Commentary: The Real Drug Price Problem (May, 2018)

by John McClaughry

This week will likely see a Trump initiative to drive down pharmaceutical prices, and passage of a bill in Montpelier (S.175) to again plunge Vermont into the arduous (and illegal) process of importing prescription drugs from Canada.

The industry has understandably fought furiously against Federal price controls and the importation of American drugs from countries that imported them at controlled prices. It is clear to them that when the government decrees the price at which they must sell their products, those producers are on the road to economic extinction.

But these battles never get to the root cause, not only of high pharmaceutical prices, but of the denial of the best possible health of all Americans. That root cause is the 1962 Kefauver-Harris Amendments to the Food, Drug and Cosmetic Act.

Before 1962, manufacturers could market new drugs if, within six months, the FDA did not find them to be unsafe. The galvanizing force behind the Amendments was the thalidomide crisis.

Thalidomide was a European drug created as a sleep aid, and then found useful to alleviate morning sickness in pregnancy. Tragically, it also caused deformities in babies. The FDA correctly banned it as unsafe, but not before the experimental use of samples had resulted in seventeen deformed babies in the US.

Faced with the horrifying visuals on television, Congress seized the only readily available legislation – Senator Kefauver’s bill – and ran it through at flank speed. It gave the FDA “unprecedented control over the entire drug development process in the hopes that drugs not only would be safe, but would also be effective, advertised accurately, and manufactured carefully.”

Those are the words of Dr. Mary Ruwart (PhD biophysics), from her new book Death By Regulation.She explains: “In the 1960s humanity was poised on the brink of a Golden Age of Health. Infection, the primary cause of death in the early 20th Century, had been largely vanquished by antibiotics, improved nutrition, and sanitation. Many vitamins had been isolated and manufactured. Their pivotal role, not only in preventing the classical deficiency diseases but also maintaining optimal health, was gaining increasing recognition.”

But the 1962 Amendments dramatically changed the prospect. Now, any new drug had to receive affirmative approval by the FDA, and that approval required proof of “effectiveness” for a defined condition.

Now, gaining approval of a new drug requires what is called Phase 3 human effectiveness testing. The approval process takes up to fourteen years (!),  requires  –  literally – “a truckload of paperwork”, and when the costs of all the failures are added in, costs the applicant an average of $2.6 billion.

The public is more interested in drugs that treat and cure problems, not just “contribute to maintaining health (i.e. prevention).”  To recapture that enormous investment in an approved new drug, the manufacturer must spend millions in high-pressure marketing to convince doctors and patients that it will cure a problem.

New drugs are usually patented. In most cases, that gives the manufacturer around 20 years to recapture the costs of getting it approved and to market. But the 20 years runs from the date of the patent grant. If it takes 14 years to get FDA approval, the drug’s patent protection is only six years, after which generic versions undercut the price. Dr. Ruwart, who worked on drug development for Upjohn for 19 years, tells of promising drugs pulled out of the approval process when it appeared that there wouldn’t be enough time to recover the costs before the patent expired.

Then there’s the interlocking of the drug industry with the FDA bureaucracy. Together they have become a cartel to keep down upstart innovators. Even a slight delay in winning FDA approval may allow a competitor to be “first to market” for a new type of drug. That’s worth  billions of dollars to the winner. Companies that irritate FDA bureaucrats can be destroyed by their inaction or the imposition of new requirements.

The pharmaceutical industry is also supportive of their FDA partner’s ongoing efforts to harass natural products and dietary supplements manufacturers, whose products could result in healthier people and thus a smaller market for cures.

What’s the solution? Repeal the 1962 Amendments. Let FDA prohibit unsafe products, and like Underwriters Laboratories certify products that meet its standards. Leave doctors free to prescribe safe products that they think will best serve their patients, FDA-certified or not.  Let competing herb, supplement, and vitamin marketers offer truthful information to doctors and the public, without (as FDA demands) defining those products into “drugs”.

Perhaps the greatest value of Death by Regulation is its carefully documented explanations of the malign consequences of foolish, hurried, costly, government action that has caused treatment to displace prevention, created a giant anti-competitive cartel, defeated innovation, and indeed corrupted the government itself.

John McClaughry is vice president of the Ethan Allen Institute (


{ 0 comments… add one now }

Leave a Comment

Previous post:

Next post:

About Us

The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

Latest News

VT Left Wing Media Bias Unmasks Itself

July 24, 2020 By Rob Roper Dave Gram was a long time reporter for the Associated Press, is currently the host of what’s billed on WDEV as a...

Using Guns for Self Defense – 3 Recent Examples

July 24, 2020 By John McClaughry  The Heritage Foundation’s Daily Signal last week published eleven news stories about citizens using a firearm to stop a crime. Here are...

FERC ruling on solar subsidies could help Vermont ratepayers

July 21, 2020 By John McClaughry Last Thursday, the Federal Energy Regulatory Commission finalized its updates to the Public Utility Regulatory Policies Act (PURPA), in what the majority...

The Moderate Left’s Stand for Free Speech

July 17, 2020 By David Flemming Harper’s Magazine, a long-running monthly magazine of literature, politics, culture, finance, and the arts, is hardly what you would call a ‘politically...

Trump’s Regulatory Bill of Rights

July 16, 2020 by John McClaughry “President Trump [last May] issued an executive order entitled  ‘Regulatory Relief to Support Economic Recovery.’ The executive order includes a regulatory bill...