FDA approval at what price?

There is plenty of debate over whether the FDA should be looser or tougher with new drug approval, but I rarely hear the question posed as “approval at what price?”

One option would be to approve relatively strong and safe drugs at full Medicare and Medicaid reimbursement rates, if not higher.  Drugs with lesser efficacy or higher risk could be approved at lower reimbursement prices.  It is possible or perhaps even likely, of course, that private insurance companies would follow the government’s lead.

Dr. Peter Bach has promoted one version of this idea, and produced a calculator for valuing these drugs.  In essence the government would be saying to lower quality producers “yes, you can continue to try to improve this drug, but not at public expense.”

I believe proposals of this kind deserve further attention, and in general the notion of regulatory approval need not be conceived in strictly binary, yes/no terms.


I think we need an FDA which can be stronger in disapproval, rather than more graded in their approval. Think adult dietary supplements. As I understand it no randomized trial shows that they improve human health, and yet the FDA "approves" them. Once-A-Day can point to their approval.

"Are dietary supplements approved by FDA? No. Dietary supplement manufacturers and distributors are not required to obtain approval from FDA before marketing dietary supplements."

Are you sure that One-A-Day has FDA "approval"?

Link: http://www.fda.gov/AboutFDA/Transparency/Basics/ucm194344.htm

Maybe I'm remembering childhood commercials. "April 22, 1976: Congress passes the Vitamin-Mineral Amendment to the Federal Food, Drug, and Cosmetic Act. Also known as the Proxmire amendment (after Sen. William Proxmire, D-Wisc., its principal sponsor), the legislation prohibited the FDA from establishing standards to limit the potency of vitamins and minerals in food supplements or regulating them as drugs based solely on their potency. "

Another "thank you william Proxmire, for the early anti-science."

Another change: "Today's regulation of vitamins and minerals was established by the Dietary Supplement Health and Education Act of 1994 (DSHEA). The legislation placed dietary supplements in a special category under the general umbrella of foods, not drugs"

Basically, the government didn't want to crimp a billion dollar industry, and so took it off the scientific table.

It's probably more about FDA regulation of what they are allowed to advertise. Dietary supplments cannot advertise supposed health effects on their packaging.

This is actually a problem for people selling herbs. Some of them really do work, but they can't advertise it without going through FDA approval, and because herbs are considered public domain, there's no money in it. Or not enough to justify going through the FDA approval process. They're unpatentable.

Herbs are an interesting one. On the one side they can just be food, minimum benefit or harm. On the other they can be a natural pharmaceutical. Just ask Colorado. There is probably a gap where people are self-medicating with low grade natural pharmaceuticals and the FDA is turning a blind eye.

(Which is why you should tell your doctor about herbal supplements when he asks what drugs you are on, because some are.)

Well, they aren't turning a "blind eye". It's not illegal to sell herbs or dietary supplements without approval. You just can't tell anyone about their supposed health effects.

What distinguishes a "drug" from a "dietary supplement" is somewhat mysterious. A sufficiently refined extract of an exotic African herb might effectively be no different in potency than a regulated drug, and yet would be legal to sell and unregulated because it's considered a dietary supplement. But if a drug company did the research and extracted the pure chemical that had the relevant health effect, it would be a patentable drug - but it would be illegal to sell without getting approval.

Contradictions abound.

Dietary supplements are actually pretty well defined in the the law. The main difference is that a supplement is considered safe until proven otherwise (from a regulatory perspective), while the opposite is true for drugs.


I think we are saying Jan, that the biochemistry is less clear than the law. Aspirin is a drug, Willow bark extract is a health supplement.

I guess I didn't know it was that ambiguous.

Are there things currently regulated as drugs that a biochemist would look at and think it ought to be classified an "herb or botanical" for example?

I am not a lawyer, but the difference seems to be in the claim. If you say your willow bark cures headaches, you have a drug. Which is why the supplement system relies on 3rd parties to make claims, and none are on the bottle. http://www.healthline.com/health/willow-bark-natures-aspirin

Yes, if you can prove it cures headaches, it's a drug, and you can't sell it without approval
If you can't prove anything, it's a supplement, and you can sell it, but can't say it cures headaches.
So herbal supplements exist in this bizarre plane in which there is often lots of evidence (for some things), but it's better if it falls short of scientific proof, because then it would be regulated.

Hazel, your interpretation makes sense. The distinction of whether there is the potential to obtain a time limited monopoly I think explains it.

I think the real question should be "do they harm human health", rather than "do they improve human health". There are lots of things that people think improve their health, but most likely do nothing, but are otherwise harmless, like organic food, for instance. Whats the harm in people consuming that stuff?

People OD more on vitamins that organic food, for one. But beyond that, if you buy the very basics of bounded rationality, that we are all not knowledge filled utility optimizers, then you'd probably want to give us some help. People who focus on herbal cures tend to avoid actual doctors. That is not always good for their health.

They shut down Doctor Oz, finally, but he was symbolic of something much broader in American society. Science communication is hard, but it is also corrupt.

'Doctor Oz, science communication'


Some people got their political news from Jon Stewart, some people got their medical news from Doctor Oz. It's the nature of TV, that being entertaining trumps being correct.

No love for Megyn Kelly?

We (for large values of we) end up having to pay for whatever crap the FDA approves and even some stuff they don't. My insurance plan covers acupuncture for fucks sake.

They just need to enforce the laws against fraud.

“yes, you can continue to try to improve this drug, but not at public expense.”

What's the public expense? Is that referring to the cost of FDA approval? The cost of reimbursement rates after approval is mentioned, but that would seem to be independent of the FDA approval process. I would have assumed that Medicare can lower it's reimbursement rates any time that Congress decides to order it. What am I missing? Does Medicare always reimburse at at exactly the same rates?

Medicare reimburses based on a complicated formula that is in the law. Congress will not order it to be changed because most members are owned by the drug companies. Also see Medicare's inability to decide to not cover a drug based on the price. Now these rules all apply for the drugs Medicare reimburses for directly, the usually expensive injectable ones.

Medicare part D drugs, which you get from the pharmacy, are subject more complicated rules. But in general Medicare part D plans have more latitude to negotiate drug prices, or not cover, with many exceptions.

Congress will not order it to be changed because most members are owned by the drug companies

And - more? - because anything that stops old people getting the drugs they want gets the AARP - and its giant voting block - on Congress' ass.

If you can not cover based on price, the AARP runs ads with teary people lamenting that Grandma Is Gonna Die Because Medicare Hates Old People.

Get your government hands of my Medicare.

Exactly right. Did TC conflate FDA approval and public payer reimbursement, or am I misunderstanding the post?

Horrible idea. Sounds like a great recipe for increased inefficiency and corruption without any discernible benefit to the public.

Just like the vitamin industry!

This really comes down to whether you see value in the vitamin industry.

I'll take that as an ironic and correct comment.

If you can see value in something that does more harm than good to American health, but generates billions, then yes you can approve. (Health benefits of vitamins are not found by randomized testing, but overdoes and damage to organs by misuse are easily documented.)


Are there some links to studies that document and explain vitamin overdose and vitamin-caused organ damage? (I mean, studies that have convinced you and that would convince most any reasonable person that vitamin supplements are dangerous.)

I think we only have to show rare side effects, in the face of little benefit, and that is an easy Google http://m.livescience.com/50765-vitamin-d-supplements-toxicity.html

Google vitamins overdose, or vitamins organ damage.

Ok. Of course, one can google any terms imaginable. But I was hoping you would provide specific links to studies you felt were convincing.

This might be a general problem with American healthcare, and why it is so expensive. If we love things because they generate sales more than we suspect them because they provide little benefit, of course we will have the most expensive healthcare system in the world.

The stuff I pay out of pocket for is why the American healthcare system is so expensive?

Medical costs as a percentage of GDP is the true cost we pay, and what creates opportunity costs across the whole economy.

I also pay for a gym membership and sometimes, I spurge and pay a little extra for light dressing.

this is more like the pay for a gym but never go scenario

The study you link to above does not support your concern. Indeed, too much of something may not turn out to be a good thing. The lady must have been taking ~25 Vitamin D pills a day which most anyone would say that is little excessive. The article could be worded better, but 4 cases out of 20,000 (or is it 200,000?) blood tests (or 100,000 people; or is it 1 million) should not be cause for concern.

I don't doubt misuse is an issue and noneffective (pointless) vitamin consumption, but your original claim was that vitamin consumption does more harm than good.

Don't be lazy. https://en.wikipedia.org/wiki/Hypervitaminosis

While we're at it:

"Half of American adults take vitamins every day. Yet after decades of research on vitamins, reviews don't find any justification for our multivitamin habit, and in some cases, vitamins have actually been associated with an increased risk of various cancers."

Read more: http://www.businessinsider.com/do-vitamins-work-2014-12#ixzz3ijb6arXH

I would like to hear more on your beliefs about doctors' ability to make causal inferences about the treatment effects of drugs and weigh tradeoffs between effect sizes and side effects. My impression is that doctors have the most encyclopedic and accurate knowledge of health of any Amazon tribe, but are completely unable to evaluate experimental designs. In other words, my support for the current FDA regime stems from a belief that patients are almost as competent as their doctors at evaluating the effectiveness of a drug.

Doctors are not actuaries, which is troublesome for communicating with patients (which you notice if you've been through the cancer-treatment mangle).

The one I know best, who has been practicing since 1977, is very alive to the dilemmas incorporated with prescribing anything. As he has a geriatric practice, those dilemmas he faces all day every day. It's just that he does not have the precise probabilities in his head when he's prescribing or refraining from it. What he tells me is this, "you know there's an x% chance that the drug you're prescribing will produce Y% improvement in your patient; you also know that the odds are better than even that it will do nothing at all; what do you do?" He tries to be conservative with his prescription. I've seen some disasters. I have personal knowledge of one geriatric who was on 27 prescriptions. The public health nurse evaluating her was aghast and gave a dressing down to her (new) primary care doctor (who hadn't been paying much attention to what the previous doctor or all the specialists had been up to).

Is anyone in your town under the age of 60?

Proposals of this kind deserve no further consideration.

Premarket disapproval which eliminates from public consideration medications which are unsafe has a very clear role.
Disapproval of drugs which are not demonstrated to have any effect for the labelled indication is certainly useful.
User fees are meant to cover marginal costs of review.

Denying premarket approval based on future intended pricing doesn't fit with any public good.
If Medicare/Medicaid and the military won't buy the drug; so be it.

Medicare can't decide to not buy a drug based on its price. That's in the law.

So the problem is that law, not that drugs get approved that will end up being expensive.

FDA generally does a good job making sure drugs are safe and effective. Payment policy is a huge problem.

This was a surprise, but maybe I have missed something. How does this suggestion differ in practice from the HTA based systems that we were in Europe and Australia: NICE (UK), IQWiG ( Germany), PBAC ( Australia) all attempt to measure added benefit and translate this to price. Each in their own way create particular distortions to the market that translate to restricted or delayed access. Part of this is an insurance or coverage problem ( read single payer, fixed budget), but part of this is a measurement problem. It is simplistic to assume that added benefit in a medicine can be reduced to a single metric (eg QALY) that maps uniformly across disease states in a way that reflect population preferences. ( cancer vs diabetes) But it is also a temporal problem: the measurement is typically made at point in time whilst the evidence base often takes decades to mature before a more accurate understanding of true use value is arrived at. Don't believe me: read the journal of clinical oncology. We are still trying to understand what the optimum use of taxanes in early stage breast cancer is, even though these drugs are so old they are generic.

My God, it's an Alex post about drugs that I actually agree with. Thank you.

I'm trying to figure out if this comment was deliberately ironic. Probably not worth the brain energy.

I was serious. It's a good idea. It's kind of crazy that we don't pay for drugs based on their value now.

An Alex post brought to you by Tyler Cowen. Or maybe that is the bit of irony Norman didn't want to mentally strain himself with.

In my opinion, the law should be changed and Medicare should be able to deny payment based on the perceived cost:effectiveness ratio. Empower the payer to make the choice using tools such as the one Dr Bach has created.

Oh, I am an idiot. Yes, this was Tyler and now it makes a hell of a lot more sense.

Not a bad idea. What if we just make FDA approval into purely a Medicare/Medicaid approval system? You can sell any drug you want, but only FDA approved drugs would be covered by publicly-funded programs. Likely many private doctors and insurance companies would follow suit. And many consumers could opt to use an insurer that only covers approved drugs. But not all. There would still be a market for people willing to experiment with unapproved drugs.

Would it be fair to say that ineffective treatments suffer the broken window fallacy?

This should work. All that needs to be done is to find or invent the magic unicorns that will pay for it all.

Wouldn't this be pretty cheap to implement? Just have three possible results of the FDA's drug approval decision:

a. Approved and may be paid for by the USG

b. Allowed but we're not buying it (it doesn't look dangerous, but also doesn't look much better than existing drugs)

c. Not allowed (it's actively dangerous)

Why would this be harder to pay for?

We already have that.

Medicare isn't obligated to pay for a drug just because the FDA approves it.

Technically true, but they almost always cover anything new.

>In essence the government would be saying to lower quality producers “yes, you can continue to try to improve this drug, but not at public expense.

Development of complex technology is always an iterative process. Better drugs come from what is learned from existing drugs. Every drug is suboptimal in some way.

So who is going to develop drugs and who is going to pay for them? Unicorns I suppose.

Just pray that the illness you develop is common and has effective treatments available. Don't get Alzheimer's.

This is classic socialized medicine. Remember that sick people don't vote, so politicians don't give a f**k. Just hope you don't get sick.

During my lifetime male life expectancy has increased substantially, almost the same as women's due to effective treatment of heart disease, much via pharmaceuticals. All those came about because someone paid for substandard and many times speculative treatments, the iterative process of figuring out what works. That kind of thing will not happen anymore. Unless unicorns.

What you're saying is somewhat true for medical devices, but not drugs.

A drug that makes it past the human testing stage either works or it doesn't. Companies aren't sending out low effectiveness versions of a drug just so they can generate revenue to make a couple tweaks to the molecule and find something that really works. And that's a good thing, because we only want to do trials as often as we have to, that is once we have a pretty darn good idea a particular drug is going to be effective with little to no indication of patient harm.

It would save money.

To "John" and others who would like the government to regulate herbs and vitamins more, please take a hike; a long one and get lost too.

If you're really motivated, stick to alcohol, tobacco, and firearms; maybe you can do some good there.

Yes, I'm a doctor, and I don't think the govt helps much of anything. Where, when, and by whom will there be resources to do what you want done? Don't tax me bro.

The risks to "all of us" from supplement/vitamin overusage is trivial compared to the very bad tradeoff of greater regulatory control. Again, stick to ATF policy if you want to "do something".

Also, things change, like dietary recommendations for 35 years; how could they get that wrong? Just stay out.

Here's something meaningful to 75% here--estrogen noncontrolled, testosterone controlled. Why? So you can't abuse it! So what? It still has to be prescribed by people with licenses. Get off my back!

Lastly, we will all be disappointed soon by the poor quality of advice from primary care facilities; they won't have time to talk about herbs, unless you're selling.

The market and the FDA does this to some extent.

Think about orphan drugs. We have a lot more drugs now that are tailored to treat terrible diseases that only affect a small number of people. For these people, the drugs are both expensive and life changing. 3rd party payers push back a bit (sometimes), but when you are only paying for a hundred thousand patients or fewer a year, the expensive prices don't impact the bottom line much. And, if those potential returns were not there, the drug companies would not pursue orphan drugs.

This is better handled by only giving good patent protection to real innovation, and cleaning up the cozy, anti-competitive behavior between the generics and branded drug companies. If anything, I think we should change the system so that the data the companies use for clinical trials are the exclusive property of the company that paid for them for a number of years. This would keep prices down, but enable returns.

Comments for this post are closed