Journal of Political Economy · 1973 · 374 citations · 1 references
PharmacyPharmaceutical PolicyConsumer ProtectionDrug LawPharmaceutical RegulationDrug ApprovalDrug EvaluationNew Drug ApplicationsPharmaceutical AssessmentPharmaceutical EconomicsPharmacoeconomic EvaluationConsumer Surplus AnalysisDrug Budget Impact AnalysisDrug Cost AnalysisDrug Spending AnalysisExaggerated ClaimsNet Impact AssessmentPharmaceutical Policy EvaluationPrescription Drug Costs
The 1962 drug amendments aimed to curb wasteful spending on exaggerated drug claims by mandating FDA pre‑marketing approval for all new drug claims. The study used consumer surplus analysis, supplemented with expert drug evaluations, to estimate benefits and costs. The analysis shows that compliance costs have sharply reduced drug innovation, with forgone benefits on effective drugs far outweighing waste avoided on ineffective ones, yielding a net impact equivalent to a 5–10 % tax on drug purchases.
The 1962 drug amendments seek to prevent wasted expenditure stimulated by exaggerated claims for effectiveness of new drugs by requiring premarketing approval of all new drug claims by the Food and Drug Administration. The compliance costs are shown to have engendered a marked reduction in drug innovation. Consumer surplus analysis is then adapted and supplemented with "expert" drug evaluations to estimate the relevant benefits and costs. The main finding is that benefits forgone on effective new drugs exceed greatly the waste avoided on ineffective drugs. The estimated net impact is equivalent to a 5-10 percent tax on drug purchases.
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