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

Tomas Philipson, Ernst R. Berndt, Adrian H. B. Gottschalk and Matthew W. Strobeck

No 199, Working Papers from The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State

Abstract: The US Food and Drug Administration (FDA) is estimated to regulate markets accounting for about 20% of consumer spending in the US. Despite FDA's importance, and 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 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). 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 US 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 the change of 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 $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we estimate an upper bound on the adverse effects of PDUFA based on drugs submitted during PDUFA I/II and subsequently withdrawn for safety reasons, and find that an extreme upper bound of about 56 thousand life-years were lost. This estimate is an extreme upper bound as it assumes all withdrawals since the inception PDUFA were due to PDUFA and that there were no patients benefiting from the drugs withdrawn. 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.

Date: 2005
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