Why should the FDA ban drugs?

by on January 27, 2010 at 7:45 am in Economics, Law | Permalink

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.

Seward January 27, 2010 at 8:11 am

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.

Will January 27, 2010 at 8:45 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.

John D January 27, 2010 at 9:10 am

Private benefits (huge profits for good drugs) >> private risk of costs (liability is limited by bankruptcy).

JamieNYC January 27, 2010 at 9:22 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).

Noah Yetter January 27, 2010 at 9:36 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.

Will January 27, 2010 at 9:41 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.

mdb January 27, 2010 at 9:45 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?

bonehead January 27, 2010 at 10:04 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.

David Hecht January 27, 2010 at 10:09 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.

Bill January 27, 2010 at 10:39 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.

Seward January 27, 2010 at 10:41 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.

Seward January 27, 2010 at 10:48 am

David Hecht,

It is fairly pathetic that groups advocating for sick people have to beg the government for in such a way.

Joe January 27, 2010 at 10:55 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.

Ken January 27, 2010 at 11:19 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?”

Seward January 27, 2010 at 12:18 pm

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.

mulp January 27, 2010 at 12:28 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?

mdb January 27, 2010 at 12:33 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.

John R. Graham January 27, 2010 at 12:40 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.

Joe January 27, 2010 at 12:56 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!

babar January 27, 2010 at 1:21 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.

Seward January 27, 2010 at 2:22 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?

Joe January 27, 2010 at 2:34 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.

Bernard Yomtov January 27, 2010 at 2:52 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?

Seward January 27, 2010 at 3:10 pm

Bernard,

Wow, fallacy of the false dilemma and everything.

Bernard Yomtov January 27, 2010 at 3:13 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?

Bill January 27, 2010 at 3:39 pm

Seward, Re: “And what about the extra lives lost as a result of delays associated with the regulatory regime?”

Are you talking about delays for safety, or delays for effectiveness? Are you talking about putting drugs out there that haven’t been tested for safety? That’s an ideal way to run things, and quite novel.

Then, if it is not, you have to narrow it for delays for effectiveness. Well, we’ve talked earlier about spillover effects, lemons, now let’s talk about consumer protection: do you have right to mislead or misrepresent or to deceive or represent without facts sufficient to show the truthfulness of your statement. No. So, what’s the problem.

Moreover if you don’t know it is effective, because effectiveness wasn’t required to market the drug, how can you say anyone was injured in not having the drug? The data you would need to prove your statement would depend on the data you do not have and will not be obligated to produce.

Bill January 27, 2010 at 3:43 pm

Seward, And, one more thing: you can’t do a rational risk/reward or cost/benefit analysis of something if you do not measure effectiveness. But, maybe you can.

Bernard Yomtov January 27, 2010 at 4:10 pm

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).

Well, there actually was IP law. What do you think patents are?

You can’t just maintain prices unless there is something keeping competitors out. It could be a patent. Some products require large-scale capital investment for production (as opposed to for research). There were all sorts of monopolies and so on. Trade secrets can work for some things, but not when it’s possible to analyze the product – like a pharmaceutical – and figure out how to make it.

Some examples of what you are talking about would be helpful.

Seward January 27, 2010 at 8:14 pm

Bernard,

In the 18th and 19th centuries IP law was far more circumscribed both in scope, length and in its robustness.

Seward January 27, 2010 at 8:25 pm

Though not wanting to engage in a genetic fallacy, let’s not forget where the genesis derived from: overheated rhetoric and paranoia about the food industry at the early part of the 20th century, much of that rhetoric driven by vivid descriptions of singular cases, racism, elitism, rent seeking, etc. It has all the historical problems one would expect out of a “Progressive Era” agency/policy.

Bill January 27, 2010 at 10:10 pm

Seward

You said of my comments: “Your argument is based on the assumption that the only entity which would test for either of these is a government entity.”

Sorry, never said that.

If you don’t know it, private organizations conduct the studies for effectiveness and safety today, and present it to the government. There is no government guy in a labcoat doing these studies.

But, now you seem to have changed the story: now you accept effectiveness and safety, just that government shouldn’t be the judge. Well, clinical trials are not done by the government. If you expect some private certifying agency to take over the role of the FDA, good luck on buying them insurance. And, preventing conflicts.

Seward January 28, 2010 at 12:56 am

Bill,

Actually, that’s an assumption you made about my comments, not any claim that I made. I only ever specifically attacked the FDA’s way of doing things.

If you expect some private certifying agency to take over the role of the FDA, good luck on buying them insurance. And, preventing conflicts.

What the FDA does today is rife with conflicts; and of course there are major problems with with regard to the clarity of what they are doing. As for insurance, it is a surmountable issue.

Bernard,

All I have the energy to state is that there’s a whole body of literature in the History of Technology that discusses innovation without IP protection.

David January 28, 2010 at 8:44 am

The main problem is that neither patients or doctors can possibly tell whether treatments are safe or effective. For example, in the famous Vioxx case, there was an increased risk of cardiovascular events of 0.72 events per 100 patient years of exposure. You can only measure such effects with clinical trials that involve tens of thousands of patients and last for years.

And you can’t evaluate safety without understanding efficacy and vice versa. Would you take a drug with a Vioxx-like risk, but which was likely to cure an otherwise untreatable cancer? I would. But I might not choose to take this risk to treat mild arthritis or weekend warrior muscle soreness, or if there was only a small chance it would help my cancer.

Bernard Yomtov January 28, 2010 at 10:52 am

OK, Seward.

I understand there is some lierature on the subject. But if you can’t actually present even an example or two, or provide any concrete information as to what you’re arguing for, I don’t find your assertions persuasive.

Comments on this entry are closed.

Previous post:

Next post: