Economists on FDA Reciprocity

by on January 14, 2016 at 7:05 am in Economics, Law, Medicine | Permalink

Daniel Klein & William Davis surveyed economists about whether it would be an improvement to reform the FDA so that “as soon as a new drug is approved by any one of five [FDA approved international] agencies, that drug automatically gains approval in the United States.” They report:

Of the 467 economists who answered the question and did not mark “Have no opinion,” 53 percent agreed that the reform would be an improvement, while 29 percent disagreed. (The remainder said they were “neutral.”) Moreover, those favoring the reform were more likely to say they held their belief “strongly.” Hence, the balance of economist judgment certainly leaned in favor of the liberalization.

Economists are not the only ones in favor of reciprocity. Others are also coming around, at least partially. In Generic Drug Regulation and Pharmaceutical Price-Jacking I argued in response to the massive increases in the price of Daraprim (generic name Pyrimethamine) that we ought to allow importation:

Pyrimethamine is also widely available in Europe. I’ve long argued for reciprocity, if a drug is approved in Europe it ought to be approved here. In this case, the logic is absurdly strong. The drug is already approved here! All that we would be doing is allowing import of any generic approved as such in Europe to be sold in the United States.

In a paper in JAMA discussing the same case, Drs Jeremy Greene, Gerard Anderson, and Joshua M. Sharfstein agree, writing:

A second option is to temporarily permit the importation of drug products reviewed by competent regulatory authorities and approved for sale outside the United States. For example, Glaxo, the original manufacturer of pyrimethamine, sells a version of the drug approved for use in the United Kingdom at less than $1 per tablet.

Dr Sharfstein by the way was Principal Deputy Commissioner of the US Food and Drug Administration from March 2009 to January 2011.

Addendum: I will be discussing/debating pharmaceutical policy with Dr. Sharfstein at on event sponsored by the Council on Foreign Relations in Washington, DC the morning of Monday January 25. Invitation only but email me if you want an invite.

1 rayward January 14, 2016 at 7:22 am

Tabarrok has more faith in pharmaceutical companies than do I, but I appreciate the merits of reciprocity. What he may not appreciate, however, is the potential for relocation of the pharmaceutical companies to the country with the least regulation/oversight. Why would they relocate? Because regulators favor locals over outsiders. It’s human nature. Would it also precipitate a race to the bottom? In the South we have this expression: God created Mississippi so Alabama wouldn’t be last.

2 MOFO. January 14, 2016 at 9:12 am

Instead of reciprocity they should just call it regulatory harmonization. As i understand it, the idea is that you would only reciprocate with countries whos regulation/oversight was mostly identical to your own.

Its also worth noting that regulators arent your only defense against bad drugs. Companies are still open to lawsuits even if the FDA gives the drug their approval.

3 Nick January 14, 2016 at 10:33 am

“…regulators arent your only defense against bad drugs.”

Also the private insurance companies that contract with drug manufacturers for liability protection … have a big say in how those drug companies do business. Insurance companies take a close look at what they are insuring and tend to enforce strong safety standards.

4 AlanG January 14, 2016 at 2:14 pm

Most pharmaceutical companies self insure against liability law suits.

5 Cowboydroid January 15, 2016 at 11:10 am

You’re suggesting they can absorb any and all costs associated with liability?

6 Dan Weber January 14, 2016 at 11:13 am

The proposal is for reciprocity with 5 other agencies, although I can’t find the specific five.

Presumably Joe’s Fish Shop And Drug Approval isn’t on the list.

7 AlanG January 14, 2016 at 2:18 pm

It’s a bit of a moot issue as anyone who has looked at the FDA approval data will know. Over the past five years, FDA has been the first to approve new drugs between 66-88% of the time versus the EMEA so we are really only looking at a very small number of drugs and even those are usually approved by the FDA shortly after EMEA approval. The concept of reciprocal approvals has been bantered about for at least the last 20 years (I spent my working career in drug regulatory affairs) and never gained much traction. It’s far less of an issue today as I noted in terms of approval data.

8 Ricardo January 15, 2016 at 12:05 am

Again, it is not a “moot issue” at all when it comes to generic drugs. Daraprim is the most notorious case but it is part of a larger pattern over the past 10 years of off-patent generics being subject to rapid price increases due to the monopoly power of existing manufacturers.

9 Jeff R. January 14, 2016 at 11:34 am

You assume competition amongst regulatory regimes will prove to be a bad thing. Do you have any good reasons for making that assumption? I am thinking of the various international agreements regarding financial regulations that have emerged as finance has gone global: Basel I, II, III, etc. You can debate how effective they were at preventing crises, certainly, but what definitely did not happen was the scenario you’re describing where the Cayman Islands refusing to implement basic financial regulations, 35 different banks relocate there, and then the US, Canada, and everyone else has to water down their financial regulations to get them to move back.

10 Jan January 14, 2016 at 12:06 pm

One of the reasons the EU is reforming their medical device regulatory system is because there was widespread “forum shopping” by manufacturers, just looking for the most lenient Notified Body, to get approved with little scrutiny. Wasn’t a level playing field, likely leading to safety problems.

11 Jeff R. January 14, 2016 at 12:30 pm

Okay, but notice the response to this, per the links you’ve provided, is a proposed tightening of regulations in the EU, rather than the “race to bottom” scenario where the regulations are continually watered down.

12 Jan January 14, 2016 at 1:23 pm

The regulations couldn’t continually be watered down, because the NBs don’t have the authority to change them. However, the NBs did apparently have great latitude to determine the specifics of how they implemented overarching EU requirements, which gave them an incentive to be as lenient as possible. At the very least, it gave companies an incentive to seek out the most lenient approval body.

Nobody can say with certainty that the implementing practices were continually getting more lax, but that is because nobody knows for sure, as there was very little required transparency.

13 Jeff R. January 14, 2016 at 2:10 pm

Sounds like a real dystopia, Jan.

14 Jan January 14, 2016 at 6:30 pm

More transparency and a level playing field with clear standards so companies can’t pick their own regulator. That the dystopia, eh?

15 Harun January 14, 2016 at 1:53 pm

“likely leading to safety problems.”

Why is it likely? Was there no actual evidence found?

People believe far too much in regulators.

I remember after the lead in toys scandal, how Americans were all demanding European lead testing regulations.

They imagined that Europe was tougher somehow.

Nope. Same as America: send in your one sample, get it tested, and you’re now CE approved (or whatever, its been a while since I was in the toy industry.)

And it wasn’t a regulator who discovered the issue, but a retailer.

16 Jan January 14, 2016 at 6:31 pm

Read the FDA link.

17 Jan January 14, 2016 at 6:31 pm

And btw, no, the argument from industry has long been that the US–not Europe–is tougher.

18 Jan January 14, 2016 at 6:37 pm

Here are the safety problems in the EU. FDA goes into more detail in a separate report on it:

19 Bill January 14, 2016 at 10:32 am

What knowledge set do economists have about the drug and device regulatory regimes of other countries?

Ask them about reciprocity for things they know about. Ask them whether they favored reciprocity for swapping tenured faculty. This would enable universities to transfer tired old faculty to an undesirable reciprocal institution in another state, like a community college, so that tenured faculty member would retire rather than move.

Let’s free universities to institute reciprocity programs so as to improve the education of community colleges in Nome Alaska by sending them faculty members from Virginia.

20 Alex Tabarrok January 14, 2016 at 10:42 am

Universities are a good example of a system that does use reciprocity. A German PhD in economics is accepted as a PhD in economics in the United States and vice-versa. We do not require German PhDs to be reeducated in an American university in order to teach here.

21 rayward January 14, 2016 at 11:27 am

Since Tabarrok raises the issue of reciprocity in the context of professionals (economists), I will mention physicians, who are regulated by the individual states where they practice. What if a physician “practices” in many states, doing so without ever leaving the state where he resides? A trick question: with advancements in telemedicine, a physician can be in many places, and many states, at once. Must the physician be licensed in every state where she “practices”? Yes, she must. But wouldn’t that be an enormous burden on the physician, having to comply with many states’ sometimes very different requirements? Yes, it would. And wouldn’t that discourage the use of telemedicine? Yes, it would. The answer: reciprocity – if State A grants physicians located in State B a license to “practice” in State A via telemedicine, State B will do the same for physicians located in State A. The model Telemedicine Act includes such a reciprocity provision, but few states have adopted it. Who would oppose the Act? Guess.

22 rayward January 14, 2016 at 11:55 am

Consider how physicians in different states might have different views of reciprocity. Pick a state at random. Florida. What does Florida have? Hot weather and mosquitoes. What else? Old people. And What do old people have in common? Complaints about the heat and mosquitoes. What else? They get sick, a lot, and all of them have insurance! If I’m a physician enduring the heat and mosquitoes in Florida, do I want some dilettante in Massachusetts poaching my patients? If I’m pharmaceutical company Good Citizen located in Massachusetts enduring all the regulations and oversight and employing all those people who comply with the regulation and oversight, do I want upstart Fly by Night located in Lax Country selling pharmaceuticals to people in Massachusetts? If I’m CEO of Good Citizen I’m moving to Lax Country and firing all those useless people who comply with regulation and oversight. It’s how markets work.

23 Bill January 14, 2016 at 12:26 pm


My comment was not about recognizing accreditation of a degree, but rather tenure. (By the way, the US university can recognize the foreign degree, but it does not mean the US university has to hire that person…unlike a consumer, the university is in a good position to recognize the “value” of the foreign degree.)

My point was different…it was about using reciprocity to swap profs. Want to have your tenure swapped, as I discussed above, by your university with a community college in Florida. After all, that decision to grant tenure should be recognized by a participating reciprocating university, and if two universities want to make a swap they should be able to do so.

24 AlanG January 14, 2016 at 1:48 pm

Alex, you construct a straw horse that is easily ignited and to cite the most prominent example, foreign MD degrees are not universally recognized.. the PhD example is a bit of a red herring as employment as university professors is quite limited; just having the degree does not qualify one for automatic teaching status (though it probably would allow the person to fill one of the countless adjunct faculty positions that most universities now use to cut costs and provide substandard education)

25 Harun January 14, 2016 at 1:55 pm

The fact that they are not recognized doesn’t mean they are not good enough to be US doctors.

Just because a barrier to entry exists, doesn’t mean foreign doctors are bad.

Would you trust a German doctor? A Japanese doctor? An Australian?

That’s the point, of course you would.

Maybe not a doctor only accredited in Zimbabwe.

26 AlanG January 14, 2016 at 2:09 pm

I’m in agreement with you. I was just using this as an example to show why Alex’s argument is a false one.

27 Alex Tabarrok January 14, 2016 at 2:11 pm


Forbidding foreign MDs (from reputable countries) from working in the United States is so clearly a rent-seeking scam to keep US prices high that this argument supports my position.

28 AlanG January 14, 2016 at 2:21 pm

I agree 100% and ending this discrimination by quick licensure would do far more to improve the cost of health care and outcomes than anything dealing Rx drugs. the fact that the US encourages price setting of Rx drugs without any transparency is a form of rent seeking as well.

29 Jan January 15, 2016 at 7:51 am

I third this.

30 mulp January 14, 2016 at 10:42 am

If approval in one nation meant automatic approval in all others, the a warning requiring black box, restriction, or cancelling of approval occurring in one nation, that would immediately extend to all other nations.


31 AlanG January 14, 2016 at 2:11 pm

Absolutely! In fact safety data and warnings are already shared between FDA and EU regulators, though cancelling approvals is not always followed.

32 Adam January 14, 2016 at 11:25 am

“Glaxo, the original manufacturer of pyrimethamine, sells a version of the drug approved for use in the United Kingdom at less than $1 per tablet”

This is price disrimination by Glaxo. A reciprocity agreement wouldn’t stop them finding some way to still do that.


33 Thomas January 17, 2016 at 3:59 am

The left so opposes price discrimination when it highlights their privileged global position – that is very embarassing and causes serious and painful cognitive dissonance.

34 Jan January 14, 2016 at 11:46 am

Why are they asking economists in particular, when it is mainly a safety and effectiveness issue?

I agree with Sharfstein. Narrow parameters and temporary. Avoid race to bottom.

35 Cowboydroid January 15, 2016 at 11:13 am

Because it’s not a safety or effectiveness issue. The drug Daraprim is already approved for sale here in the US, but the importation from other nations that have also approved the drug is banned. That’s a trade issue.

36 AlanG January 14, 2016 at 1:53 pm

Why single out only certain generic drugs for importation? If Pyrimethamine should be imported, why not Solvadi for Medicaid patients? We know that Hep C disproportionately affects the poor and federal/state governments end up paying the cost of treatment. If Gilead is going to sell the drug at a fraction of the cost in disadvantaged areas of the world why not do it in disadvantaged areas of the US?

the larger question on reciprocity ought to include pricing decisions as well!

37 Harun January 14, 2016 at 1:58 pm

I would support a US system whereby we demanded a most-favored nation pricing system based on OECD pricing.

I don’t think Europe would like this, but could they really complain?

I think this would be an important first step before a single payer system in the US but it would be just as useful for a free market system, too. It should be a bipartisan agreement.

38 AlanG January 14, 2016 at 2:08 pm

Of course the US is the only OECD country that does not have some form of Rx price controls. While we are at it we could also move acetominophen products behind the pharmacists counter as is done in lots of EU countries for safety reasons. You don’t need a prescription but it does make it harder to OD on such products.

39 Jan January 14, 2016 at 6:36 pm

It’s actually much simpler than that. We just have to allow all federal payors–Medicaid, Medicare, VA, etc–to negotiate prices as a single entity. We’d get deals on par with Europe.

40 Jan January 14, 2016 at 6:34 pm

Re Addendum: If this is truly a debate, Sharfstein will acknowledge needed improvements and probably suggest some of his own. But he will demolish Alex’s central anti-FDA arguments.

41 Joanna January 14, 2016 at 7:54 pm

Why not survey medical historians rather than economists? Thalidomide for morning sickness, anyone?

42 fwiw January 15, 2016 at 10:42 am

Why not survey both?

History has much to teach us, but calling out previous mistakes shouldn’t be the only way to decide things going forward.

Thalidomide is a good one-word argument, I’ll grant you, for anti-reciprocity. But many people die waiting for drugs, and many potentially useful drugs are not developed because of the high cost of approval. They’re not as easily named…

43 Lord January 15, 2016 at 11:15 am

The question is how many liberals are in favor of approval and how many conservatives are in favor of importation and if they seriously favor one why they wouldn’t support the other even as a second best. Not that it matters. Pharma is in control of this, wouldn’t favor either, and will make sure neither come to pass.

44 Richard January 16, 2016 at 9:23 pm

It’s not just drug approvals. Apparently FDA approval is required before new non-invasive screening tests may be offered to patients in the US. FDA approval can take years longer than in Europe. As a result, greatly superior tests are available in Europe for years while being denied to US patients. An example is much more accurate methods of analyzing blood and urine samples in screening for prostate cancer. US patients have to make do with older, less accurate analytical techniques.

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