Breaking The FDA's Drug Approval Monopoly:

Breaking The FDA's Drug Approval Monopoly:

July 01, 1996


Executive Summary


The Food and Drug Administration's monopoly over approving new medical therapies is premised on the idea that information markets fail. In fact, competitive forces produce information much more readily than is commonly believed through advertising, testing publications, and companies' reputations for quality. This holds important implications for FDA reform.

The common law inspires confidence in information produced without the need for heavy-handed regulations. Tort and product-liability law can and do result in increased informational output from manufacturer to physician and consumer precisely in those instances where such output might otherwise be insufficient.

The market failure argument supposes that private corporations have insufficient incentives to produce information, but that government incentives to inform consumers are somehow not distorted. But FDA is subject to its own set of perverse incentives. For the agency, the political consequences of mistakenly approving a bad drug or device are far worse than those of mistakenly delaying or disapproving a needed therapy. As a result, FDA is inherently overcautious -- an approach which serves its interests but not those of the public.

The path to reform can be found in a gap in FDA's current monopoly. Under existing law, manufacturers may not market drugs or devices that have not received FDA approval. But if a drug or device is approved by the agency as safe and effective for one purpose, then doctors are free to prescribe it for other purposes as well.

Despite its efforts to suppress these "off-label" uses, FDA has not stemmed the tide. Off-label prescriptions have proliferated despite tort law's implicit bias in favor of FDA-approved uses.

A proposal by the Competitive Enterprise Institute suggests a way to preserve FDA's evaluative functions while expanding therapeutic choice. Under this proposal, FDA would function not as a veto agency, but as an evaluation agency. Rather than being banned across the board, unapproved therapies would be available under medical supervision and with clear warning of their unapproved status. That is, "off-label manufacturing" would be permitted, much as "off-label prescribing" is presently allowed. FDA would lose its veto power over new therapies, but it would continue to act as a state-funded evaluator of therapies.

Manufacturers might still choose to seek FDA approval if that approval was sufficiently valued by the public and by physicians. Moreover, under this proposal FDA approval would confer a shield against design defect liability. But patients and their doctors would be free to go beyond the circle of government approved therapies. The arena of initial therapeutic evaluation would itself expand to encompass such private entities as testing laboratories and medical journals, so that FDA itself would be subject to competition in producing credible, and timely, evaluations of new drugs and devices.

FDA's legal control over medicine has never been all-encompassing, but its exercise of that power has had deadly consequences. The "off-label" use gap in FDA's power has mitigated its potentially disastrous effects, and contains the kernel of a regulatory approach that would be far safer and more effective than our current system.


CEI's Radio Ad on the FDA Approval System "Ocean Storm" is available at: