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Cost-Benefit Analysis of the FDA: The Case of the Prescription Drug User Fee Acts

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  • Philipson, Tomas J.
  • Berndt, Ernst R.
  • Gottschalk, Adrian H. B.
  • Sun, Eric

Abstract

The U.S. Food and Drug Administration (FDA) is estimated to regulate markets accounting for about 20% of consumer spending in the U.S. Despite the FDA's strict adherence to evidence-based evaluation of the safety and efficacy of the products it regulates, there exists no generally agreed upon evidence-based methodology to evaluate the agency's own safety and efficacy record. This paper proposes a 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). These acts mandated FDA performance goals in reviewing and acting on drug applications within specified time periods, in return for levying fees on drug manufacturers' submissions. Our methodology uses data on the U.S. sales of drugs as well as the FDA review and withdrawal times for those drugs to estimate measures of the private and social surplus associated with the agency in general, and changes in the speed-safety tradeoff induced by PDUFA, in particular. We find that PDUFA raised the private surplus of producers, and thus innovative returns, by about $7 to $11 billion. Depending on assumptions about the market power of producers during patent protection, we find that PDUFA raised consumer welfare between $7 and $20 billion; thus the combined social surplus was raised by $14 to $31 billion. 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 140,000 to 310,000 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we estimate an upper bound on the adverse effects of PDUFA based on drugs submitted during PDUFA I/II and subsequently withdrawn for safety reasons, and find that an extreme upper bound of about 56,000 life years were lost. This estimate is an extreme upper bound as it assumes all withdrawals since the inceptio
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  • Philipson, Tomas J. & Berndt, Ernst R. & Gottschalk, Adrian H. B. & Sun, Eric, 2007. "Cost-Benefit Analysis of the FDA: The Case of the Prescription Drug User Fee Acts," Working Papers 217, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
  • Handle: RePEc:zbw:cbscwp:217
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    References listed on IDEAS

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    Cited by:

    1. Chorniy, Anna & Bailey, James & Maloney, Michael & Civan, Abdulkadir, 2019. "Regulatory Review Time and Pharmaceutical R&D," Working Papers 06923, George Mason University, Mercatus Center.
    2. Matthew Grennan & Robert J. Town, 2020. "Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices," American Economic Review, American Economic Association, vol. 110(1), pages 120-161, January.
    3. Daniel R. Wilmoth, 2015. "Reconciling Estimates of the Value to Firms of Reduced Regulatory Delay in the Marketing of Their New Drugs," Health Economics, John Wiley & Sons, Ltd., vol. 24(12), pages 1651-1656, December.
    4. Raymond J. March, 2021. "The FDA and the COVID‐19: A political economy perspective," Southern Economic Journal, John Wiley & Sons, vol. 87(4), pages 1210-1228, April.
    5. Anna Chorniy & James Bailey & Abdulkadir Civan & Michael Maloney, 2021. "Regulatory review time and pharmaceutical research and development," Health Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 113-128, January.
    6. Philipson Tomas J. & Sun Eric & Goldman Dana & Jena Anupam B., 2012. "A Reexamination of the Costs of Medical R&D Regulation," Forum for Health Economics & Policy, De Gruyter, vol. 15(2), pages 1-28, October.
    7. Casey B. Mulligan, 2021. "Peltzman Revisited: Quantifying 21st Century Opportunity Costs of FDA Regulation," NBER Working Papers 29574, National Bureau of Economic Research, Inc.
    8. Mary Olson, 2013. "Eliminating the U.S. drug lag: Implications for drug safety," Journal of Risk and Uncertainty, Springer, vol. 47(1), pages 1-30, August.
    9. Ilke Onur & Magnus Söderberg, 2020. "The impact of regulatory review time on incremental and radical innovation: evidence from the high-risk medical device market," Journal of Regulatory Economics, Springer, vol. 57(2), pages 134-158, April.
    10. Tomas J. Philipson & George Zanjani, 2013. "Economic Analysis of Risk and Uncertainty induced by Health Shocks: A Review and Extension," NBER Working Papers 19005, National Bureau of Economic Research, Inc.
    11. Tannista Banerjee & Arnab Nayak, 2017. "Why trash don’t pass? pharmaceutical licensing and safety performance of drugs," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(1), pages 59-71, January.
    12. Kristopher J. Hult & Tomas J. Philipson, 2012. "Public Liabilities and Health Care Policy," NBER Working Papers 18571, National Bureau of Economic Research, Inc.
    13. Henry Grabowski & Y. Richard Wang, 2008. "Do Faster Food and Drug Administration Drug Reviews Adversely Affect Patient Safety? An Analysis of the 1992 Prescription Drug User Fee Act," Journal of Law and Economics, University of Chicago Press, vol. 51(2), pages 377-406, May.
    14. Glenn L. Furton, 2023. "The pox of politics: Troesken’s tradeoff reexamined," Public Choice, Springer, vol. 195(1), pages 169-191, April.

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