A Simple Way to Speed Drug Approvals

A Simple Way to Speed Drug Approvals
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Senators Ted Cruz, R-Texas, and Mike Lee, R-Utah, recently introduced the RESULT Act ("Reciprocity Ensures Streamlined Use of Lifesaving Treatments"). Under the legislation, drugs and medical devices that are approved in certain other countries could be quickly approved in the United States as well.

It so happens that we surveyed American economics professors in 2013, asking them whether they favored a similar reform. Specifically, we asked whether the following change would be an improvement over the status quo:

That the United States adopt a policy wherein the FDA selects five of the drug-approval agencies of other leading [Organization for Economic Cooperation and Development] countries (for example, the Health Canada agency in Canada), and then, thereafter, as soon as a new drug is approved by any of those five agencies, that drug automatically gains approval in the United States.

Of the 467 economists who answered the question and did not mark "Have no opinion," 53 percent agreed that the reform would be an improvement, while 29 percent disagreed. (The remainder said they were "neutral.") Moreover, those favoring the reform were more likely to say they held their belief "strongly." Hence, the balance of economist judgment certainly leaned in favor of the liberalization.

There are good reasons for economists to lean this way. When it comes to drugs and medical devices, the regulatory system we have is highly unusual. Any new drug is banned until a sponsor has obtained FDA approval for it. The FDA, then, is charged with un-banning drugs, and thus FDA "approval" is best understood as permission. Fused to the permission process are requirements — rigid, extremely costly, extremely uncertain, and sometimes capricious or even political.

No other goods must receive advance, individual grants of permission before they can reach consumers. Similarly sensitive products, such as the food we ingest or the cars we drive at high speeds, are instead subject to general standards. When sellers fail to ensure product safety, consumers have recourse to the courts. And when unanticipated problems with specific products become manifest, regulators (such as the Consumer Product Safety Commission) step in to make sure the products are recalled.

For decades, economists have explained that our approach to drugs has an enormous downside — the invisible graveyard, as Alex Tabarrok calls it. When the costs and uncertainties of development increase, you get less development. Many drugs that would have been developed in a freer system simply never are. And those drugs that do reach the market come later than they would have, and are more expensive than they would have been.

The deaths and morbidity caused by this system are real, and utterly visible to patients' loved ones — but no one can trace them to would-have-been-but-never-were-developed drugs. The invisible graveyard is traced only by economic insight.

In line with such insight, the Cruz-Lee reform would bust the FDA's monopoly on giving permission. The European Medicines Agency (EMA), for example, could instead give effective permission in the U.S. market.

Some contend this could cause a "race to the bottom," with FDA, EMA, and like bodies becoming too lax. But each regulator would still face plenty of pressure for safety within its own jurisdiction — any drug approved by EMA, for example, would be approved for European patients and voters. And should those pressures fail, an agency that lost its good reputation could be removed from the list of trusted regulators.

The combined efforts of multiple agencies are also needed in light of advances in medical science. Drugs are increasingly tailored to small populations, often on the basis of genetic differences, so we could see a substantial increase in the number of new drugs. A reform like the RESULT Act enables the FDA, EMA, and their reputable peers collectively to conduct a greater number of drug reviews each year.

A different concern about the Cruz-Lee bill is voiced by Harvard Medical School professor Aaron Kesselheim, who recently said, "This would completely marginalize the FDA." He added, "It would allow the decision-making in other countries to have full power over the market in the United States." But full power — to grant permission as well as to deny it — is what the FDA now enjoys, and incentives drive it to be too stingy with permission. Under the reform, any approved agency would have the power to grant permission, but none would have full power to deny it. That is as it should be.

What's more important here — the prestige and power of U.S. government agencies, or the well-being of patients? Our survey indicates that most economists think that a moderate reduction in the FDA's monopoly power would be good for patients.

— Daniel Klein is professor of economics and JIN chair at the Mercatus Center at George Mason University and a fellow at the Ratio Institute. William L. Davis is professor of economics at University of Tennessee at Martin.

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