IDEAS home Printed from https://ideas.repec.org/a/kap/regeco/v66y2024i2d10.1007_s11149-024-09477-2.html
   My bibliography  Save this article

Cost benefit analysis and the FDA: measuring the costs and benefits of drug approval under the PDUFA I-II, 1998–2005

Author

Listed:
  • Samuel DeCanio

    (King’s College London)

Abstract

This paper examines the Food and Drug Administration’s regulation of drug safety. In one of the most sophisticated cost-benefit analyses to date, (Cost-benefit analysis of the FDA: The case of the prescription drug user fee acts, The Journal of Public Economics, 92, 1306–1325.) argue that between 1998 and 2005 the FDA’s drug submission process under the Prescription Drug User Fee Act (PDUFA) increased social surplus by $14–31 billion. However, this conclusion is based upon inappropriate data that underestimate the welfare costs of drugs that were withdrawn from the market due to their harmful side effects. Once appropriate epidemiological data are used to calculate the welfare costs of a single drug, Vioxx, which was withdrawn from the market after it was found to cause heart attacks, PDUFA I-II are found to have caused a net reduction in social welfare of between $1-201 billion. This indicates that statistically infrequent regulatory mistakes may have large social welfare implications that can counteract the benefits of years of accurate regulatory decisions. Thanks to Sarah Bernhardt, Romit Bhattacharya, Stephen DeCanio, Marco Giani, Colin Jennings, John Meadowcroft, and Tariq Thachil for helpful comments and suggestions. Special thanks to the helpful comments offered by two anonymous referees.

Suggested Citation

  • Samuel DeCanio, 2024. "Cost benefit analysis and the FDA: measuring the costs and benefits of drug approval under the PDUFA I-II, 1998–2005," Journal of Regulatory Economics, Springer, vol. 66(2), pages 174-180, December.
    • Handle: RePEc:kap:regeco:v:66:y:2024:i:2:d:10.1007_s11149-024-09477-2
    DOI: 10.1007/s11149-024-09477-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11149-024-09477-2
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11149-024-09477-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mary K. Olson, 2002. "Pharmaceutical Policy Change and the Safety of New Drugs," Journal of Law and Economics, University of Chicago Press, vol. 45(S2), pages 615-642.
    2. Olson, Mary K., 2008. "The risk we bear: The effects of review speed and industry user fees on new drug safety," Journal of Health Economics, Elsevier, vol. 27(2), pages 175-200, March.
    3. Olson, Mary K., 2004. "Are novel drugs more risky for patients than less novel drugs?," Journal of Health Economics, Elsevier, vol. 23(6), pages 1135-1158, November.
    4. Philipson, Tomas & Berndt, Ernst R. & Gottschalk, Adrian H.B. & Sun, Eric, 2008. "Cost-benefit analysis of the FDA: The case of the prescription drug user fee acts," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1306-1325, June.
    5. Daniel Carpenter & Jacqueline Chattopadhyay & Susan Moffitt & Clayton Nall, 2012. "The Complications of Controlling Agency Time Discretion: FDA Review Deadlines and Postmarket Drug Safety," American Journal of Political Science, John Wiley & Sons, vol. 56(1), pages 98-114, January.
    6. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. 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.
    3. Daniel Tobias Michaeli & Thomas Michaeli & Sebastian Albers & Tobias Boch & Julia Caroline Michaeli, 2024. "Special FDA designations for drug development: orphan, fast track, accelerated approval, priority review, and breakthrough therapy," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 25(6), pages 979-997, August.
    4. 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.
    5. Andreas Schick & Kathleen L. Miller & Michael Lanthier & Gerald Dal Pan & Clark Nardinelli, 2017. "Evaluation of Pre-marketing Factors to Predict Post-marketing Boxed Warnings and Safety Withdrawals," Drug Safety, Springer, vol. 40(6), pages 497-503, June.
    6. Boakye, Derrick & Sarpong, David & Mordi, Chima, 2022. "Regulatory review of new product innovation: Conceptual clarity and future research directions," Technological Forecasting and Social Change, Elsevier, vol. 175(C).
    7. 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.
    8. Chorniy, Anna & Bailey, James & Maloney, Michael & Civan, Abdulkadir, 2019. "Regulatory Review Time and Pharmaceutical R&D," Working Papers 06923, George Mason University, Mercatus Center.
    9. Philipson, Tomas & Berndt, Ernst R. & Gottschalk, Adrian H.B. & Sun, Eric, 2008. "Cost-benefit analysis of the FDA: The case of the prescription drug user fee acts," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1306-1325, June.
    10. Guy David & Sara Markowitz & Seth Richards-Shubik, 2010. "The Effects of Pharmaceutical Marketing and Promotion on Adverse Drug Events and Regulation," American Economic Journal: Economic Policy, American Economic Association, vol. 2(4), pages 1-25, November.
    11. Olson, Mary K., 2008. "The risk we bear: The effects of review speed and industry user fees on new drug safety," Journal of Health Economics, Elsevier, vol. 27(2), pages 175-200, March.
    12. 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.
    13. Light, Donald W. & Lexchin, Joel R., 2021. "Pharmaceuticals as a market for “lemons”: Theory and practice," Social Science & Medicine, Elsevier, vol. 268(C).
    14. 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.
    15. 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(1), pages 1-28, October.
    16. Patricia M. Danzon & Eric L. Keuffel, 2014. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484, National Bureau of Economic Research, Inc.
    17. Kristopher J. Hult & Tomas J. Philipson, 2012. "Public Liabilities and Health Care Policy," NBER Working Papers 18571, National Bureau of Economic Research, Inc.
    18. Abraham, John & Davis, Courtney, 2005. "A comparative analysis of drug safety withdrawals in the UK and the US (1971-1992): Implications for current regulatory thinking and policy," Social Science & Medicine, Elsevier, vol. 61(5), pages 881-892, September.
    19. Simone Ghislandi & Michael Kuhn, 2016. "Asymmetric information in the regulation of the access to markets," Department of Economics Working Papers wuwp219, Vienna University of Economics and Business, Department of Economics.
    20. W. David Bradford & Andrew N. Kleit, 2015. "Impact of FDA Actions, DTCA, and Public Information on the Market for Pain Medication," Health Economics, John Wiley & Sons, Ltd., vol. 24(7), pages 859-875, July.

    More about this item

    Keywords

    FDA; FAERS; Cost benefit analysis; PDUFA; Vioxx;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:regeco:v:66:y:2024:i:2:d:10.1007_s11149-024-09477-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.