The Case for Less, Not More, US FDA Regulation

Abstract

The article byNeumann et al. in this issue is an important contribution to the literature; one that shedsmuch light on a heretofore largely overlooked aspect of Section 114 of the 1997 Food and Drug Modernization Act (FDMA). The article describes how Section 114 has been interpreted and used by major US pharmaceutical firms with respect to the dissemination and communication of a pharmaceutical product’s economic value to health plans, formulary decision makers and similar organizations. The authors’ argument for greater clarity on the topic by the US FDA deserves to be echoed loudly, as does their appeal for flexibility with respect to its interpretation. The article, which fills a long-standing lacuna in the literature, is particularly timely, as the authors of the article emphasize, because new and evolving comparative effectiveness research (CER) legislation will potentially affect many Section 114 claims. The purpose of this commentary is to offer a larger context within which the findings and arguments of Neumann et al. might be considered: a free-market context. When new pharmaceutical regulations and policies are proposed, it is always in society’s best interest to consider the cost-benefit calculus of the proposed government intervention, and to ask the question ‘Will the new regulation lead to net social benefits relative to the benefits in the absence of the regulation?’ Alternatively, and more generally, the following question might be considered: ‘Will the regulation facilitate or impede free market forces and outcomes?’ To be certain, there are numerous circumstances, or market failures, that do indeed justify government intervention to improve upon unregulated market outcomes. Intellectual property rights established via government-enforced limited-term patents is one example; one that is a defining feature of pharmaceutical markets, and that significantly affects the industry’s structure, conduct and performance. Information, for example, themolecular structure of a new pharmaceutical or biologic, is a public good once the product is brought to market (and often much sooner). As such, in the absence of patents, this new information is non-rival and non-excludable; consumption/acquisition of this information, by any individual or organization, does not reduce its availability for consumption by anyone else. And once the information is public (published), without patents, no-one can be excluded from consuming the information. Without limited-term patents, there would be virtually no economic incentive to invest in R&D, and there would be no pharmaceutical innovation, ceteris paribus. Of course,