Freeing the drug market

Returning the U.S. Food and Drug Administration (FDA) to its original mandate is an easy way to reduce drug prices without undermining innovation in the industry, says David Gratzer, a senior fellow at the Manhattan Institute.

Since the 1960s the FDA has required that drugs be tested not only for safety but also for efficacy. The problem, says Gratzer, is the extensive cost of efficacy testing. Economist Gary Becker, a Nobel laureate, estimates that 40 per cent of all research and development costs (which are passed on to consumers) are attributable to efficacy testing.

However, doctors often prescribe drugs off-label (for reasons other than the FDA approved purposes), although drug companies do not test the drugs' efficacy for those uses:

In 1991, the Government Accountability Office (GAO) found that 44 of 46 drugs tested were prescribed off label.

In a 2006 study, investigators found that of 10 commonly prescribed drugs, 21 per cent of prescriptions were for off-label uses; for some drugs, as much as two-thirds of prescriptions were for non-FDA approved purposes.

Critics suggest that if the FDA didn't certify efficacy, patients would be exposed to ineffective treatments. Doctors and patients would try medications in certain situations, unguided by FDA data – but, as explained above, they already do that, says Gratzer.

Overall, the benefits of the FDA focusing solely on safety would greatly outweigh the risks. There would be more medications available, and smaller firms that don't have the funds for extensive efficacy testing could compete, leading to lower prices. Meanwhile, the FDA could go back to its original purpose, protecting the public from dangerous drugs, says Gratzer.

Source: David Gratzer, Freeing the Drug Market, National Review, December 19, 2006.

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Health Policy Unit Bulletin/ 02 January 2007