Arnold S. Relman is the author, most recently, of A Second Opinion: Rescuing America's Health Care (Public Affairs).
Overdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation
By Richard A. Epstein
(Yale University Press, 283 pp., $30)
Last year, when the board of directors of Pfizer, Inc., the world's largest pharmaceutical company, named Jeffrey B. Kindler to be the company's CEO, he was quoted in a front-page article in The Wall Street Journal as saying, "We will transform virtually every aspect of how we do business, focusing on actions that create and sustain value for our shareholders." Kindler, a lawyer by training, had recently joined Pfizer as general counsel after serving as chairman and CEO of Boston Market and president of Partner Brands, both subsidiaries of McDonald's, the giant fast-food chain. Like most current CEOs of big pharmaceutical firms, he came to his position with little or no training in basic science, medicine, or clinical pharmacology. His expertise was in law and business. His statement about focusing on the interests of Pfizer's shareholders was probably a response to the board's concern about the five-year-long slide in the company's stock price and the recent slowing in the growth of its profits, but it was also fully in keeping with the expected responsibilities of corporate management. After all, as Milton Friedman once observed, "Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible."
And yet Pfizer and most of the other big pharmaceutical companies present quite a different public face. They tell the world that their primary objective is not to make profits for their shareholders, but to serve the public interest by discovering and marketing innovative new drugs to fight disease and to improve health. Pfizer's current advertising slogan is "Working for a healthier world." Advertisements for Merck, another giant firm facing bad publicity and falling stock values, describe the company as a place "where patients come first." Schering-Plough's slogan is "To earn trust, every day." AstraZeneca's is "Healthcare for people." To hear these firms tell it, making money is hardly of interest to them, because their primary concern is the public's welfare. And their problem is that no one seems to believe them.
The pharmaceutical industry is caught on the horns of a dilemma. To flourish in the profit-driven prescription-drug market and meet investors' expectations, drug companies must behave like all other investor-owned corporations and relentlessly follow the money, just as Pfizer's new CEO promised his stockholders he would. But to gain public trust and sell their products, pharmaceutical companies must convince their customers that they are focused first on improving health, and that increasing sales and corporate financial success are not their primary—or only—concerns. The problem is that this altruistic picture is an increasingly hard sell, because of the bad publicity the industry has been getting recently as a result of its frequent misbehavior, and because of the numbingly high prices of many of its new drugs.
Articles are published almost daily in the popular media or in the medical literature that reflect poorly on the pharmaceutical industry and cause acute embarrassment for one or more drug firms. In recent years the industry has been losing the public trust, not earning it, as Schering-Plough would like us to believe. Despite the huge sums it spends on advertising and on lobbying federal and state legislatures, and despite the public relations campaign of its well-heeled trade association, the Pharmaceutical Research and Manufacturers of America (PhRMA), the industry's standing in public opinion has fallen to new lows, so that it now finds itself somewhere near the bottom in most polls, alongside the tobacco industry.
The pharmaceutical industry thinks that it needs help from skillful outside apologists who can argue its case before the public, and it has supported many economists and health policy experts for this purpose. But it also needs an army of lawyers—not just to represent it in numerous legal actions involving adverse drug reactions, government regulatory or disciplinary actions, contested patent claims, or disputes over its pricing policies, but also to persuade an increasingly hostile public that its business behavior is justified and serves the public interest. Few lawyers would seem more qualified for this latter task than Richard A. Epstein.
Epstein is the James Parker Hall Distinguished Service Professor at the University of Chicago Law School and director of the Law and Economics Program, and he is widely known in the legal profession for his prolific writings and for his forensic skills. He is also a senior fellow of the Hoover Institution at Stanford and an ardent champion of minimal government, private enterprise, and freemarkets. Both the University of Chicago and the Hoover Institution are, of course, distinguished academic bastions of conservative thought in economics and law, and Epstein is one of the leading apostles of this tradition, following in the footsteps of Milton Friedman, who also worked at both institutions. It is no surprise that Epstein would emerge as a major defender of the beleaguered pharmaceutical industry. His new book is the most substantial of his recently published efforts to defend the behavior of the industry and refute the industry's critics. (At this point I should disclose that Overdose singles out Dr. Marcia Angell and myself as among the industry's most severe critics, and discusses our arguments at length and with hostility.)
As a public defender of the pharmaceutical industry, Epstein has conflicts of interest about which his readers should know. He discloses in the preface to his book that he has served on several occasions in recent years as a legal consultant for Pfizer and for PhRMA. He also reports that his first major writing on the industry in 2004 (which will be discussed shortly), was proposed and supported by the Institute for Policy Innovation (IPI). The IPI is a Texas-based conservative think tank, founded in 1987 by then-Representative Dick Armey, which describes itself on its website as approaching policy issues "from a consistent philosophical viewpoint of individual liberty and responsibility, free markets, and limited government." It is supported privately and has done work for drug companies, though its president, Tom Giovanetti, told me in a recent conversation that IPI received no funds from the industry specifically earmarked for the support of Epstein's work.
Epstein thinks that medical care should be regarded as a private enterprise not fundamentally different from other businesses. In his earlier book Mortal Peril, which appeared in 1997, he argued that health care should be largely a personal responsibility, and outside agents such as government and insurance companies should be involved as little as possible. Those who are destitute and seriously ill may deserve charity from hospitals or physicians, but if they repeatedly become ill because of their own negligence, they should fend for themselves. In general, Epstein instructs, health insurance is bad, because beneficiaries act irresponsibly when spending the insurer's money, and that leads to disastrously high expenditures—what economists call the "moral hazard" of insurance. Like so many other government interventions, health insurance through Medicare and Medicaid has had negative, although unintended, consequences.
Health care providers, Epstein believes, are in a private business, which functions best when it is left to the market and is free of government regulation. In Overdose, Epstein argues that the pharmaceutical industry, as part of the health care economy, should also be given the maximum possible freedom to run its own affairs, unfettered by government oversight. The main argument of his newbook is that "excessive" government regulation is threatening the creativity and the productivity of the pharmaceutical industry, with serious consequences for public health.
To put it mildly, I think that Epstein is wrong. And so at the outset I should make my own premises plain. I do not believe that our health care system should be treated like a private business. Health care is a public responsibility that needs regulation and support by government. Whereas Epstein sees the pharmaceutical industry essentially as a special sector of a private health care economy, I believe it has many of the same public responsibilities as the health care system, and therefore needs public oversight. Moreover, and in contrast to Epstein, I believe that prescription drugs are different from most other commercial products—so different that they warrant government regulation of their development, their manufacture, and their sale.
Richard Epstein's opinions on health care would seem to be the views of a dyed-in-the-wool libertarian who thinks that the primary functions of government should be limited to the protection of private property, the preservation of private choices, and the enforcement of voluntary contracts. And yet he sees nothing wrong with government protection of the interests of pharmaceutical companies; indeed, he favors it. His "anti-government" philosophy gladly bends government to accommodate the economic objectives of his clients. Thus he castigates the FDA, "government bureaucrats," and private critics for restricting the freedom of the pharmaceutical industry and thereby reducing its incentives to find and to develop creative new medical treatments. (In this context, he remarks that Angell and I have a "Soviet-style" mentality and take a "commissariat"-like approach.) At the same time, he argues for stronger government support of the industry's monopoly rights and for government protection against price competition from abroad. He wants handouts from the public without public oversight.
As the subtitle of his book proclaims, Epstein thinks "excessive" government regulation of the pharmaceutical industry is "stifling" innovation. But many observers and scholars have demonstrated that the opposite is the case. The public interest at present requires more government oversight of this industry, not less. It can be empirically shown that government regulation is not the major enemy of pharmaceutical creativity that Epstein claims it to be. Indeed, the industry's greatest enemy is itself. Innovation by the major pharmaceutical firms has certainly fallen off sharply in recent years, but there is good evidence that the cause lies with the industry's own policies rather than with government regulation. The drug companies are being driven more by financial ambition and marketing considerations than by scientific or public health objectives, and that is the root of their current problems. But I am getting ahead of my story. I must first turn to a close rexamination of Epstein's defense of the drug industry.
Epstein presents most of his case in Overdose, but he also made some interesting arguments in an earlier and shorter publication, an "Issue Brief" sponsored by IPI titled "Does America Have a Prescription Drug Problem?" which appeared in 2004. (There is much overlap between the "brief" and the book; the former is mainly an attempted rebuttal of an essay that Marcia Angell and I published in these pages in 2002, while the book covers wider ground, including a detailed discussion of drug patents and FDA policies not found in the brief.) In a recent op-ed piece in The Wall Street Journal and a related letter to the editor a few weeks later, Epstein has further sharpened his views on the role of the FDA. Altogether, his writings are probably the most articulate public defense of the pharmaceutical industry, and the most aggressive counterattack on its critics, to be found anywhere. But all his sophistication notwithstanding, Epstein falls far short of making a credible case. He may be a formidable opponent in legal disputes, but when talking about prescription drugs he quickly gets in over his head.
Epstein bases his defense of the drug industry on an incredible assertion. He wants us to believe that prescription drugs are just like other market commodities, and therefore there is no reason that their production, sale, and marketing should require more government regulation than any other product on the market. "The insistence that pharmaceuticals are not 'ordinary goods,'" he declaims at the beginning of his IPI brief, "rises to the level of theology because it is based on preconceived beliefs rather than evidence." That is how he dismisses the proposition that pharmaceuticals, because of their special nature, need federal regulation. But surely drugs are not "ordinary goods." Only those who deny the existence of any but "ordinary goods" could think that drugs belong in that category. How many other commodities are chosen for the consumer by a physician and cannot be legally dispensed without a prescription? How many other commodities are purchased not as a result of the consumer's free choice, but because a physician decides they are needed by the consumer to treat disease or protect health? What other commodities need scientific evaluation by the FDA before they can be marketed, and after that often require continuing medical supervision because health—and even life itself—may depend on their proper use?
In what world does Epstein live? Almost everyone familiar with our health care system—including the leaders of the industry!—agrees that prescription drugs should be regulated. The issue is not whether, but how. Epstein must know this, but one can only surmise that his anti-regulatory zeal, his Friedmanite fundamentalism, sometimes overpowers his common sense. Or perhaps it is just his combative lawyerly instinct that makes him unwilling to concede anything—even an obvious truth—to his opponents.
It is perfectly clear that prescription drugs not only should be regulated, but are regulated. Moreover, much regulation favors the drug industry—a plain fact that Epstein must also know, but chooses to ignore when it suits his argument. Consider the importation of FDA-approved drugs from Canada, which the government has outlawed on the spurious ground that they are not safe. Consider also the extraordinary steps that a Republican-controlled Congress took to ensure that Medicare would not be permitted to influence market prices by directly purchasing prescription drugs for beneficiaries who enroll in Part D under the so-called Medicare Modernization Act of 2003. Still other examples of how government regulation often favors the drug industry are the relaxed way in which the U.S. Patent and Trademark Office now issues patents for new drugs and the Bush administration's heavy-handed trade policies that force other countries to serve the interests of American manufacturers of brand-name drugs. These, too, are ignored by Epstein as he rails against the "stifling" effects of "excessive" regulation.
Epstein devotes more than the first third of his book to a detailed and approving exposition of the role of patents in protecting and encouraging innovation and investment in research and development. Much of what he says in general support of the patent system is reasonable. Patents are, in effect, government-granted monopolies. Without their protection, pharmaceutical firms would have little or no economic incentive to develop and test new drug candidates, given that it is very expensive to bring new drugs through the long process of testing and final FDA approval and that the great majority of drug candidates are abandoned along the way.
Epstein makes much of the ever increasing costs of the research and development process, and of the highly "risky" investments pharmaceutical companies must make in trying to bring a new drug to market. Although his point is valid in general terms, the exact costs of research and development remain shrouded in mystery, because companies will not give a full accounting of what they actually spend in developing each drug in their pipelines—the few that make it through to the market and the many that drop out along the way. We simply have to take the industry's word for the information that it chooses to release. Based on this selective and unverified information, calculations by economists of the average cost of each approved new molecular entity that is developed entirely within a major company, including the costs of all failures, produced a figure of about $800 million a few years ago. Now, according to some industry consultants, that estimate has risen to $1.6 billion. Yet both these figures include the so-called time-cost of the money spent, a theoretical and much-disputed quantity that contributed about half of the $800 million figure.
Adding to the obscurity of these estimated research and development costs are a number of other inconvenient facts. First, most new drugs entering the market these days are not new molecular entities, and therefore they are less costly to develop and to test than the new molecules for which cost estimates are made. Second, a large (and growing) fraction of new drugs marketed by the big companies were not discovered and developed entirely within the company, further suggesting that published cost estimates may not be typical of the drugs now generating most of the industry's income. A significant portion of new drugs came from publicly supported academic or government laboratories, or were licensed from smaller firms that have often carried out much of the early research and development. Third, the estimates of costs omit the usually extensive tax deductions and frequent tax credits allowed to the manufacturer, which reduce the net costs of research and development to the company.
Whatever a company's actual cost of research and development, Epstein is of course right when he says that the manufacturer must be able to earn back that initial cost (plus a reasonable profit) from the sale of its drugs. That means the price of each drug must reflect much more than the relatively small costs of its subsequent manufacture and distribution after it has reached the market. But how much more? What, exactly, is a "reasonable" profit? The patent monopoly, Epstein points out, confers on the patent holder, for the duration of the patent's life, the legal right to sell his product at whatever price (or prices) he can arrange. Epstein implies that the high prices of newly marketed patented drugs reflect the need to recoup the high cost of their initial R&D, but that implication is denied by at least some of the leaders in the industry. Raymond Gilmartin, the most recent past CEO of Merck, publicly stated that it was the "value" of the drug to the patient that was the prime determinant of price, not what it cost to bring the drug to market.
Similar statements have been made more recently by other drug company CEOs and by executives of the biotechnology companies marketing the new genetically engineered molecules that are now being used against cancer. The latter products have been shown to extend average survival in some cancer patients by a few months, but are priced at tens of thousands of dollars (some as high as $50,000) per course of treatment. Regardless of the disease it targets, and whatever the benefit, no one has ever adequately explained exactly how the "value" of any new drug can be translated into dollars. It seems more likely that the price of newly approved patented drugs is simply set at whatever the manufacturer believes the market will bear. This is not a strategy that is likely to win friends for the industry.
The SEC filings of the big drug firms show that most of them, year in and year out, report net incomes of about 15 to 20 percent of total sales, placing the pharmaceutical industry among the most profitable of all American industries. The drug industry's stock prices may have declined in recent years (along with its innovativeness and productivity), but its net income has suffered very little. Does this justify describing the industry as "highly risky" and seriously threatened by any government actions that might rein in its power to dictate prices? I can understand why the general public is skeptical.
Epstein believes that the patent system as it now operates ensures that only "novel" and "nonobvious" new drug products will be awarded patent protection. Nowhere does he acknowledge the widely recognized fact that the process of patenting is not nearly as rigorous as it used to be. The standards for "novelty" and "non-obviousness" have been greatly lowered in recent years, as the capacity of the Patent and Trademark Office expertly to vet applications for drugs and other new products has become compromised by lack of resources. To those interested in more details and an informative analysis of the problem, I recommend Innovation and Its Discontents by the economists Adam B. Jaffe and Josh Lerner, which appeared in 2004. Their conclusions are supported by Marcia Angell's findings, reported in her book The Truth About the Drug Companies, that new drug patents are now being granted for the most trivial of innovations. That the "novelty" of new drugs is declining is also supported by the FDA, which classifies about 80 percent of the new drugs it has approved in recent years as having therapeutic properties similar to those of already existing drugs, and finds an almost equal percentage not even to be new molecular entities.
Under the Kefauver amendments to the federal food and drug laws, the FDA was empowered in 1962 to certify the "effectiveness" of new drugs, not simply their purity and their safety. But the standard against which the FDA was expected to judge the effectiveness of each new drug was that of a placebo, not some already approved drug used for the same purpose. This regulation was intended to discourage the approval of worthless drugs, but its greatest effect has been to allow manufacturers to flood the market with supposedly "new and improved" pharmaceuticals and yet provide no information on how they compare with, and improve upon, existing drugs. Contributing to this flood are so-called "me-too" drugs of the same family, which differ just enough from one another in chemical structure, formulation, or method of administration to meet the Patent Office's narrow definition of "novelty," and are approved by the FDA for use in the same clinical condition.
Researching, developing, and marketing "me-too's" consumes much of the drug industry's resources these days, and the unfortunate results are plain to see. In almost every category of drugs with alarge and lucrative market—statins to lower cholesterol, antidepressants and antipsychotics, oral agents to control blood sugar in diabetics, drugs to control blood pressure by reducing the activity of the renin-angiotensin system, non-steroidalanti-inflammatory pills to reduce the pain of arthritis—there are multiple products with similar chemical structures and closely related mechanisms of action. Since the FDA requires only that these drugs be "safe" and more effective than a placebo, and since there are few or no head-to-head studies to compare the relative safety and effectiveness of all these "me-too's" at equivalent doses, each of these markets is open to exploitation and to further expansion through aggressive marketing by the drug manufacturers. Companies promote new medical diagnoses ("premenstrual dysphoric disorder," "social anxiety disorder"), or support medical committees writing new guidelines for treatment, so as to create more indications for prescribing one of their "me-too" drugs. Meanwhile the industry neglects the search for genuinely new drugs in such currently overlooked but important categories as antibiotics for drug-resistant bacteria and viruses and drugs for some of the major parasitic diseases, such as malaria.
Epstein sees nothing wrong with the emphasis on "me-too's." In lockstep with the industry's other representatives and defenders, he says that these drugs increase the choices available to patients and their doctors, and that this is useful because different patients may respond differently to closely related drugs in the same class. It is currently fashionable to suggest that subtle genetic differences may be responsible for individual variations in the response to a given drug, and that in the future treatment will be tailored for each patient on the basis of his or her genetic makeup. Hence, the more variations on a particular drug molecule—that is, the more "me-too" drugs—there are for patients to try, the more effective treatment will be. This argument certainly sounds appealing, but there is little or no published evidence to support it. At present we simply do not know very much about possible genetic influences on the response to most drugs in common use. The medical literature has relatively few well-documented examples of patients being intolerant or unresponsive to one "me-too" drug in a class but not to another, whatever the explanation. Unfortunately, most such claims are based on hearsay or personal anecdotes, and in the absence of data from published reports, they are not credible.
Epstein also claims that multiple "me-too" drugs create market competition that tends to lower prices. Here again, the evidence is lacking. In fact, the available data show the opposite. The wholesale prices paid by independent drugstores for new patented drugs almost never go down over time. They almost always go up, usually at a rate faster than general inflation. Any local druggist will tell you this, and it is also confirmed by the occasional drug-price surveys conducted by AARP. Bulk purchasers, such as hospitals, Medicare Part D insurance plans, HMOs, and large pharmacy chains, may strike private and confidential deals with drug suppliers for lower prices. But the power of such buyers to demand price reductions probably derives at least as much from the volume and the scope of their purchases as from the competition among sellers that is promoted by a multitude of "me-too's."
A major section of Epstein's book deals with the regulatory role of the FDA. Here he argues that, beyond its regulation of the purity and the manufacture of drugs, the FDA should not have the power to control the marketing of new products on the basis of their effectiveness or—within wide limits—their safety. Instead, he contends, most such decisions should be made "downstream," by patients and their physicians, who are in a much better position than the FDA to decide which drugs they should use. In supporting this view, Epstein dismisses the notion that the results of a clinical trial are important in determining what an individual patient should do.
"It could well be that on average a particular drug does not perform as well as a placebo," he remarks. "But so what? That only shows that most people should not take the drug, not that it should be banned from the market." After all, he argues, there is always a certain amount of variation around an average, with some patients responding more favorably, and others less favorably, than the norm. If the variation is large enough and the average of the response to the drug is not too far below the average response to the placebo—if there is overlap in the ranges of the two responses—then there will inevitably be some patients for whom the drug will have been better than the placebo, despite the fact that the drug, on average, is no better than a placebo, and possibly even a little worse. If the FDA is allowed to ban the marketing of such a drug, Epstein claims, it denies some patients access to a product that may be helpful. In asmuch as there is at present no way to predict in advance which patients will do better or worse than the average, the only sensible approach is to allow patients (with the help of their physicians) to determine through their own experience which drugs are best for them.
On the strength of this argument, and given the increasingly high cost of clinical trials, Epstein concludes that the FDA puts an unnecessary burden on the industry when it requires that manufacturers conduct clinical trials to demonstrate the superiority of a drug candidate over a placebo. It is an example, he says, of the "excessive" regulation that is throttling the ability of drug manufacturers to develop innovative new treatments. In sum, he wants to return the FDA to the good old days, when its regulatory authority was limited to ensuring the purity, the content, and the safe and uniform manufacture of drugs, and when patients and their doctors had to fend for themselves in choosing which drugs to use.
What are we to make of this? Does Epstein really not understand that properly designed and conducted clinical trials are now universally accepted as the most reliable means of determining the effectiveness of a drug? He believes that some of the above-average responders to a drug that may not on average be better than a placebo may still benefit from taking that drug, but only if there is some overlap in the distributions of the responses to the placebo and the drug. But how can anyone know about the distribution of the responses without doing a trial?
Epstein seems unfamiliar with the basic laws of biostatistics and clinical epidemiology, which teach us that the clinical results of all trials have individual variations about the average that can have many causes, including errors in measurement, subjective bias, and multiple confounding factors both known and unknown. These variations influence the confidence that we can place indifferences between the average results of two populations (the test group and the control group), but they tell us nothing about the meaning or the reproducibility of any single observation. So does Epstein really believe that patients and their doctors can reliably and safely compare the effectiveness—or the safety—of drugs simply by private trial and error, without any other outside information? Does he really not know that patients must rely heavily on the knowledge and the experience of their physicians, and that their physicians must base their advice largely on what they read or are taught about the results of clinical trials? Without that background information, it would be hazardous for a doctor to prescribe a new drug for a patient, particularly if the patient has a serious disease.
Clinical trials were a major contribution to the development of modern medicine. They changed the basis for the use of drugs from something akin to hearsay and witchcraft to something much closer to science. They made possible most of the advances in drug therapy that have revolutionized the treatment of so many diseases over the past half-century. With his insistence that physicians and their patients can decide for themselves by trial and error which drugs are safe and effective, Epstein takes a giant step backward into an earlier era, before epidemiological and statistical science appeared on the scene.
And yet he stops short of following the logic of his own argument and calling for the abolition of all clinical trials. What he proposes instead is not at all clear. "I can claim no expertise on which clinical trials should be eliminated and which preserved," he declares. "But it seems clear that something, anything, should be done to break down the logjam." The "logjam" to which he refers is the supposedly excessive number, length, size, and cost of the clinical trials required by the FDA before it approves a new drug. This, according to Epstein, has been responsible for keeping a significant number of "good drugs" off the market or delaying their entry.
But this "logjam" is pure conjecture, because there is nothing to support such a notion. There was once a problem with delays in reviewing and approving new drugs, but much has been done through legislation and administrative reforms at the FDA to expedite and to simplify the process of drug approval. The FDA now moves with greater alacrity than most analogous agencies in advanced countries. For many drugs, the agency now requires only one or two good clinical trials to support an application for approval. Uncertainties about long-term complications, or about rare but serious side effects, are not allowed to delay approval. Instead, approval may be contingent upon the manufacturer making a commitment to carry out follow-up studies of safety involving more patients or much longer periods of observation after the drug is on the market. In practice, however, most of these "commitment" studies are never conducted.
An important response to the general concern about delays in the approval of new drugs was PDUFA, the Prescription Drug-User Fee Act, which was first enacted in 1992 and has been renewed every five years since. Under this legislation, drug manufacturers pay an annual fee to the FDA's drug evaluation center that is increased with each renewal, so as to provide additional resources to help expedite the review process. Currently about half the budget of the FDA's Center for Drug Evaluation and Research comes from these "user fees," and this fraction has grown as Congress reduces its direct appropriations. Review times for new drugs have indeed been greatly shortened: they are now in the range of six to ten months, and in a few special cases even less. (For generic drugs, review usually takes longer.)
Yet these "user fees" are poor policy, because they make the FDA financially dependent on the industry that it is supposed to regulate. Financial support for the FDA should come from Congress instead, and a larger part of the agency's budget should be devoted to safety and post-marketing surveillance. At present only about 5 percent of user-fee revenue is used for this purpose. (A recent report from the Institute of Medicine of the National Academy of Sciences found serious problems with the FDA's dependence on PDUFA and recommended more emphasis on post-marketing surveillance for safety.) Epstein thinks that PDUFA should be amended to ensure that Congress keeps up its support so that all money coming from industry represents additional dollars, but he sees nothing wrong with the idea of support from industry, nor with the current focus on expediting approval rather than on monitoring safety. He sees no conflict of interest in PDUFA's relation to the pharmaceutical industry, "in light of the FDA's reputation for independence."
What "independence" is he talking about? In recent years, both Congress and the FDA's leadership have made it clear that they consider the agency's mission to include helping manufacturers bring their drugs to market. With legislative approval, the FDA now expedites the approval of priority drugs by consulting in advance with manufacturers on the design of a clinical trial and even starting its review of priority drugs before a required trial is completed. At the industry's request, the FDA keeps the results off ailed trials confidential, apparently accepting the industry view that these are "trade secrets." It also tolerates the flouting of commitments to carry out post-marketing safety studies and is notably reluctant to mandate the removal of unsafe drugs.
Epstein may see nothing wrong with the industry's paying the FDA to review its drugs, just as he dismisses any concerns about the FDA's habit of allowing experts with financial ties to the drug industry to serve on its advisory committees. But none of this will be reassuring to the industry's critics. They worry that the FDA is not as independent as a regulatory agency should be, and this worry undoubtedly adds to the current public distrust of the pharmaceutical industry. The industry's failure to meet its promises to carry out follow-up studies on drug safety and the FDA's indifference to this dereliction have only heightened concerns that neither the industry nor the agency has been sufficiently vigilant in protecting the public against unsafe drugs. Epstein's position boils down to caveat emptor: patients should be allowed to decide, with the help of their physicians, what risks they wish to take. FDA-inspired warnings on drug-package inserts may sometimes help, but Epstein thinks that they are too often exaggerated.
Having argued that much of the FDA's current regulatory authority should be replaced by the individual choices of consumers and their physicians—and after supporting PDUFA, which establishes the FDA's collaboration with and partial subsidization by the drug industry it is supposed to regulate—Epstein turns next to a defense of the industry's marketing and advertising policies. Asserting once again that prescription drugs are selected and purchased by consumers just like other market commodities, he opens his discussion with a lecture on the theoretical economics of marketing and advertising as applied to any commodity—in this case, prescription drugs.
Epstein maintains that when the commodity in question has very large front-end development costs and relatively much smaller unit-manufacturing costs (as is the case with prescription drugs), the price to the consumer is reduced by the increased sales generated through marketing and advertising. Assuming the latter to be accurate and informative, the interests of both consumer and producer are well served by marketing and advertising. The consumer learns about products that are valuable for his health, and the company generates the sales income that enables it to offer its drug at a lower price, while still making enough money to cover the costs of development and marketing.
Without the information from advertising, Epstein argues, consumers would have no way of knowing about the benefits of a good drug and would lose an opportunity to maximize the drug's "utility." And without marketing and advertising to physicians, the pharmaceutical company would have no way of selling enough of its drug to justify making the necessary up-front investment in research and development. According to Epstein, those who do not understand the economic principles involved here are totally misguided in criticizing the industry for its large expenditures on marketing and advertising. This investment—which, he asserts, is not reallyas large as the critics claim—does not add to the cost of drugs. In fact, it brings the consumer's cost down.
How neat. Unfortunately, the argument is a house of cards that quickly collapses under scrutiny. There simply is no evidence that the increased sales generated by marketing and advertising lower the price of patented drugs. The listed wholesale price of a prescription drug almost never goes down, no matter how much the volume of its sales may increase. As noted before, the price of a patented drug, by the general admission of industry management, bears no predictable relation to manufacturing costs, but reflects instead the company's assessment of its supposed "value" to the patient.
Another of Epstein's false assumptions is that advertising and marketing are either accurate or intentionally misleading, either good or bad. Yet most sales promotion falls somewhere along a continuous spectrum ranging from outright fraud to perfect accuracy. Most drug advertising, as any experienced physician knows, is biased to some degree. It is enthusiastic about the product, emphasizing the positives and downplaying the negatives—but it is neither overtly deceitful nor impeccably precise. The FDA puts very few resources into the monitoring of drug advertisements, and it moves very slowly to rebuke companies for misleading ads. And so it is naive to suggest, as Epstein does, that consumers and physicians can rely on marketing and advertising to instruct them on the value of a given drug. They cannot, as almost any physician knows.
It is even more unrealistic and mischievous for Epstein to declare that "medical practitioners need that information and often cannot get it (or critical free samples) from any other sources." As professionals legally and morally responsible for the medical treatment they provide their patients, physicians are educated about the use of drugs by experts in their own profession, through textbooks and journal articles, through lectures at professional meetings, and through continuing medical education courses. It is true that too many practitioners do not keep up with these educational sources and depend too much on the information conveyed by marketing and advertising. But the professional standards are quite clear: the medical profession is supposed to educate itself.
Epstein surely must understand this. In fact, a few pages after the quotation in the previous paragraph, he admits that physicians, unlike their patients, "have access to multiple independent sources of knowledge about drugs, as well as the background information that they have acquired through years of schooling and practice." He is quite right about this. Advertising may remind physicians about the latest products from industry, and it certainly helps a product's sales; but it should not be the foundation of the practicing profession's knowledge about any particular drug—and usually it is not. If patients are to trust their physicians, the doctor's information about drugs should come mainly from independent professional sources, not from the advertising pitches of the manufacturers. As for the "critical free samples" that Epstein touts, he ought to understand that as part of the manufacturer's marketing campaign, the chief function of these samples is to encourage physicians to start patients on a new—and usually expensive—"me-too" drug. Manufacturers do not help patients with the expense of continuing the medication once the free samples are exhausted. In this sense, free samples are usually more "critical" to the company's financial success than to the welfare of the patient, who in many cases would probably have been just as well off with an older, cheaper drug.
Epstein's enthusiasm for the industry's aggressive marketing campaigns—including the multitudinous small gifts, favors, and free meals lavished on practitioners by the swarms of detail people competing for physicians' time and attention—apparently blinds him to the ethical problems and the conflicts of interest that result. He has little sympathy for the increasing efforts by some academic medical centers, and by some reform-minded elements in the medical profession, to limit the exposure of physicians—especially students and residents in training—to the industry's blandishments. And he offers no criticism of the industry's growing subsidization of the continuing medical education courses that are intended to keep practicing physicians current on the latest developments in drug therapy. Like PDUFA, these "education grants" from the industry are supposed to further the public interest, but if they did not contribute to the marketing of new drugs, it would be hard to understand why industry management would invest the billions of dollars with which they support these programs.
Epstein ends his book with a grand flourish. He lists the current threats to the pharmaceutical industry: "the ever-wider net of regulation at all stages in the long and tortuous process of drug development and marketing"; the "constant attacks on the intellectual property rights on which the entire system rests"; and the "various systems of price restrictions [that] will choke off the ability to recover the front-end costs of drug development." Then he reveals what is really behind all these attempts to cripple the pharmaceutical industry: "socialized medicines" and "relentless populism." The regulation of the drug industry for the public good is, in his opinion, a plot by those who hate capitalism to have the government take over complete control of a business. But finally he is not quite a pessimist: "as various developments push ever closer to the brink, even politicians will start to pull in their horns, because deep down they don't want to kill a goose that may yet contain a few more golden eggs." Golden eggs, indeed.
Is all this really the expression of a great legal mind? Instead of reasoned arguments based on the facts about the development, the marketing, and the medical use of pharmaceuticals, we get only readings from Epstein's client's playbook, which relies heavily on deception, secrecy, and the tired tactics of name-calling. There is grudging acknowledgment that some companies occasionally misbehave, for example by marketing to physicians in an overly aggressive manner or by pitching misleading ads to consumers. But for the most part Epstein paints a fantastical picture of a blameless, besieged industry. The truth is that most of the drug industry's problems are self-inflicted. Even as it continues to reap unprecedented profits, it wallows in self-pity and unconvincingly plays the victim.
If you wish to understand the realities of health care in America today, Richard Epstein's analysis will avail you nothing. Despite his insistence to the contrary, the truth is that medical care and prescription drugs are basically different from other services and commodities in the marketplace, and market economics does not do a good job of protecting the public interest. If we want a pharmaceutical industry and a health care system that put patients' welfare and society's needs ahead of profits, we will need more regulation, not less. Epstein argues on both sides of this issue by railing against restrictions that purportedly limit the industry's freedom and ability to take risks, while also supporting regulations that reward the industry and protect it from competition and public accountability. He is Big Pharma's perfect advocate. In his horror of "socialized medicines," he defends what might be called pre-socialized medicine, an inhumane view of healthcare that prefers economic ends to social responsibility.