 AM
We already know that the FDA is willing (assuming Congress permits it) to waive substantial portions of their approval cycle for certain drugs, as evidenced by the rush to allow anti-HIV/AIDS drugs back in the 1980s and 1990s.
The argument then was essentially an instrumental one: we knew that people were dropping like flies from HIV/AIDS, so even if a few died from adverse effects of the new drugs, it would be substantially outweighed by the lives that would be saved.
There are many drugs that are in the approval cycle that would ameliorate the death toll from other conditions, yet these drugs aren't allowed to short-circuit the process. Surely it would not be unreasonable to allow such drugs onto the market--especially if they had been approved in other countries--with a warning label?
The pharmaceutical regulatory regime is a perfect example of the argument Alan Greenspan made in _Capitalism: The Unknown Ideal_ about how government regulation actually reduces corporate liability by (largely) immunizing the companies from tort actions. It's really no wonder the pharmaceutical companies don't make a greater effort to overthrow it.
Posted by: David Hecht at Jan 27, 2010 10:09:43 AM
Actually, we've already deregulated a sizeable portin of the drug market: "dietary supplements". Health food stores sell huge amounts of quack medicines---zinc, St. John's wort, bee pollen, etc.--- that vaguely claim to help with your prostate or depression or cold. Has anyone written on whether this has been good or bad? My impression is that people spend a lot of money on useless products from which they derive great satisfaction, but they still realize that they need real medicine when they're really sick. This is highly relevant to the FDA debate.
Posted by: Eric Rasmusen at Jan 27, 2010 10:22:39 AM
Eric, Good point: "My impression is that people spend a lot of money on useless products from which they derive great satisfaction, but they still realize that they need real medicine when they're really sick. This is highly relevant to the FDA debate."
At what stage do they "realize that they need medicine when they're really sick'? At a time when its too late, when the herbal didn't work, now go the doctor for that exam, and find that their prostate has metasticized (sp)? Would earlier medical intervention, rather than self help with safe but ineffective products, been better?
Just can't wait for Dr. Phil to make some claim and half the population buys the safe but ineffective product.
Posted by: Bill at Jan 27, 2010 10:39:01 AM
A couple points.
Its not practical to sever safety and efficacy because they are not independent concepts. Nobody would label chemotherapy "safe" on its own. Its only "safe" by comparison to what would happen if you did not take it - which depends on its effectiveness.
As has been pointed out, the FDA scheme is not as rigid as you suggest. If a drug has been deemed safe and effective for one purpose, doctors can prescribe it for other purposes. Indeed, for some diseases, the standard of care treatment is not approved for that condition. So I think the primary effect would be freeing pharmaceutical companies to openly promote off label uses - which might be a good thing in some cases and a bad thing in others.
I think that the elimination of efficacy as a standard, rather than a potential for more adverse events, is the greater threat to public trust in medicine. I think its very instructive to compare FDCA regulated drugs and homeopathic remedies and supplements, which the FDA is banned from regulating. In one field, you have largely driven out quackery. The other field is rife with things that don't and can't work, and respectable companies have difficulty emerging because (1) its difficult for end-users to judge efficacy and (2) anything their products actually do is drowned out by products claiming to do the same thing, but without the research and production costs.
Posted by: Joe at Jan 27, 2010 10:40:02 AM
bonehead,
Yes, I am sure the world would come to an end if the FDA suddenly stopped its ineffective efforts to regulate the content, etc. of drugs.
Posted by: Seward at Jan 27, 2010 10:41:20 AM
Bill,
Freedom means in part the freedom to make bad decisions. Furthermore, if the FDA were to get involved in herbals all that would mean is a black market in herbal medicine.
Posted by: Seward at Jan 27, 2010 10:43:27 AM
David Hecht,
It is fairly pathetic that groups advocating for sick people have to beg the government for in such a way.
Posted by: Seward at Jan 27, 2010 10:48:08 AM
Seward, I don't deny your argument that you are free to make bad decisions, and this may be one of them, but have you considered spillover effects from your decision? If you make a bad decision, take that ineffective placebo, and your problem goes into remission (as a number of illnesses do), do you promise not to tell anyone about the effectiveness of your placebo? What if you become a testimonial in a viral marketing campaign of the drug company. True, you got better, but not from the placebo, but, what did you know, and, for that matter, what will anyone ever know, because now there is no incentive for the drug company to test for the effectiveness of the drug. Or, perhaps you would support some NIH program to test herbal remedies funded by your tax dollar.
Think lemons.
Posted by: Bill at Jan 27, 2010 10:51:25 AM
Seward,
I don't think we'd have any substantial black market in herbal remedies. Leaving aside drugs that are banned for essentially political or social reasons, we don't have any substantial black market in unapproved FDA drugs. That's why the thalidomide babies were only on one side of the pond. Sure, some herbal zealots might start an underground economy - but so what? The effect will be that the people who are being tricked into thinking they're buying something effective will stay on the white market and get a real product, and that the people who are truly zealots will get their ineffective tripe.
Note also the Hanson paper that Tyler cited. People assume that the government won't let ineffective or dangerous things be sold. The fact that these "products" are allowed to be sold is taken as an implicit endorsement of their effectiveness. Remove the products from store shelves, and a lot of people won't want them.
Posted by: Joe at Jan 27, 2010 10:55:47 AM
You cannot reduce "safe and effective" to "safe" - all drugs have risks and side effects and it only makes sense to talk about drug safety relative to its effectiveness and to safety and effectiveness of alternative treatments.
And people act truly retarded when it comes to making medical decisions for themselves - see all the vaccine scares - we might have gotten rid of polio by now if it wasn't for them; how many people buy homeopathic or supplement nonsense; how scarily effective is direct-to-consumer advertisement (allowed only in States, not anywhere else, so you have a control group) etc. And the standard "think of the children" argument is actually quite relevant here.
Now it's possible that net effect of regulations and costs and delays they introduce is still negative, but they do have pretty big positive effect too.
The idea of using court system as an alternative for proper regulation has been proven countless time to be much much worse.
Posted by: Tomasz Wegrzanowski at Jan 27, 2010 11:03:24 AM
OK, I went to the site and clicked through the questionnaire, and now I've read all the comments here, and (except for bonehead's mention of snake-oil salesmen) I don't really see any mention of the history of the FDA. Shouldn't it be at least a little relevant to know why people back in the 1960s thought "safe and effective" was a good idea?
Just think how different things might be if a decade ago people had asked "So just why did people in 1933 think the Glass-Steagal Banking Act was a good thing?"
Posted by: Ken at Jan 27, 2010 11:19:15 AM
You cannot reduce "safe and effective" to "safe" - all drugs have risks and side effects and it only makes sense to talk about drug safety relative to its effectiveness and to safety and effectiveness of alternative treatments.
Exactly. You beat me to it. A drug is never safe if it is ineffective, and is quite dangerous - even with no side effects at all - when used in place of more effective treatments.
A glass of water is not safe as a substitute for chemotherapy.
Hey people, this is economics - opportunity costs, tradeoffs, etc. Is the FDA perfect? Of course not. But it's astonishing that the solution proposed by some is abolition rather than improvement.
Posted by: Bernard Yomtov at Jan 27, 2010 11:52:37 AM
joe,
Leaving aside drugs that are banned for essentially political or social reasons, we don't have any substantial black market in unapproved FDA drugs.
That's leaving a lot aside.
Posted by: Seward at Jan 27, 2010 12:18:32 PM
Ken,
Given that most other countries have nothing like Glass-Steagal and never have, not much.
Bernard,
Is the FDA perfect? Of course not. But it's astonishing that the solution proposed by some is abolition rather than improvement.
The FDA has been claiming that it will improve itself for decades, yet decade after decade the same problems are never addressed. As with a lot of what government does, the issue is whether it is actually a tool that can be improved upon past some observed level.
Posted by: Seward at Jan 27, 2010 12:24:47 PM
Still, I think there is a good case for greater freedom for choice when it comes to pharmaceuticals.
Congress and the FDA have increasingly allowed this, but this is done without allowing the drug company to profit from the use of drugs that have not been shown to be effective and thus receive FDA approval.
The restrictions are simple: no other effective treatment is available for a life critical condition, and the drug company provides the drug for free to a doctor or facility willing to provide the treatment with the full disclosure that the drug is not known to be safe and effective.
Of course, the real question is why drugs that cost a few hundred to as little as a few dollars a year to make are not available at a small profit over manufacturing cost, but instead cost tens or hundreds of thousands of dollars a year, far out of reach of most of the people who need them.
Why should people be banned from using drugs because they don't have lots of money?
Posted by: mulp at Jan 27, 2010 12:28:24 PM
Bill,
And what about the extra lives lost as a result of delays associated with the regulatory regime? We know that the FDA does leads to X numbers of lives being lost (and there is evidence that the number is higher than would otherwise be the case); so this a two way street it seems to me.
Posted by: Seward at Jan 27, 2010 12:30:34 PM
I guess the only people capable of determining if a drug is effective is the FDA. All those people using drugs for off label ailments that the FDA has not determined the drug to be effective are idiots. Doctors too.
At what point, are people capable determining the effectiveness of a product? It can't only be with drugs, the consumer is undoubtedly being left to fend for themselves in far to many situations. Just look at Toyota, if we had CA (car administration) we could have prevented those deaths. The average consumer does not know enough about accelerators to make decisions on their own.
Posted by: mdb at Jan 27, 2010 12:33:13 PM
mulp,
Of course, the real question is why drugs that cost a few hundred to as little as a few dollars a year to make are not available at a small profit over manufacturing cost, but instead cost tens or hundreds of thousands of dollars a year, far out of reach of most of the people who need them.
It isn't the cost (and the risk and the time) of the 1000th pill they are recouping, that's why; of course you might as well ask why any investor, etc. in a product makes significant profits - because of the time they were waiting to see the product to fruition.
Posted by: Seward at Jan 27, 2010 12:37:09 PM
I wrote a study on this very matter last year, "Leviathan's Drug Problem," which quantifies the cost and benefits of the FDA monopoly on access to prescription drugs: http://tinyurl.com/dbx7rx.
Posted by: John R. Graham at Jan 27, 2010 12:40:23 PM
And what about the extra lives lost as a result of delays associated with the regulatory regime? We know that the FDA does leads to X numbers of lives being lost (and there is evidence that the number is higher than would otherwise be the case); so this a two way street it seems to me.
Allowing insurers to decide whether they will pay for treatment with FDA approved drugs probably causes more premature deaths that FDA restrictions. US drug patent laws cause more deaths than FDA restrictions.
Should the US drug patent laws be eliminated? A good example are the AIDS drugs which cost thousands in the US and dollars in Africa and Asia.
Posted by: mulp at Jan 27, 2010 12:40:36 PM
Seward,
Its leaving a lot of irrelevant things aside, yes. You're claiming that people will use herbal remedies because they think they're effective. The FDA has credibility on that. People don't use cocaine for its medical effectiveness, and so the FDA warning about it would be irrelevant to users.
MDB,
The government does regulate car production through NHTSA. And the safety standards have prevented a lot of deaths - and are, along with trial lawyers, why Toyota reacted in such a careful and pro-customer manner. Remember how Ford reacted to the Pinto!
Posted by: Joe at Jan 27, 2010 12:56:55 PM
Mulp,
Partially, drugs are so expensive compared to their manufacturing costs because we don't have perfect competition. But keep in mind that manufacturing cost doesn't include the cost of research, which can be extremely expensive given that many drugs ultimately do not pan out.
Posted by: Joe at Jan 27, 2010 12:59:41 PM
a lot of these problems would be much less severe if dead people could recount their experiences of the failure of medicine on blogs and news programs.
Posted by: babar at Jan 27, 2010 1:21:15 PM
Partially, drugs are so expensive compared to their manufacturing costs because we don't have perfect competition. But keep in mind that manufacturing cost doesn't include the cost of research, which can be extremely expensive given that many drugs ultimately do not pan out.
We don't have perfect competition because Congress has chosen in the public interest, they claim, to restrict competition.
The argument is, after all, about the public interest.
Should a drug company be free to market a drug therapy without restriction, or even under the supervision of doctors, and in particular, “fen/phen”? Is/was that marketing and activity in the public interest?
If your parent or child used “fen/phen” under a doctor's supervision and suffered the adverse effects and was unable to work, perhaps needing extraordinary medical care, who should bare the burden if they and you are unable to afford the costs?
It is estimated the weight loss "industry" marketing is successful in promoting at least $30 billion annually in consumer spending, and if weren't for the FDA, the spending would certainly be far higher. Would more spending on ineffective or unsafe spending on weight loss drugs be in the public interest? Are the drug companies and doctors marketing and selling their drugs and therapies because they are seeking to help people with successful treatments in the public interest, or in the pursuit of profit, public interest be damned?
Posted by: mulp at Jan 27, 2010 1:42:58 PM
Joe,
But people do use marijuana for medical purposes, despite what the government claims - that it has no legitimate medical use. There are plenty of examples like this - where large swaths of the population use what they consider medicine but the government does not. DMSO is another example; it is only approved for just a few things, but people buy it for all sorts of other uses. Again, are you willing to put people in prison for using things that the state does not approve of?
Posted by: Seward at Jan 27, 2010 2:22:45 PM
mulp,
IP law is something that most libertarians want to see reformed (or even abolished).
Allowing insurers to decide whether they will pay for treatment with FDA approved drugs probably causes more premature deaths that FDA restrictions.
That seems rather unlikely.
Posted by: Seward at Jan 27, 2010 2:24:54 PM
Mulp,
I'm not sure what that has to do with my point. I was simply pointing out economic reality - in a market economy, if you want drugs to be sold at or near cost, that's only likely to happen in a market that approximates perfect competition. That's a technical term meaning that we have an effectively infinite number of companies, customers are completely informed and rational, etc. We don't have that.
(1) There are only a few major drug manufacturers. With only a few major manufacturers, there is less downward pressure on prices. Its much easier for a handful of companies to keep prices high by not competing hard than it is for bunches of companies to, because all it takes is a few holdouts. In part, we have a concentrated pharma sector because research and FDA approval are expensive, so its hard for a start up to do anything but sell their idea to a big company. (This isn't to say FDA approval is bad - I like it! - but it does impose some costs).
(2) Similarly, intellectual property rights will limit the extent of direct competition between competitors. If Merck develops a new drug, Pfizer can't develop the same drug and sell it more cheaply for a long time. At best, they can develop a similar drug, but the less similar the products, the weaker the competitive pressure.
(3) The actual decisionmaker, in most circumstances, will be the doctor, who is somewhat price insensitive, since he's not the one paying. (I say somewhat because he obviously doesn't want to screw his patient and the insurance companies will be watching for chronic high expense prescriptions.) The patient choosing between brandname and generic similarly is insulated from prices if he or she has prescription coverage.
Posted by: Joe at Jan 27, 2010 2:34:13 PM
Anyone should be able to consume any food or drug or medicine they like for any reason. Anything short of that is pure authoritarian paternalism
Posted by: nmg at Jan 27, 2010 2:49:36 PM
Seward,
So which is it?
Drug manufacturers charge a lot becaue of high development costs, and that makes sense,
or
IP laws should be abolished, which would reduce or eliminate the ability of manufacturers to command high prices?
Posted by: Bernard Yomtov at Jan 27, 2010 2:52:23 PM
Many drug manufacturers exist, and as the AIDS drugs demonstrate, not to mention the expiration of patents allowing generics to compete in the US, the costs can be a fraction of the price in the market that Congress established in the public interest, to promote the general welfare. And this restraint of trade was seen as so important to the general welfare, it was enumerated in the US Constitution.
Clearly, freed from the restraint of trade Congress imposed, drug prices fall dramatically, and the lower prices make the drug treatments available so millions of lives might be saved or extended, far more lives saved or extended than the best possible case for just the benefit of eliminating the restraint of trade imposed by the FDA.
On the other hand, freed of the FDA restraint that Congress charged the FDA to impose, it seems a fair bet that many more lives will be lost than saved. Unless you believe that "fen/phen" and similar drugs will somehow not seem attractive if totally unrestricted than they were when they were restricted by the FDA. ("fen/phen" were two approved drugs, restricted to prescription by doctors under regulation of a restricted drug class that is more restricted than the class including beta blockers, for example.)
And to make the competition point, I doubt you can name five of the top ten drug manufacturers by sales volume in the US; I was very surprised at how few firms in that list I had heard of. Few are in the top ten by revenue.
Posted by: mulp at Jan 27, 2010 2:53:07 PM
Bernard,
Wow, fallacy of the false dilemma and everything.
Posted by: Seward at Jan 27, 2010 3:10:17 PM
mulp,
Bringing up fen/phen as you do is known as the fallacy of misleading vividness; politicians use at lot to whip the population into paranoia (see the drug war, the war against Iraq, etc.).
Posted by: Seward at Jan 27, 2010 3:12:51 PM
Seward,
Why is it a false dilemma? Are you proposing some other method of rewarding R&D, like prizes for example? That's not a bad idea, but I don't think you've mentioned it.
How do you think pharmaceutical companies can maintain high prices without some sort of IP laws?
Posted by: Bernard Yomtov at Jan 27, 2010 3:13:19 PM
Bernard Yomtov,
The same way individuals and firms maintained prices for their products in the 18th and 19th centuries without IP law (there were all manner of dramatic advances without them). And yes, I could get behind prizes. It seems to me that most IP law is predicated more on rewarding rent seeking than discovery.
Posted by: Seward at Jan 27, 2010 3:16:01 PM
