Rising Regulatory Burdens, Declining Health Outcomes – Pacific Research Institute

Rising Regulatory Burdens, Declining Health Outcomes

Tweaks do not turn bad regulatory proposals into good ones. Yet, with only minor modifications, Congress is once again considering the CREATES Act (Creating and Restoring Equal Access to Equivalent Samples Act of 2017), and its close cousin, the FAST Act (Fair Access for Safe and Timely Generics Act of 2017).

Regulatory analyses quickly become detailed, and, frankly, quite boring. However, as the size and scope of the regulatory burden continues to grow, so does the negative impact on our economic well-being.

In a comprehensive study that examined the economic impact from federal regulations, the Mercatus Center estimated that, as of 2012, Americans were poorer by $13,000 per person due to the lost potential income that the growing regulatory burden has caused. These estimates imply that the income for a household of four could have been double what it is today if not for overly burdensome federal regulations.

What is true for the entire economy, is also true for the health care sector. The health care sector suffers from burdensome regulatory burdens, excessive litigation costs, and innovation-inhibiting incentives. Improving the health care sector’s outcomes require reforms that streamline the regulatory burden, reduce litigation costs, and increase the incentives for innovation.

If implemented, the CREATES Act will do just the opposite. To understand why, some background on the minutiae of pharmaceutical regulations is necessary.

The risks associated with pharmaceuticals vary. For some drugs, the risks of side effects are high necessitating special requirements. For some of these medications, the requirements are relatively simple; for instance, additional labeling instructions. For others, the requirements are more involved; such as, requiring specific training for health professionals when dispensing the drug, requiring the drug to be dispensed in the hospital, and/or requiring monitoring of patients who are using the drug.

The CREATES and FAST Acts impact these drugs with the most comprehensive safety requirements. These requirements are also known as “risk evaluation and mitigation strategies” (REMS); and may be subject to restrictions called “elements to assure safe use” (ETASU).

The REMS frameworks are developed by the FDA working with the branded manufacturers. They are designed to balance out the higher risks associated with these medicines with the value they provide patients with life threatening illnesses.

The drugs that are subject to the REMS standards (and the REMS with ETASU standards) are subject to rigorous processes to safeguard patients against severe, or even fatal, consequences. Existing regulations also contain processes that enable generic manufacturers to purchase the necessary samples of REMS drugs so that generic companies can test their products and introduce a generic competitor to the branded drug once its patent has expired.

Despite these provisions, generic manufacturers raise objections, alleging that branded manufacturers use the REMS and REMS with ETASU requirements to avoid selling samples to generic manufacturers. The CREATES and FAST Acts attempt to turn these objections into legislative action.

These Acts are cures looking for ills, however. Worse, these Acts create new problems that far outweigh the benefit these bills are supposed to create.

Both Acts empower more litigation by requiring brand named pharmaceutical companies to conclude what can be a very complicated negotiation process, and turn over the required samples to generic manufacturers, within 31 days after the initial request was made, or be subject to costly lawsuits.

Due to the lawsuit threat, generic manufacturers would no longer need to negotiate with the branded manufacturers in good faith – they could simply let the threat of a lawsuit do the negotiating for them.

This ticking clock problem jeopardizes patient safety by increasing the likelihood that the people administering these potent drugs may lack the appropriate training and knowledge to do so safely. Patient welfare could also be impacted by forcing branded manufacturers to divert drugs in short supply from patients to generic manufacturers, thereby exacerbating any potential shortage problems.

Branded manufacturers could also face increased litigation risk caused by the actions of third parties who may be hired by the generic manufacturer. These increased litigation risks raise the overall costs on branded manufacturers, and diminish the incentives to further innovate.

The CREATES and FAST Acts represent the wrong type of regulatory reforms. Instead of expanding regulations and incenting greater litigation, effective health care reforms need to incent innovation in the practice of medicine and increase patients control over their own personal health care decisions.

The CREATES and FAST Acts are distractions from these beneficial health care reforms. By clogging up the Congressional calendar, they make it more difficult to consider beneficial health care reforms that would effectively improve overall patient well-being. And, perhaps, these lost reform opportunities are the costliest aspects of all.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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