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Drug Prices

How Much Action Should the FDA Take?

Biocentury has a look at the issue of compounding pharmacies, which is an area that’s been getting a lot of attention in this era of steep rises in generic drug prices. (You may recall that the competition for T*ring’s Daraprim is coming from a company that’s making the active ingredient available to compounders). The recent call in JAMA for the FDA to do something about these situations also brought in the idea of compounding as a possible remedy. Two previous situations serve as examples – colchicine with URL Pharma and Makena, originally from KV Pharmaceuticals. Both of these got new approvals under the FDA’s program of modernizing the regulatory situation for old compounds, and both saw dramatic price increases).

The problem is, as the Biocentury article notes, that the FDA is not supposed to be considering drug pricing at all. Its mandate is for safety and efficacy – period:

But current and former FDA officials told BioCentury they are wary of the proposals both because of the potential risks to patients from compounding and importation, and because of concerns that giving FDA an explicit role in regulating prices would undermine the integrity of its decisions.

Public trust in FDA is predicated on the belief that it bases decisions on medical and scientific criteria, not on economic considerations.

While only a small number of off-patent drugs fit the pyrimethamine and colchicine profiles — medically important, cannot be easily replaced by other generics, and produced by a single company — public outrage over drug prices is not limited to such products.

Creating a process for FDA to help reduce the cost of such drugs puts the camel’s nose under the tent, raising the possibility that Congress and the White House would pressure the agency to act to lower the price of new drugs. This raises the possibility that FDA could be perceived as prioritizing economic benefits to society over the medical needs of individual patients.

There’s definitely something to that. And this gets to one of several two-incompatible-ideas problems that we have in talking about health care. On the one hand, if you went around asking people if the government should be able to lower the prices of new drugs, I’d bet you’d get a big solid “Yes!” in an opinion survey. But if you asked if the FDA should decline to approve a new drug that might well help patients, just because it’s expensive, you’d probably get a big solid “No!” As it is, every time the agency does anything that can be seen as slowing down a drug approval or rescinding any part of one, people pop up immediately saying “See, I told you. Health care rationing – there it is, right in front of you. Now do you believe me.”

That was the case in 2011, when the agency rescinded a provisional approval for Avastin in breast cancer. It didn’t work in that indication, and the FDA pulled back the approval on those grounds, but there were still plenty of people who were sure that this was all some kind of stealthy cost-cutting effort. So there’s a strong feeling that the FDA should be doing something about costs, and a strong feeling that the FDA shouldn’t be doing anything about costs, and how you reconcile these I don’t know. I think what people imagine is that there’s some sort of world where the FDA approves everything and makes it cheap at the same time. But that’s not going to happen, and I don’t think it should, either.

Update: thoughts from Matthew Herper at Forbes: “The current system is almost guaranteed to cause price increases”.

22 comments on “How Much Action Should the FDA Take?”

  1. Emjeff says:

    Another case where the public wants to have it both ways, and as you point out, it can’t be done. However, I think the camel is already living in the tent. The approvals of biosimilars is really nothing more than an attempt to lower drug prices. Protein drugs made by different methods and processes are NOT the same, especially with regard to safety, and yet the FDA’s plan is to pretend that they are. This will come back to haunt us very soon.

    1. Hap says:

      In that case, though, shouldn’t the drug have been unpatentable? If you can’t perform the invention following the patent, then the patenters have excluded something key to the invention and the patent should be invalid,

      1. Mike C says:

        “In that case, though, shouldn’t the drug have been unpatentable?”

        If the FDA grants market exclusivity does it matter if the patent is invalidated – or even never applied for? 12 years of FDA market exclusivity would probably expire after the patent expired, given the normal R&D time for biologics.

    2. Aaron Csicseri says:

      The FDA is NOT saying that biosimilars are the “same” as parent/originator/reference molecules. That’s the whole point behind the biosimilar approval process. I might add that according to the FDA, bismilarity does not equate to interchangeability with parent products. The size and amount of hoops that “Interchangability” status will require is still being debated by both clinicians and lawmakers. So, the biosimilar market is not the wild west, and if biosmilars are gonna haunt anyone, they would be in Europe already where they have been around for some time now (immunogenicity reactions are extremly uncommon).

      With respect to cost, biosimilars will not be saving pts money like generics do/did, but there will be savings (~15-25%)…AND as biologic manufactuing technology progresses, these savings will increase. In addition to savings, biosimilars broaden the treatment ladscape, which is a good thing IMO.

  2. Janne says:

    You could argue that efficacy does come into play with pricing. If a drug that is indicated for a certain condition has no effect on 95% of patients because they can’t afford to take it, then the efficacy is quite low.

  3. There’s a worm-around for the FDA as noted in the JAMA editorial, and that is for the FDA to treat drug monopolies (a la Daraprim) and potential drug monopolies as shortages. In that case, as the JAMA editorial explains, “[c]urrent policy already permits the agency to move up in the queue applications for generic drugs that ‘could help mitigate or resolve a drug shortage and prevent future shortages.’ However, “[i]f FDA perceives such a determination, which includes economic factors, to be outside of its usual area of expertise,” it could turf the problem “to a different part of HHS, such as the Office of the Assistant Secretary for Planning and Evaluation.”

    As Matthew Herper echoes today (, the FDA could allow the importation of the drug in a declared shortage and/or fast-track generic applications from drug competitors.

    And also (although this issue is not FDA related), Congress should allow Medicare to negotiate drug prices–a potential remedy that’s long overdue.

    1. Emjeff says:

      They already do that, but on an individual basis, which is how it should be. Drugs are not a commodity like wheat- different compounds have different efficacy and safety profiles, even within a pharmacological class. What you are advocating is government setting prices across the whole industry, which would be a disaster. If you think shortages are bad now, wait until Uncle Sam sets drug prices by decree- you’ll find out what a shortage really is…

  4. Hap says:

    Compounding seems like a bad way to get around the FDA’s equivalence testing rules – people have already died from bad compounding, and unless you’re prepared to look them over more closely, it will happen again. Considering there might be better ways (assuming Congress can’t or won’t change the rules, which would be best), as listed above, this seems like a mistake.

  5. SteveM says:

    Let me restate an obvious solution. The government builds roads and bridges as a public good. Let it buy generic drugs for the same reason.

    I.e. Have HHS collect annual U.S. demand estimates for the generic drug formulary. Then competitively bid out the manufacture of the drugs for the next year. Also bid/contract out storage and distribution. Eg, UPS, USPS, Amazon, etc. Then have the distribution systems collect and store the drugs and supply them to pharmacies at cost plus a fee.

    BTW, building volume discounting algorithms into bid structure would save even more.

    That’s it…done…

    1. Emjeff says:

      Considering the state of the country’s transportation infrastructure, you’ve just made a powerful argument against any govt involvement in setting prices. What needs to occur is real competition among generic manufacturers. As well, reimbursement needs to be set at a level where it is profitable for companies to make these products. Also, it would help if FDA could review these applications in under 2 years…

      1. SteveM says:

        Re: “Considering the state of the country’s transportation infrastructure, you’ve just made a powerful argument against any govt involvement in setting prices. What needs to occur is real competition among generic manufacturers. As well, reimbursement needs to be set at a level where it is profitable for companies to make these products. Also, it would help if FDA could review these applications in under 2 years…”

        ALL of your objections would be obviated by a competitive bidding process. I.e.,

        The government would NOT be setting prices. It would be receiving competitive quotes from the manufacturers.

        Competition among generic manufacturers would be baked into the bidding process.

        Companies would not rationally submit bids that would lose them money. Profit would be baked into the process.

        Under my proposal the government would not take ownership of the drugs, warehouse the drugs or distribute the drugs. It would only award contracts to the low cost bidders.

        I admit that the government would probably screw up initial implementation of the program because it screws everything up, but once it’s in place it should function semi-efficiently at a much lower cost to consumers.

        BTW, generic manufacturers could continue to sell products outside of that system, but they would have to beat the system prices when selling to pharmacies.

        Any other objections?

        1. z says:

          I’m not really sure how this would solve the initial problem of the FDA creating monopolies for new approvals of old drugs. They seem to be separate from this system,

          Also, a government’s “competitive bidding process” isn’t as pure as you might think.

          Not only could be a source of corruption, but also it benefits those that good at bidding government contracts rather than just those that can bid low (bidding on government contracts can be horribly complex and has things such as “priority to minority owned companies” and other things baked into it).

          Lastly, a “winner takes all” system like this might reduce competition by making it hard for small companies to enter.

          1. SteveM says:

            The “Perfect” is the enemy of the “Good”.

            And the bid process could be structured so that no manufacturer produced all of any specific generic drug.

            And like I said, if other vendors wanted to play outside the system, they could. They’d just have to come in with a better price. If corruption crept into the system the resulted in sub-optimal prices then the outside vendors would exploit that.

          2. z says:

            That’s the thing- aren’t these drugs outside the system in the first place?

            As in, there is restricted distribution for these drugs due to new FDA approvals, and that to compete, they have to make do with a slightly different drugs and without FDA-approval for recommended use.

            They don’t enjoy the same monopoly as newly patented drugs, but close enough to allow price jumps without immediately being underbid.

          3. tangent says:

            SteveM, the question is, is there a list of companies who can bid on a given generic because the output from their production process has been certified? Or can anybody bid to meet a spec for the drug, and their deliverable will be tested because accepting it?

            The “list” approach is economically similar to what we have today, except with a big payer running an auction. The barrier to getting on the list is probably high.

            The “spec” approach is risky to your annual supply plan, because you don’t know if the production from a first-time bid winner is going to pan out. Multiple sources still leaves sizeable risk. Writing a spec that can’t be exploited by an asshole company is also not trivial.

            I imagine you’d try to combine them, with an approved list of one or more companies, but a small part of the supply can be sourced from a new guy as a trial run. It might all work out. It’s not a “why don’t they just…” thing though!

    2. SteveM says:

      And here’s the thing about the current process with sole source generics. The barriers to entry for competitors is technically high, but the barriers to repricing are zero.

      For example, if oily meatball Shkreli raises the the price of a generic from 2 bucks to 200 bucks a pill, potential competitors know that the price is artificial. I.e., if they got in there would be a price war driving price down towards something a little above the marginal cost of production. So they don’t compete because of the uncertainty.

      Under the bidding system I propose the profit margins would be small but the incentive would be a large volume. Which is how commodity pricing with many producers is supposed to work. The bid system would also guarantee a sales volume inducing companies to play because of the stability it would provide.

      1. SteveM says:

        BTW, the government of course could run a demonstration project using a small number of generics to test the concept and surface unintended consequences.

        But that makes too much sense. Better to spend the $Billions blowing up people and stuff in dystopian wastelands 6,000 miles away.

  6. CMCguy says:

    Adding economic considerations directly the FDA process would be misguided IMO. Especially as surmise likely would mean hiring a bunch of MBA types to do the assessments where most of us have seen the value added such a mindset has brought to Pharma R&D in the last several decades. Unfortunately it sounds like something Congress will think is a good idea where add another difficult/unachievable mandate to the Agency to-do list.

  7. John Thacker says:

    I know that you are skeptical of the FDA relying on approvals from other agencies, but surely allowing generics approved by Canada or European countries in cases where the original is off patent in the US would not have many downsides? (My other hobby horse is vaccines for diseases not endemic to the USA that will likely never be approved for that very reason. The lack of cholera vaccination for travelers is absurd.)

  8. Dr. Lloyd T J Evans says:

    “This raises the possibility that FDA could be perceived as prioritizing economic benefits to society over the medical needs of individual patients.”

    I agree that this kind of thing currently isn’t part of the FDAs remit. But that doesn’t mean that rules and laws couldn’t at some point be changed so that it could be. Or, better still, create another agency, perhaps linked to or a subset of the FDA, whose job it is to assess economic benefits in this manner.

    That doesn’t have to be a bad thing either. After all, in the UK, we have the MHRA, whose remit is (amongst other things) to weigh the economic benefits of new drugs to society against the medical needs of individual patients. Does this mean that expensive drugs are sometimes denied or rationed in the UK NHS? Of course it does.

    But then again, expensive drugs are effectively rationed in the USA too, since those without insurance usually can’t afford them at all. Plus, all but the most expensive insurance plans typically have significant copayments, which can also be enough to prevent people who do have insurance from affording the most expensive drugs.

    Neither system has it entirely right – both effectively deny drugs to some people, whether by policy or by pricing. In either case, access to cheaper generics eventually solves the problem for most people. In cases where people are literally going to die soon without access to an excessively expensive drug, the company which makes it can often be shamed into providing it for free or at least at reduced cost – that has happened many times, on both sides of the Atlantic. That isn’t the ideal solution of course, but it does tend to work quite well.

    In fact, some companies actually take pre-emptive action against that kind of bad publicity by offering their drugs for free or for a fraction of the normal price to those who are most in need and least able to pay. If private, profit making companies are capable of doing that, then I don’t see why the US Government shouldn’t at least think about ways of doing something similar for all drugs for everyone. America desperately needs some kind of NHS type system. Yes, that would be “socialism”. But so what? When it comes to healthcare, that is not a bad thing.

  9. Daniel Barkalow says:

    It seems to me like the right thing would be for some new agency in a different department to manage the FDA’s queue on economic and social good grounds, and leave the FDA to do the approval process for those drugs it was given on medical and scientific grounds. Let the Commerce Department decide how to use the fast-track resources to get improved benefits for cost, but leave the slow path such that every drug gets non-economic examination eventually. This would mean that economic concerns would have some influence on when drugs get evaluated for approval, and it would also mean that the FDA would be able to deflect that pressure onto a different agency. Actually get some benefit out of the fact that the government is not a unified entity and has parts with different purposes and priorities.

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