A congressional staffer recently asked about the performance of the Food and Drug Administration (FDA), including the Prescription Drug User Fee Act (PDUFA). Since 1992, PDUFA has allowed the FDA to hire more drug-application reviewers by charging user fees to drug manufacturers. User fees now account for almost half of FDA revenues. I thought it might be useful to share his questions and my responses.
Was PDUFA worth it?
Probably.
Begin with the principle that the right to make one’s own health decisions is a fundamental human right. It follows that patients (firms) have a fundamental right to use (sell) any medicine. (And that the former have a right to redress if the latter harms them without consent.) The FDA violates that right by imposing coercive barriers to market entry for new diagnostic tests, medicines, and medical devices until they meet the agency’s definitions of “safe” and “effective,” which reflect subjective values that not everyone shares.
In evaluating the costs and benefits of PDUFA’s user fees, the material factors are the degrees and incidences of (a) FDA regulation coercing people/violating their rights, (b) the taxes that support FDA staff coercing people/violating their rights, and (c) the economic (including health) gains or losses from (a) and (b).
PDUFA increased (b). One of the reasons PDUFA increased (b) is that it increased overall funding for FDA reviewers. A distinct reason is that user fees concentrate the incidence of the tax burden of funding FDA reviewers. Concentrating a given tax burden on fewer people makes it more coercive. All taxes grow more coercive at the margin; concentrating the tax burden pushes out that margin. Enslaving one person until he produces $100,000 worth of value is more coercive than taxing 100,000 people $1 each. (One can argue a user fee is more equitable than a broad-based tax because it imposes the cost of a government service more directly on the people who use it. But if a user fee is the price of lifting a coercive government restraint, then it is not merely a price for a service. It is itself a coercive tax.)
PDUFA reduced (a). Those additional taxes financed more FDA reviewers who reduced review times. Shorter review times make the FDA’s coercive barriers to market entry less coercive.
PDUFA had a positive impact on (c). Studies show that health gains from faster access to new medicines totally swamped the health losses from more unsafe drugs.
Did PDUFA reduce the coercion from (a) more than it increased coercion via (b)? Probably. The FDA’s premarket approval requirement is some serious coercion. It bars all 340 million US residents from accessing all new, unapproved drugs. Removing that barrier one year sooner expands freedom for all 340 million US residents. (Most won’t use the drug, but they are all free to do so, whereas before they were not.) The number of people who will pay the taxes that enable the reduction that coercive barrier is much smaller. Were it a broad-based tax, it would comprise a tiny fraction of an individual taxpayer’s overall tax burden. It probably would not outweigh the reduction in coercion from removing multiple coercive restraints on 340 million people. (This is true even if we weigh the coercion more because that tax burden comes at the margin, and even if we consider that user fees concentrate the tax burden on a group that is smaller still.) It may be material that people in that smaller-still group prefer to pay the user fees rather than endure the additional coercion that would otherwise fall on them (which is itself a small share of the total coercion from the premarket approval requirement).
Did PDUFA contribute to industry capture of the FDA?
PDUFA user fees now account for about 45 percent of the FDA’s budget. The MAHA view is that PDUFA allows the industry to control the FDA. While that may be true, it’s not quite industry capture. Or at least, it’s not necessarily a particularly concerning species of industry capture.
MAHA worries that PDUFA allows the industry to buy a lower barrier to market entry. Indeed, that does appear to be happening. But that is good news, not bad news. Faster drug approvals are not some lavish government subsidy that Big Pharma is buying. A faster approval is the quicker/earlier removal of a form of government coercion that should not exist in the first place. It would be more accurate to see PDUFA as a racket the government is running. Congress and the FDA are taking away drug manufacturers’ rights and shaking them down for cash if they want their rights back. (MAHA worries that these quicker drug approvals would also lower the FDA’s standards. All available evidence suggests they are not.)
Even if PDUFA gives Big Pharma so much power over the FDA that the quality of drug approvals suffers materially (such that even consumers take notice), it would not necessarily be problematic from the perspective of health care rights or consumer protection. The FDA’s reputation would suffer, but consumers would still be perfectly free to rely on other sources of safety and efficacy certification. Consumers would look at an FDA approval with skepticism and decide to wait until (say) the European Medicines Agency or some other body certified a drug.
The principal danger of industry capture is that industry incumbents will take control of an agency and use its powers to benefit themselves vis-à-vis their competitors. If Big Pharma were to bend PDUFA or use the influence it confers to bend some other FDA power, in a manner that disproportionately harms some drug producers to the benefit of others, then that would be a problematic form of industry capture—because it would harm consumers. I’m not aware of PDUFA giving rise to this form of industry capture. But it may be happening.
Should Congress eliminate PDUFA? If it does, what happens?
We should not assume that, were Congress to eliminate PDUFA, Congress would also replace with general revenues the 45 percent of the FDA’s revenues (roughly $3 billion per year) that user fees now provide. There is a reason Congress turned to user fees in the first place: there wasn’t the political appetite in Congress to raise taxes or cut other spending to fund extra FDA reviewers. I’m not sure the situation has changed. If Congress eliminates PDUFA, I would expect longer drug reviews, more drug lag, and more drug loss.
Moreover, simply eliminating PDUFA would not even reduce—and it might even increase—industry capture. It would raise the barriers to entry (in terms of time and money costs) for new drugs. That favors the largest pharmaceutical firms. They have more capacity to wait out the uncertainty. They also have a greater capacity to persuade, cajole, or bribe FDA officials to prioritize their reviews. Which is basically what industry capture looks like.
Are studies from the early days of PDUFA still relevant?
The studies I cited showing that PDUFA has had a positive impact on health—by reducing FDA regulation—are about 20 years old. So might those studies no longer serve as a guide?
Let’s get a few things straight. The government has been taking away people’s rights to make their own health decisions for 90 years without ever studying whether its interventions are benefiting patients. It just takes away people’s rights without caring enough to measure whether it is helping them or hurting them. Fortunately, others did study that question. They found that those interventions are harming health.
It is no defense of those interventions to say that the best available evidence is now 20 years old.
First, it’s still the best available evidence. That means that any fears that reducing or eliminating the FDA’s power would lead to widespread harm are irrational. They are relying on inferior evidence (read: junk science) to form a faulty understanding of reality.
Second, people shouldn’t have to conduct studies to get the government to stop violating their rights. The burden is on the government and its defenders to show that their intervention will benefit patients. So if you think we need more evidence, then by all means, conduct more research. Produce more up-to-date studies. But there is no justification for continuing to violate people’s rights while you do.
Finally, the claim that the best available data is now out-of-date rings hollow when it comes from people who also ignored or resisted those data when they were new.