Empirical Evidence of Drug Pricing Games – A Citizen’s Pathway Gone Astray

Posted by Social Science Research Network

Empirical Evidence of Drug Pricing Games – A Citizen’s Pathway Gone Astray

Robin Feldman, Evan Frondorf & Andrew K. Cordova (University of California)

Abstract:      The FDA’s citizen petition process was created in the 1970s as part of an effort to fashion more participatory regimes, in which ordinary citizens could access the administrative process. The theoretical underpinnings hypothesize that a participatory structure will prevent regulatory agencies from being captured by the very industries they were intended to police. Anecdotal evidence suggests, however, that the FDA’s citizen petition process may have taken a different turn. This empirical study explores whether pharmaceutical companies are systematically using citizen petitions to try to delay the approval of generic competitors. Delaying generic entry of a drug—even by a few months—can be worth hundreds of millions of dollars of additional revenue, a cost ultimately born by consumers and government agencies in the form of high drug prices.

The study results provide empirical evidence that the citizen petition process at the FDA has now become a key avenue for strategic behavior by pharmaceutical companies to delay entry of generic competition It is a far cry from the “participatory citizen” notion that fueled the creation of such avenues at regulatory agencies. The article concludes by examining the nature of the problem and exploring the feasibility of three types of approaches to curb the behavior. These include:

1) a simple prohibition, if one were to conclude that most behavior in the category is likely to be inappropriate;

2) procedural blocks to ensure that the behavior cannot create sub-optimal results; or

3) punitive measures as a deterrent.