The More Monitoring, the Better Quality? Empirical Evidence from the Generic Drug Industry

Abstract

In response to the growing concern on drug safety issues, the U.S. Food and Drug Administration (FDA) has implemented major moves in its inspection regime to ensure that the agency allocates more inspection resources to the low-quality manufacturing facilities. The actions of the government agency implicitly assume that the frequent inspections at low-quality facilities could reduce the drug safety concerns. However, whether more monitoring guarantees better quality remains unclear. In this study, we directly examine the validity of this assumption in the generic drug industry and test the impact of inspection frequency on the manufacturing quality. We first perform a recurrent-event cox proportional hazards model with instrumental variables to investigate the impact of inspection frequency on the gap time between successive recall events. We observe a significant increase in the recall hazard rate for those facilities experiencing decreases in the inspection frequency; on the contrary, there is no significant change in the recall hazard for facilities experiencing more frequent quality monitoring. We then exploit a shift of inspection resources from domestic to foreign facilities and compare the recall rate before and after the resource shift. The consistent results reassure our findings. Overall, we do not find evidence that supports the link between more frequent inspections and fewer recall events, suggesting that the current risk-based inspection model alone might not help bring down the quality failures in drug products. We propose two explanations for the results -- the organizational culture and the inherent quality levels -- and discuss the potential actions the FDA and the relevant regulators could take to augment the inspection regime.