When the U.S. Senate passed a bill May 9 to expand the Food and Drug Administration’s authority to regulate prescription drugs, the big drug makers applauded. This latest expansion of government regulatory power marked another win for the pharmaceutical industry, which has one of the most successful lobbying records in town.
The U.S. pharmaceutical industry is built on federal regulations and more often than not finds itself on the side of increased government control over pharmaceuticals. This year’s push (spearheaded by “Liberal Lion” Teddy Kennedy) to heighten FDA oversight is no exception — the Pharmaceutical Research and Manufacturers Association is a key backer of Kennedy’s legislation, which holds a mixed bag of relief and pain for consumers and taxpayers, but is fairly consistent on these two scores: It increases government power and helps the current pharmaceutical companies.
Kennedy’s bill extends the 1992 Prescription Drug User Fee Act, which instituted fees for drug companies seeking FDA approval of new drugs. The drug companies appreciate PDUFA because it earmarks their fees for inspection of not-yet-approved drugs, which appears to have sped up approval times at the agency.
PHRMA’s recent press release lauded the “significant increases in user fees,” which have another salutary effect for the incumbent drug makers: They serve as a barrier to entry. The higher the government fees for doing business, the less likely a startup can enter that business. Increasing the PDUFA fees lessens the burden on taxpayers, accelerates consumers’ access to drugs, and keeps out potential new competitors. It’s a win-win-win, unless you want to break into the pharmaceutical industry.
Another aspect of Kennedy’s bill also heightens barriers to entry. The bill expands FDA authority over labeling and packaging rules, which could result in stricter, denser webs of regulations for all drug companies to obey.
Because the regulatory burden would be borne by the entire industry — just like the user fees — the costs would be passed on to consumers. Such measures would impose costs on the drug companies, but they would still be net boons if they help keep out new competition.
The most obvious reason for PHRMA to like the Kennedy bill is what the bill doesn’t do: It doesn’t roll back the federal laws that outlaw the reimportation prescription drugs that have entered from Canada or other foreign countries.
The federal government bans the reimportation of prescription drugs, purportedly on safety grounds. The safety arguments are dubious — usually reimportation involves U.S.-made and FDA-approved drugs bought by a Canadian reseller who would then sell the drugs to American customers.
But importing Canada’s price controls would hurt drug companies that currently recoup their research costs through their sales in the U.S., but also sell pills at government-controlled prices around the world. If the drug companies couldn’t charge high prices in the U.S., they might lose their incentive for research and development.
The reimportation laws are an American big government response to foreign big government regulation. The laws drive up prices on American consumers, but without them there might just be no drugs. It’s a sticky issue, but the drug makers always win.
The Kennedy bill does contain one provision that could be problematic to drug makers: It would expand the FDA’s authority to study — and possibly recall — drugs that are already on the market. Aside from this measure, though, this bill’s expansions of the FDA’s powers are all to the advantage of the current drug giants.
That PHRMA would fare so well is unsurprising. According to the Center for Responsive Politics, in 2006, the association spent more than $18 million on lobbying, and its total lobbying tab since 1998 is more than $100 million, making it the third-largest industry-specific group in terms of lobbying.
In that same period, the industry has sent at least $139 million to federal candidates. The current chairman of PHRMA is former Rep. Billy Tauzin, served 13 terms in Congress, chaired the Commerce Committee and is the only lawmaker to ever serve in the congressional leadership of both parties. It’s hard to find a more connected lobbyist in this town.
Why does the pharmaceutical industry lobby so hard? Because it has to. Without government protection in the form of patents, there would be little to no way for drug makers to recoup their R&D costs by selling pills.
Because of the potential dangers of powerful drugs, the federal government has for nearly a century been in the business of outlawing all drugs it hasn’t explicitly approved — no other consumer product faces such a burden.
The big drug makers knew they couldn’t just forget about Washington’s power, and so they have wed themselves — and their profits — to Washington’s power.
Examiner columnist Timothy P. Carney is author of “The Big Ripoff: How big government and big business steal your money.”
