Federal regulation affects our lives every day in more ways than we realize. The Food and Drug Administration alone regulates products that account for more than a trillion dollars annually—25 cents of every consumer dollar; and the average cost (including out-of-pocket expenses and opportunity costs) to bring a new drug to market is now about $2.6 billion.
FDA Commissioner Scott Gottlieb announced his resignation on March 5, and the search has already begun for a successor. This transition offers an opportunity: We need a regulatory reformer.
Government regulation provides reassurance and some tangible benefits, to be sure, but it has massive costs, direct and indirect. Regulation that is wrong-headed or that merely fails to be cost-effective actually costs lives, both directly by withholding life-saving products, and also by diverting societal resources to gratuitous regulatory compliance.
Therefore, the number of lives saved or other benefits derived from government regulation should always be large enough to offset the costs. The diversion of resources to comply with regulation—good, bad, or indifferent—exerts an “income effect” that reflects the correlation between wealth and health. The poorest and most vulnerable in society disproportionately bear the costs and impacts of regulation that is not cost-effective, while they enjoy relatively few of the benefits. As economist Diana Thomas has written, “[B]y focusing on the mitigation of low-probability risks with higher cost, regulation reflects the preferences of high-income households and effectively redistributes wealth from the poor to the middle class and the rich.”
In recent years, under Democratic and Republican administrations, the FDA has made egregious errors both in the formulation of policy and in the evaluation of individual products that have had important consequences. While he did a lot of chest-thumping on easier issues, Gottlieb shied away from or stumbled over many tough ones. The FDA’s current dysfunctional regulation of animals developed through modern genetic engineering, the war on e-cigarettes, and the permissiveness toward illegal claims by the organic food industry are good examples.
Although there are exceptions, such as too-lax oversight of homeopathic “medicines” and dietary supplements, most of these missteps have been in the direction of excessive risk-aversion or heavy-handed regulation.
The FDA has arbitrarily introduced various obstacles to drug testing: They have directed researchers at drug companies to begin trials at inappropriately low dosages; injudiciously limited early clinical trials only to single-dose, instead of multiple-dose, studies; demanded unnecessary, invasive procedures on patients; and insisted on efficacy superior to existing drugs.
The late, great economist Milton Friedman observed that to gain insight into the motivation of an individual or organization, look for the self-interest. Where does the self-interest of regulators lie? Not in serving the public interest but in expanded responsibilities, bigger budgets, and grander bureaucratic empires for themselves.
Another incongruity is the widespread misconception that more-stringent regulation is synonymous with greater safety, but, in fact, net benefit to patients is often compromised because of a regulatory anomaly: the asymmetry of outcomes from the two types of mistakes that regulators can make. A regulator can commit an error by permitting something bad to happen (approving a harmful product like a drug with delayed side effects), or by preventing something good from becoming available (not approving a beneficial product in a timely way). Both outcomes are bad for the public, but the consequences for the regulator are very different.
The first kind of error is highly visible, causing the regulators to be attacked by the media and patient groups, and investigations by Congress. But the second kind of error—keeping a potentially important product out of consumers’ hands—is usually a non-event, eliciting little attention.
FDA General Counsel Peter Barton Hutt summarized the regulators’ conundrum this way: “FDA employees have been praised only for refusing to approve a new drug, not for making a courageous judgment to approve a new drug that has in fact helped patients and advanced the public health.”
As a result, regulators make decisions defensively, so they tend to delay or reject new products of all sorts, from fat substitutes to vaccines and painkillers. That’s bad for public health and for physicians’ and consumers’ freedom to choose among a variety of products.
Congressional oversight is supposed to provide a check on regulators’ performance, but rarely does it focus on their unnecessarily delaying product approvals. A premature or mistaken approval makes for more exciting hearings, with injured patients and their families paraded before the cameras.
The impacts of FDA regulators’ self-serving actions range from the creation of disincentives to research and development (and inflated costs for them) to significant threats to public health, such as the years-long delay in approval of a much-needed meningitis B vaccine. Because of the widespread dysfunction that plagues today’s FDA, reforms of several kinds are needed—organizational, managerial, and cultural.
We need structural, policy and management changes that create incentives to regulate in a way that imposes the minimum burden possible.
There are a number of possible approaches and remedies, ranging from radical to more conservative, that could be effective. Many could be accomplished administratively, but FDA is comprised almost exclusively of civil servants, who have little incentive to disrupt the status quo.
Therefore, given the paucity of political appointees at the FDA, if we are to realize the kind of aggressive deregulation called for by President Trump, the new commissioner will need to be a skilled manager and highly knowledgeable about the workings of the agency.
We need regulatory reform, and that will require an agency head who is committed to it. If not now, when?
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