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Assessing the Safety and Efficacy of the FDA: The Case of the Prescription Drug User Fee Acts

Author

Listed:
  • Tomas J. Philipson
  • Ernst R. Berndt
  • Adrian H. B. Gottschalk
  • Matthew W. Strobeck

Abstract

The US Food and drug Administration (FDA) is estimated to regulate markets accounting for about 20% of consumer spending in the US. This paper proposes a general methodology to evaluate FDA policies, in general, and the central speed-safety tradeoff it faces, in particular. We apply this methodology to estimate the welfare effects of a major piece of legislation affecting this tradeoff, the Prescription Drug User Fee Acts (PDUFA). We find that PDUFA raised the private surplus of producers, and thus innovative returns, by about $11 to $13 billion. Dependent on the market power assumed of producers while having patent protection, we find that PDUFA raised consumer welfare between $5 to$19 billion; thus the combined social surplus was raised between $18 to $31 billions. Converting these economic gains into equivalent health benefits, we find that the more rapid access of drugs on the market enabled by PDUFA saved the equivalent of 180 to 310 thousand life-years. Additionally, we estimate an upper bound on the adverse effects of PDUFA based on drugs submitted during PDUFA I/II and subsequently withdrawn for safety reasons, and find that an extreme upper bound of about 56 thousand life-years were lost. We discuss how our general methodology could be used to perform a quantitative and evidence-based evaluation of the desirability of other FDA policies in the future, particularly those affecting the speed-safety tradeoff.

Suggested Citation

  • Tomas J. Philipson & Ernst R. Berndt & Adrian H. B. Gottschalk & Matthew W. Strobeck, 2005. "Assessing the Safety and Efficacy of the FDA: The Case of the Prescription Drug User Fee Acts," NBER Working Papers 11724, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11724
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    Cited by:

    1. Vernon, John A. & Golec, Joseph H. & Lutter, Randall & Nardinelli, Clark, 2009. "An exploratory study of FDA new drug review times, prescription drug user fee acts, and R&D spending," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1260-1274, November.
    2. Allan Begosh & John Goldsmith & Ed Hass & Randall W. Lutter & Clark Nardinelli & John A. Vernon, 2006. "Black Box Warnings and Drug Safety: Examining the Determinants and Timing of FDA Warning Labels," NBER Working Papers 12803, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • H0 - Public Economics - - General

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