National Review Online
November 1, 2011
by Tevi Troy
To much hype, the Obama administration has issued an executive order (EO), allegedly designed to reduce the growing problem of drug shortages. This is undoubtedly a complex subject and there are a variety of factors at work, but the text of the EO reveals something quite different from what most reports suggest, namely that the administration plans to work with industry to make it easier for pharmaceutical companies to address the problem of product shortages.
In essence, the EO calls for three things: for more reporting by manufacturers when they think there will likely be shortages of their drugs; for expedited regulatory review in certain, limited circumstances; and for the FDA and the Department of Justice to seek out criminal activity, such as hoarding or price gouging.
The first idea — early reporting — may well be helpful. But it is unlikely to solve the underlying issues. And there is also some question as to whether the FDA has the administrative authority to require earlier notification without the prerequisite legislation to grant that authority. In addition, there are some concerns from the industry that these notifications be kept confidential, so as not to give a competitive advantage to rival companies.
As for the second recommendation, the expedited reviews are carefully delimited in the EO text, and specifically fail to mention product approvals. This makes it likely that the FDA will look only at expedited reviews in the specific areas mentioned, namely "reviews of new drug suppliers, manufacturing sites, and manufacturing changes." The FDA already has the authority to do this, but the EO gives them a basis on which to ignore the suggestion as well, as the expedited reviews are to take place whenever FDA "determines that expedited review would help to avoid or mitigate existing or potential drug shortages." In other words, the EO grants the FDA the authority to determine when it considers itself to be part of the problem. Given this out, companies should not count on the EO reshaping the FDA into a user-friendly agency anytime soon.
The third point, encouraging the FDA to work with the DOJ to detect illegal activity by pharmaceutical companies, is not really anything that the FDA or DOJ need much encouragement to pursue, and nor is it likely to encourage greater cooperation from companies targeted in this manner.
At the same time, a new report by the American Action Forum examines a new Obama-administration proposal to require manufacturer rebates to the government for drugs provided to certain low-income seniors via Medicare's Part D Program. According to the study, this proposal will cost some 230,000 pharmaceutical-related jobs, as well as lead to "a reduced level of research [that] will reduce the pace of new drug development, and potentially lead some valuable candidate medicines to go undeveloped." While not directly linked to shortages, this rebate policy seems unlikely to do much to fix the problems the administration is having with shortages — not to mention jobs or pharmaceutical development — anytime soon.
It was only last month that the FDA published a report titled "Driving Biomedical Innovation: Initiatives for Improving Products for Patients." The study called for more outreach to small businesses, greater access to FDA data for data mining, biomedical job training, and the clarification, streamlining, and more consistent application of FDA regulations.
The report also acknowledged that the lack of FDA staff with business backgrounds has been an impediment to understanding the needs of the small biomedical businesses that drive innovation, and seemed to suggest a recognition on the part of the administration that FDA policies often create challenges for life-science innovation.
In contrast to the approach laid out in the biomedical innovation report, the new shortages EO calls for the DOJ to pursue more prosecutions, for the FDA to force more notification from manufacturers, and to politely ask the FDA if at all possible to do their job on a timely basis. It is not clear how exactly these three reiterations of existing law solve the problem of drug shortages. Furthermore, the deregulatory aspect of the EO, to the extent that there is one, is carefully curtailed, while the big government elements of the EO are fairly open ended. At the same time, the Obama administration is pursuing policies in other areas, such as the rebates, that will likely cut back on both pharmaceutical jobs and the development of new life-saving and life-extending products.
It was not that long ago that the Obama administration issued an EO that told government agencies to cut back on regulatory burdens. Perhaps the administration should revisit that approach for dealing with the issue of drug shortages.
Tevi Troy is a Senior Fellow at Hudson Institute and served as the Deputy Secretary of the U.S. Department of Health and Human Services from 2007 until 2009.
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