February 2012 Archives

Stem cells herald great medical advances and will certainly be one of the preeminent stories of this century. You have probably heard how the government has limited funding for stem cell research. For instance, the March 2012 edition of Popular Science reports that, "stem-cell research has been stalled because of anti-abortion activists' objection to deriving the cells from fetuses." You may even think that stem cell research has stopped altogether. You would be mistaken.

Hardly a day goes by when I don't read about exciting stem cell advances. Just today I read two articles: "Baxter begins Phase III trial of stem cell treatment for heart disease," and "Study: Dental stem cells can form liver cells." Yesterday I read how, "Ovarian stem cells may be capable of making new eggs."

Research doesn't seem stalled at all. What gives?

First, the federal government might have slowed stem cell research, but it certainly hasn't stopped it altogether. Second, even if the federal government stopped paying for any stem cell research, state governments, like California, pharmaceutical and biotech companies, and universities would still be doing research. The federal government gets disproportionate attention, but it isn't the only game in town. Third, many "news" stories consist not of unvarnished reporting but of arguments intended to persuade. Judging by my conversations with people, these articles have persuaded many. As a downside, they have helped create a pervasively pessimistic "the sky is falling" attitude among those who follow the news, but don't bother to dig deeper. Happily, almost every day brings exciting news from the stem cell front.

It's no secret that the world of practicing medicine has undergone a radical change. For years, we have been reading about physicians, fed up with fighting with insurance companies and financially hurting from obscene malpractice rates, static (or decreasing) reimbursement rates have become deeply disillusioned with medicine and are leaving the profession.

And unless something is done within the next month, an automatic 27 percent cut in Medicare reimbursement to doctors will make what's happened so far look like a picnic on a sunny day, leaving our healthcare system in a shambles--especially for seniors.

While about 95% of physicians now accept Medicare patients, if the 27 percent cut is applied, doctors will lose money by treating them. In fact--a 2011 survey shows that should this happen, 31% of doctors will stop accepting new Medicare patients, and another 45 percent said that they were unsure. More than half said they would reduce the numbers of appointments for current Medicare patients. If you're over 62, you are going to have quite a problem on your hands.

So, what are the administration and Congress doing to help? How about giving doctors a nice slap in the face.

In the interest of "transparency," Congress wants to expose any possible conflicts of interest between doctors and drug companies. Matters as trivial as having pharmaceutical sales reps provide bagels for a doctor's office are scrutinized and must be reported. And all grants to physicians, whether for collaborations or consultations with drugs companies must also be reported.

Much of this comes from a report in last month's New York Times that concluded that doctors who took money or gifts from drug companies practiced medicine differently (not worse) than those who didn't. And that sales reps who buy lunch for the office accomplish little more encouraging doctors to try new, more expensive drugs on their patients. In other words, doctors are on the take.

Left unstated is the fact that new drugs very often have substantial advantages over old ones. Doctors, lacking the time to keep current with the literature, may only learn about these new products by meeting with pharmaceutical sales reps. And that payments to doctors for collaboration or consultation is nothing more than a bribe, not a way to advance medicine.

The fact that Congress and the Obama administration are doing this in the interest of transparency is especially galling. As if the disclosure of physicians being compensated--whether for collaborating with or advising for drug companies, or getting a free dinner --is the remedy our care system needs.

Well, it's not. And if the current trend continues there will eventually be a critical shortage of doctors that will hurt all of us. Well, maybe not all of us.

In the interest of transparency, Congress happens to have its own medical plan that the rest of us would die for (or not die at all). While we are waiting days or weeks for an appointment or traveling hundreds of miles to see a doctor, they will not.

And to avoid conflicts of interest, perhaps Congress will explain why they, their families, and their aides have been getting rich (legally) by insider stock trading -- based on pending legislation on which they will vote, having a direct and predictable impact on the performance of companies they have already invested in. Unfortunately, they cannot be tossed in jail to keep company with any of us who might have tried this.

Congress is demanding transparency and accountability from others, while providing none of it themselves. They focus on minutiae and pad their pockets while our medical profession is in peril, and theirs is not.

I sure hope my own doctor manages to stick it out for a while. I may need him. The hypocrisy of our leaders is making me sick.

(Author's note: Congress did vote to postpone the Medicare reimbursement cut, but only for the balance of 2012. After that, a 30 percent cut will take effect.)

Italian economist Vilfredo Pareto, born in 1848, is widely known for his law of income distribution. He also studied economic efficiency and developed the concept of a Pareto improvement: changes can be made so that at least one person is better off and no one is worse off. A Pareto optimal situation means that no further improvements can be made.

Let's assume that everyone must eat dinner at 6:00 PM. I actually prefer to eat dinner at 6:00 but you prefer 7:00. A Pareto improvement would occur if I was allowed to eat dinner at 6:00--I'm are no worse off than before--and you could eat at 7:00, meaning you're better off.

Now consider Andrew von Eschenbach's proposal in The Wall Street Journal in which he proposed that, "[i]nstead, after proof of concept and safety testing, the product could be approved for marketing with every eligible patient entered in a registry so the company and the FDA can establish efficacy through post-market studies."

What would this do? The only difference, other than increasing the number of approved drugs, which would benefit everyone, would be the faster approval of most medicines and less information about a medicine right when it launches--remember it launched early--because most of the efficacy data would come later.

In economic terms, this is a Pareto improvement over our current situation. The more conservative patient, say Patient C, could wait for the full efficacy data. The bolder patient, say Patient B, could try new drugs sooner and actually help create efficacy data. Both parties would be better off, or at least equally well off, as they are today. Patient C, who would wait for the same amount of efficacy data as before, would be no worse off. Patient B, who would have more drugs to choose from and would have access to drugs sooner, would be better off.

Such a solution is a Pareto improvement, in that everyone is at least as satisfied as under the current system. Cautious patients would still get the assurance of reams of efficacy data, while patients who don't want to wait, wouldn't have to.

That was the Congressional Budget Office's mantra as it cranked out cost estimates for the Patient Protection and Affordable Care Act (aka, Obamacare). Peter Suderman, over at the Reason blog, notes that CBO's "substantial uncertainty" has already translated into irretrievably broken programs (the CLASS Act), bankrupt programs (early retirement insurance), and far higher per person costs (high risk pools).

Lessons learned?

Mostly what we learn from this story is that it's unwise to put too much trust in the cost and enrollment projections made when the health care overhaul was passed. The law's early retiree reinsurance program blew through its money far faster than expected. The long-term care program was passed on the promise that it could be made fiscally sustainable; the administration pulled the plug when it turned out that wasn't true. The high-risk plans, meanwhile, are turning out to cost far more per-person than anyone guessed--but enrollment is far lower. I'm not suggesting we should completely ignore projections for the Medicaid and exchange provisions that make up the bulk of ObamaCare's insurance expansion. But this is what the Congressional Budget Office was warning about when it repeatedly noted that its ObamaCare cost projections were "subject to substantial uncertainty." And we should expect more deviations from the projections as implementation continues.

Now, to be fair, Democrats could agrue that "uncertainty" could break their way through the ACA's cost containment and payment reform demonstration projects in Medicare. However, the track record of Medicare demonstration projects and across the board payment cuts to providers (think SGR) is pretty bad as well.

And, to add to the fiscal and policy undertainty, we've created an entirely new entitlement program for the uninsured along with adding 16 million more people to Medicaid, a deeply flawed "safety net" for the poor.

In other words, Suderman is right that the downside risks look a lot sharper than any potential upside cost savings - now and for the forseeable future.

When Dr. von Eschenbach's oped, Medical Innovation: How the U.S. Can Retain It's Lead, ran last week there was a lot of positive feedback - and plenty of good questions about how his proposal for new pilot programs for breakthrough therapies would, in fact, operate.

Several commentators mistakenly thought that Dr. von Eschenbach was calling for the wholesale repeal of the 1962 Kefauver Amendments, which require the FDA to test new drugs for efficacy. They argue that this move would unleash a wave of placebos on the country - expensive drugs that would be useless, or, worse, dangerous.

Take this Forbes article, by former Pfizer scientist John LaMattina:

Dr. von Eschenbach's position is untenable in a variety of ways. First of all, for a patient, physician and payer to accept a new drug, they all have to be convinced that the risk in taking the drug is worth the benefit. Imagine a doctor telling her patients: "I have a new drug to treat your migraine. I have no idea if it works. But it seems to be pretty safe." The doctor might just as well prescribe a placebo.

This complaint was echoed by Pharmalot:

In other words, this approach envisions substituting epidemiological studies for double-blind, randomized clinical trials. This is ironic, because Andy laments that the FDA is losing its status as the gold standard among regulators, which was the rationale for writing his missive. ...

Of course, the pharmaceutical industry would benefit, since fewer trials would be required prior to approval, which would lower development costs. Meanwhile, payers - both private and public - would provide coverage for medicines, even though efficacy remains unknown until post-marketing study results are reported.

Derek Lowe, who actually labors in the trenches in drug development, was more open-minded, but still skeptical:

One is to translate [Dr. von Eschenbach's proposal] into less editorial language and propose that "Patients (and their insurance companies) should be able to pay to try therapies before they're proven to have worked, as long as that proof is forthcoming". That's not prima facie a crazy idea, but it's subject to the same sorts of objections as [Andy] Grove's earlier proposal. The post-marketing data will likely be of lower quality than a properly run clinical trial, and it will be harder to use it to establish efficacy. On the other hand, useful therapies would get into the hands of patients faster than happens now, and the expense of drug development would (presumably) go down. But useless therapies would also get into the hands of patients faster than happens now, too, and that's something that we're not currently equipped to deal with. ...

These are all fair questions following an 800 word op-ed that introduced an idea that requires explanation.

Let's take a stab at a few responses here to the key objections:

Efficacy: Dr. von Eschenbach is not saying that we should junk the FDA's efficacy requirements. What he is saying is that science is advancing to the point where we can, for some breakthrough therapies like regenerative medicine, begin to characterize medical products to such a degree that the traditional Phase I, Phase I, Phase III paradigm (including large, placebo controlled randomized trials) is outmoded.

For these products "proof of concept" can be established in preclinical studies that define mechanism of action in a way that is predictive of both effectiveness and risk. Subsequent small first-in-human (phase 1 clinical trial) can confirm not only the predicted safety but also the expected benefit.

This is the first step in providing regulators and companies sufficient confidence that they are safe and effective enough to be marketed in a controlled environment for unmet medical needs. The second step is to have in place a rigorous postmarket surveillance mechanism that validates the expected benefits and risk of the therapy. In fact, such a mechanism of prospective validation is far superior to the current system of passive post market safety reporting.

Creating an innovative regulatory pathway for selected products is not without precedent. Twenty years ago, in the midst of the AIDS crisis, regulators and patient groups came together to create an Accelerated Approval pathway based on surrogate markers that is vulnerable to many of the same objections raised to Dr. von Eschenbach's current proposal. The Accelerated Approval pathway did not result in reckless regulation but rather saved more lives and spurred tremendous innovation in AIDS medicines, and, later, cancer.

Accelerated Approval (and later Fast Track) changed the criteria for regulatory review and approval based in a rational way that saved lives while maintaining quality. Standard setting for the next generation of novel therapeutics for unmet medical needs should proceed with that same spirit of innovation and collaboration. For these therapies - as for targeted cancer therapies - evidence of efficacy even in proof of concept trials (or however we want to describe them) should be significant and readily apparent. With this new pathway, the FDA should also gain additional authorities to remove a product if efficacy or safety issues later emerge that sharply shifts the risk/benefit balance of the therapy.

Registry/postmarket-surveillance: Critics complain that the industry does not complete some postmarket trials now, with the perception that the FDA doesn't have the authority to enforce postmarket requirements - or doesn't want to anger patient groups by removing treatments from the market it considers ineffective. Registries would strengthen the FDA's position be collecting and disseminating evidence on efficacy (and safety), and make patient's groups more comfortable with drug withdrawal when necessary. Information collected through registries could also help identify sub-groups of patients who might benefit from the therapy, allowing for a more nuanced regulatory approach. Later, follow on diagnostic tests - as have been developed for Tysabri and PML - would further strengthen the ability of patients and clinicians to judge for themselves the risk/benefit balance of the therapy on a case by case basis.

Payment: Who pays? Who's going to pay for drugs that don't work? The short answer is no one. But that is not what we're proposing, and companies that couldn't produce innovative therapies with clear patient benefits wouldn't utilize this pathway anyway. Of course, in our current system, some therapies (or procedures, like back surgery) and diagnostic tests are provided to thousands of patients who don't benefit from them - or worse, are harmed by them.

The paradigm that we're proposing would arguably change this for the better because it would target the highest need patients, and the best cutting edge science. We'll be taking risks in these areas, with rapidly evolving science, but these are the areas that we should be taking risks in.

Some insurers are already using their own internal registries that collect safety and efficacy information and use that information to create care guidelines and limit (inappropriate) off label use. This is simply good medicine as well as smart cost containment. On the other hand, some biomedical companies might balk at sharp restrictions on marketing and may worry that registries could detect false signals of problems that lead to nuisance lawsuits. These are legitimate concerns.

This pathway would have to be carefully crafted to not only be a registry but have a scientific rigor in data analysis to separate signal from "noise", much like sophisticated algorithms monitor credit card fraud. Furthermore, patient registries could be strengthened by patients groups and industry working together to utilize mobile health devices to collect real time data and patient reported outcomes to improve product utilization and safety.

The pathway should also be crafted to ensure fully informed consent for patients and tort protections for participating companies - both of whom are, in effect, submitting to extensive data collection in exchange for early market access to life saving and health-enhancing therapies.

Dr. von Eschenbach's proposal has stirred up some controversy, but we welcome debate.

It's easy to forget how conservative the old FDA became in the wake of the thalidomide tragedy - when new drugs were frequently introduced first in Europe, and reviews of drug applications in the pre-PDUFA era could take two and half years or more. It was said that speeding up drug reviews through PDUFA would lead to a safety catastrophe - but an in depth study by the Milken Institute of safety before and after the introduction of the Prescription Drug User Fees (which substanially accelerated reviews) demonstrated that just the opposite occurred--the benefits to patients swamped any potential problems from accelerated review.

We should also recall that thalidomide was later brought back to market - with the encouragement of the FDA - to treat complications from AIDS, leprosy, and later, cancer. The drug itself is not bad; it simply inhibits angiogenesis. Once you know how it works then you know how to use it - and when to avoid it. Better science, in effect, taught us how to save the baby, save the drug, and save the cancer patient.

Developing a novel pathway for innovative therapies and finding ways to sharply reduce the time and costs required for drug development (particularly for the most innovative therapies) will be neither easy nor quick. But we should not allow ourselves to be distracted by caricatures that such a pathway will "flood" the market with placebos that insurers would be required to pay for.

Companies know that they cannot market their drugs without sound science behind them, and that the public, insurers, and policymakers will never accept sham science. The question we are asking is simple: Are we using the best science - at the FDA, in industry, at the NIH - to advance innovation as quickly, safely, and effectively as possible? We believe that we can do better, and will continue to advance this argument in future opeds, meetings, and white papers.

In a surprise move, the Food and Drug Administration's Endocrinologic and Metabolic Drugs Advisory Committee on Wednesday voted 20 to 2 in favor of recommending approval of the obesity drug Qnexa. If the agency accepts that recommendation and ultimately approves Qnexa, it would become the first new obesity treatment in over a decade. Just a year and a half ago, however, the same committee (though with a slightly different composition) voted 10 to 6 against approving the same drug.

What changed their minds? A couple of things, including a labeling change recommending that lower doses be used in most cases and a proposed distribution program that will make it more difficult for pregnant women to be prescribed the drug. But, according to The New York Times, arguably the biggest change was the realization by Advisory Committee members "that obesity itself causes health problems and that there is a pressing need for treatments."

They've just now realized that obesity causes health problems? Where have these people been for the last twenty years? Apparently, they haven't been paying attention to the almost daily warnings in major and minor newspapers, on television news programs, in announcements from the Surgeon General, the Centers for Disease Control, and the First Lady that America is in the midst of an obesity epidemic that prematurely kills hundreds of thousands of us every year. Is it really too much to ask that the people we put in charge of recommending new medicines for approval or rejection would take seriously the negative consequences of the conditions those products are intended to treat?

To be sure, that's more than a little hyperbolic on my part. The Advisory Committee that recommended against approving Qnexa in 2010 did, in fact, acknowledge that obesity itself poses significant health risks. "We know that obesity is a major health problem, and all efforts to address this issue should be lauded," said the acting chairman of that committee, Dr. Kenneth Burman of the Washington Hospital Center here in DC.

Still, it seems curious, to say the least, that relatively minor proposed labeling and distribution changes for Qnexa would have such a dramatic impact on the Advisory Committee's vote -- from strong opposition to overwhelming support. This time, it does seem as though the committee took the risks of obesity far more seriously. Or was it just that new members of the Advisory Committee brought with them an entirely different perspective? Perhaps it's something else entirely. The point is, we really don't know what caused this dramatic change of heart or what weight the committee assigned to the drug's known risks or those of the underlying condition. Nor, perhaps more importantly, do we know what weight FDA will assign them when the agency makes its decision.

The FDA announced yesterday that it had taken steps to mitigate shortages of two cancer drugs, Doxil and preservative-free methotrexate. Doxil, a drug used to treat ovarian and other cancers, has been in short supply for months, after manufacturing problems shut down the drugs' sole U.S. plant. The FDA will temporarily allow importation of Doxil from an Indian manufacturer, a move that is expected to effectively end the shortage.

For preservative-free methotrexate, a critical cancer drug for pediatric acute lymphoblastic leukemia (ALL) and bone cancer, the FDA has asked other pharmaceutical companies to step in to fill demand after a major supplier, Ben Venue, shut down a plant making the drug for "maintenance and requalification of equipment."

The FDA reports that it has prevented nearly 200 shortages in 2011 thanks to advance notice from manufacturers, but 280 drugs remain in short supply. Short term fixes are welcome. Long term fixes are harder to come by.

The U.S. market strongly encourages substitution of branded drugs by generics immediately after a drug loses patent protection. For very profitable drugs (like statins) generic companies will rush in to fill the vacuum, slashing prices and saving consumers and insurers billions in annual drug costs. For high demand, high profit generics (and branded drugs), shortages will be few and far between.

But for other medicines, like sterile injectable drugs, which have high manufacturing costs and narrow profit margins, fierce price competition may eventually drive all but one or two manufacturers from the market. And when there are only one or two suppliers, it creates the opportunity for drug shortages when unexpected manufacturing problems at a single plant can place thousands of lives in jeopardy.

One solution, offered by the FDA's Sandra Kweder in an interview yesterday, is for "a shift in the industry to assuring good manufacturing practices to prevent finding themselves in a critical juncture where they have no choice but to shut down."

This, however, puts all the blame in the wrong place. By all means, companies should comply with the current Good Manufacturing Practices required by the FDA, and find ways to share information to help prevent or alleviate the effect of drug shortages.

But perverse Medicare price controls, just-in-time inventory supply practices at hospitals, reverse auctions by Group Purchasing Organizations for filling generic drug contracts, tougher FDA manufacturing and inspection standards for domestic companies (which can raise costs), and increased global competition from low-cost suppliers in India and China has created something of a "race to the bottom" in the generic drug market.

In this environment, quality (but higher cost) manufacturers may (rationally) exit the market to focus on higher margin products. And the few low cost suppliers that remain for complex drugs like sterile injectables may not be able to ensure the integrity of their manufacturing and supply chain over time at a rock-bottom price.

In other words, if private and public purchasers insist on driving prices below a sustainable level, drug shortages may become an endemic feature of the U.S. generic drug marketplace - as they have over the last several years.

You can find good articles on the problem (and potential solutions) here, here, and here (by yours truly).

Funding constraints, hopefully addressed by the new generic drug user fee agreement, have limited the FDA's ability to conduct timely inspection of foreign plants, posing a potential safety risk for patients. It also creates an imbalanced playing field for U.S.-based companies that are inspected more frequently and adhere to higher, more expensive safety and quality standards. In this environment, quality American manufactuers can't compete on price.

Until China and other developing countries raise their manufacturing standards to match those of the U.S., a market-based solution that would supplement the FDA's efforts would be for industry to work with regulators to create a voluntary third-party certification system for manufacturing standards and supply chain integrity for contractors based in developing countries where regulatory standards don't meet those of the FDA or EMA. This approach would mimic independent non-profit organizations like the Joint Commission, which certifies hospital quality, for the global pharmaceutical manufacturing and supply chain. Something like this may already be in the works at Rx360.

Under a certification system, companies that submitted to regular third party inspections and other quality measures would receive a "seal of integrity" that they met or exceeded established regulatory standards.

Generic drug purchasers could still opt to buy from the lowest bidder, but they would do so at their own (and their patients') risk. Third party certification of supply chain integrity would help counteract the "race to the bottom" in generic drug pricing without intrusive government regulation by sending better market signals about manufacturers' commitment providing a dependable supply of the highest quality medicines - not just the cheapest.

Andrew von Eschenbach wrote an op-ed piece for The Wall Street Journal in which he proposed that, "[i]nstead, after proof of concept and safety testing, the product could be approved for marketing with every eligible patient entered in a registry so the company and the FDA can establish efficacy through postmarket studies."

John LaMattina expressed disappoint in von Eschenbach's position via a Forbes article, laying out a few criticisms. I will address just one here. LaMattina stated that physicians, patients, and payers must be convinced, beforehand, that the risk of taking a new medicine is worth the potential benefit. I agree. He went on to say that if von Eschenbach gets his way, "[t]he doctor might just as well prescribe a placebo," implying that so little efficacy data would be available that new products would be indistinguishable from placebos. I disagree.

Von Eschenbach is not pushing placebos and is not against efficacy data in general; he simply wants to move most of the expensive and lengthy process of proving efficacy from before the product is approved until after. There will still be some proof of efficacy before launch--at least from the proof of concept and safety testing--but the decision on how much more proof of efficacy would be needed before launch would be the responsibility of the pharmaceutical companies, not a government agency.

Question: How do drug companies make internal go/no development decisions? Answer: With data on safety and efficacy. I guarantee that a new drug being developed for pain, will, at an early stage, have some data showing pain relief.

Two weeks ago, recognizing the overwhelming and insurmountable issues associated with implementing the Community Living Assistance Services and Support (CLASS) Act, the House voted to repeal what Democratic Senator Kent Conrad described as "a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would be proud of." While Senate action on the bill remains uncertain, this recent turn of events illustrates another example of the question that PPACA has exemplified -- free market or nanny state?

The amusingly-named CLASS Act was supposed to create a voluntary program wherein monthly premiums would be used to finance benefits of at least $50 a day for those needing long-term care. The money would go for services at home or to help with nursing home bills. Last fall, HHS Secretary Kathleen Sebelius finally admitted that it would not be possible to certify the program's financial solvency, so it would not be implemented.

And as another piece of the fiscal gimmickry associated with ObamaCare is exposed, it's possible to overlook the bigger issue. Why should the federal government need to create this program? If there is a real need for a product or service, and someone can provide it and make the case for it, then it will be successful -- because the market has mandated it.

A quote from Senator Tom Harkin (D., Iowa) to the National Journal has been making the rounds on the blogosphere as well -- "the problem with CLASS is that it's voluntary." This summarizes the threat -- that a future Congress could amend the act, forcing another unsustainable entitlement program on all of us. So long as it remains on the books, CLASS is another example of the menacing hand of government threatening our liberty.

In this case, the solution is clear. But as I pointed out earlier this week, the bureaucratic mindset behind programs like CLASS is unlikely to result in better health outcomes at lower cost.

Former FDA commissioner and NCI director Dr. Andrew von Eschenbach has joined the Manhattan Institute to head up our Project FDA. He's started off his tenure with a home run - an op-ed in the WSJ, where he calls on Congress to transform the FDA to meet 21st century challenges :

Over the years, Congress has repeatedly expanded the FDA's responsibilities, and today the agency monitors products that account for 25 cents of every dollar in U.S. consumer spending--including tobacco, the food supply, cosmetics and drugs ranging from aspirin to the latest biotech medicines for patients and pets. It has not ensured that the agency is keeping pace with the enormous scientific advances made since the human genome was decoded in 2000. Congress and the Obama administration need to make that a priority.

The stakes couldn't be higher for our health. The U.S. biomedical industry is one of the crown jewels of the American economy. It employs 1.2 million people directly and over five million throughout its supply chain, with a total output of $519 billion in 2009, according to a 2011 Milken Institute report, "The Global Biomedical Industry: Preserving U.S. Leadership." Many of the firms are among the world's most innovative: From 2001-2010, the report shows, U.S.-based companies produced nearly 60% of the world's new medicines, up from 42% the previous decade.

But U.S. firms won't continue to lead unless the FDA retains its role as the world's "gold standard" for evaluating new medical products. Thankfully, the opportunity to remake--not merely tweak--the agency is here today, if policy makers can seize it. Congress is currently considering legislation to reauthorize the agency to collect the fees companies pay for the review of every new drug and medical device application submitted to the FDA. This presents a rare opportunity to examine the FDA's overall needs and performance.

Dr. von Eschenbach's vision for the FDA is of an agency that is as scientifically sophisticated as the companies and products it regulates, while also creating innovative regulatory pathways for the most innovative products:

Breakthrough technologies deserve a breakthrough in the way the FDA evaluates them. Take regenerative medicine. If a company can grow cells that repair the retina in a lab, patients who've been blinded by macular degeneration shouldn't have to wait years while the FDA asks the company to complete laborious clinical trials proving efficacy. Instead, after proof of concept and safety testing, the product could be approved for marketing with every eligible patient entered in a registry so the company and the FDA can establish efficacy through post-market studies.

By empowering the FDA to create new paradigms for evaluating the most promising innovations, Congress can ensure that the FDA serves as a bridge--not a barrier--to cutting-edge technologies.

We'll be working hard in the coming months to turn his vision for FDA reform into reality.

Today's Wall Street Journal has a refreshing interview with Dr. Susan Desmond-Hellmann, who is chancellor of the University of California, San Francisco, and a former drug industry research scientist. The piece begins with an introduction that says, "Many universities are wringing their hands over the increasing coziness of medical schools and their corporate partners. Susan Desmond-Hellmann ... has no such qualms."

As the introduction notes, "potential conflicts of interest are a growing concern at many schools." That's a problem. What matters are not "potential" conflicts of interest but actual conflicts that result in a researcher or clinician putting his or her own self interest over the interests of the patients whose well-being they manage.

Unfortunately, the fear of being branded with a scarlet letter "I" -- for industry ties -- has led far too many universities, scientists, and clinicians to pass up opportunities to collaborate with the drug and medical device industries in ways that might have redounded to the benefit of patients. Fortunately, while it is clear from the interview that Dr. Desmond-Hellmann takes genuine conflicts of interest seriously, she has rejected the narrow-minded attitude that paints all industry ties as inherently corrupting:

"WSJ: What do you tell professors who won't work with drug or biotech companies?
"Ms. Desmond-Hellmann: I think that's a huge mistake. If you're a professor now, and you want to get your discovery to society, you either need to start a company or work with a company to commercialize a product. When professors have told me they won't work with companies anymore because they feel they'll have this scarlet letter, I think: 'Wouldn't that be sad if all the best scientists and clinicians won't work with companies because the public has said they're evil?'"

Unfortunately, the published interview is rather short, so Dr. Desmond-Hellmann is never asked to discuss her views on what exactly makes for a conflict of interest. We know, for example, that not all conflicts of interest involve money. The literature is full of examples in which such motivations as raw ambition, the desire to achieve research successes or to be the first to discover some phenomenon, or simply a basic fear of failure created conflicts that contributed to fraudulent research and/or harm to an otherwise innocent third party.

As medical ethicist Sigrid Fry-Revere puts it, a conflict of interest is any "clash of competing interests in which a socially sanctioned goal could potentially be compromised by a more personal goal. Conflicts of interest exist in every form of human interaction. Therefore, the question should be not whether conflicts exist, but whether relevant individuals will succumb to the temptation to satisfy more immediate personal desires at the expense of long-term personal benefit and long-term social goals."

In short, conflicts can never be eliminated, though they can and should be managed. And Susan Desmond-Hellmann should be congratulated for approaching the issue of conflicts with an open mind, for expressing an understanding that industry-academy relationships need to be monitored, and for realizing that the benefits of partnering with industry generally far outweigh the risks that might arise from conflicts of interest.

On the same day last week that Paul Howard was discussing the Biosimilars User Fee Act, the FDA issued the first two in a series of long awaited guidance documents that will lay the groundwork for implementing the Biologics Price Competition and Innovation Act. Folks in the biotech and generic drugs industries have been anticipating the documents since at least last summer, when CDER head Janet Woodcock announced that the documents had been completed. But FDA kept putting off their release in order to fine tune its approach intended to navigate a course between the very strict process advocated by innovator biotech companies on the one hand and the comparatively less strict process advocated by generic manufacturers on the other.

The result, however, is a little underwhelming, as the draft guidance docs still leave many details of the process undefined. As this article on the Nature blog explains:

"Ultimately, the FDA provided few concrete details about what would be required, preferring to judge on a case-by-case basis. That offers flexibility, but companies may be deterred by the lack of specificity, cautions D'vorah Graeser, a patent agent at Graeser Associates International, a law firm based in Chicago and Israel. 'I don't think [the FDA] gave much guidance,' she says, noting that the first few companies to jump in are still taking on a big risk. 'They may be rejected and have to go back to the drawing board several times,' she says."

Or, as Jim Czaban at the law firm Wiley Rein explains, "the Guidances are very small baby steps that leave many important questions unanswered."

Essentially, the guidance on Scientific Considerations in Demonstrating Biosimilarity to a Reference Product tells us that "FDA intends to consider the totality of the evidence provided by a sponsor to support a demonstration of biosimilarity, and recommends that sponsors use a stepwise approach in their development of biosimilar products." This stepwise approach "can include a comparison of the proposed product and the reference product with respect to structure, function, animal toxicity, human pharmacokinetics (PK) and pharmacodynamics (PD), clinical immunogenicity, and clinical safety and effectiveness." And, at each step, manufacturers should examine "the extent to which there is residual uncertainty about the biosimilarity of the proposed product and identify next steps to try to address that uncertainty."

Un-huh! We had to wait nearly two years for this?

On the one hand, the supreme amount of flexibility the FDA approach allows is a plus. We know, for example, that even the simplest biologics are orders of magnitude more complicated than small molecule drugs, and that there will be a huge amount of variation in manufacturers' ability to replicate approved biological products with anything approaching perfect fidelity. So, tying the process down to a simple, detailed flowchart in which all the possible variations are accounted for would be difficult, if not impossible.

Still, the European Medicines Agency (which, admittedly had a few years' head start on the FDA) has issued a larger and more comprehensive set of rather more detailed guidance that makes it easier for manufacturers to know what they need to do to secure approval. FDA may well be able to follow in EMEA's footsteps and eventually issue its own more detailed proposals. But why did it take so long to get a set of documents from FDA that tell us essentially nothing we did not already know?

After all, FDA has been slowly but surely approving a very small number of biosimilar products since 1998. [No, that's not a typo. The correct date is 1998.] Through a quirk of FDA history that I described in this paper, a small number of follow-on biological products (primarily hormones) have been eligible for approval through an abbreviated regulatory pathway created in 1984 along with the "true generic" pathway. Examples of products approved this way include GlucaGen in 1998, Follistim in 2002, Hylenex and Fortical in 2005, and Omnitrope in 2006.

The abbreviated 505(b)(2) process (named for the section of the Food, Drug, and Cosmetic Act in which it is described) involves a great deal of analytical data from laboratory and animal testing, supported by somewhat less clinical testing than is required for innovator products. Section 505(b)(2) wasn't designed with follow-on biological products in mind, but its approach is essentially the process envisioned under the Biologics Price Competition and Innovation Act. The problem with these new guidance documents is that they convey practically no useful information about the process that could not have been learned merely from observing how the approval of those other biosimilar products had been managed.

Don't get me wrong, it IS nice to see these documents finally in print. But if the agency is serious about creating a reasonable, transparent, and predictable pathway for approving biosimilar products, it's going to have to do better than this.

As I reflect on the PPACA (Patient Protection and Affordable Care Act) legislation on the Supreme Court's docket - all 2700 pages of it - it occurs to me that it's a perfect example of the bureaucratic mindset, and why that kind of thinking can't work.

One defining characteristic of the bureaucratic mindset is an extraordinary level of obsessive compulsiveness. In this world view, the solution to a complex problem is to anticipate every possible contingency and write down what the response should be in each and every case. Of course, this approach is hopeless and self-defeating, and even worse, sets the stage for the regulated to eschew responsibility for compliance, and for abuse by agents of the bureaucracy itself.

It's a hopeless approach because you can't possibly anticipate all the contingencies, and it's self-defeating because to the extent that you even try, you create an impenetrable wall of regulation that defies mastery by any individual. That's why, for example, we have a whole industry that's evolved to help citizens with their taxes. The tax code - all 70,000-plus pages of it, is another exemplar of what the bureaucratic mindset produces.

Although it's virtually impossible to anticipate every possible contingency and prescribe the appropriate response, the attempt to do so, and the presumption that it's been done virtually eliminates the opportunity for individual judgment, and in doing so, eliminates any sense of personal responsibility. The truth is, very complex problems defy simplistic prescriptions. That's not to say that complex issues can't be regulated.

The FDA creates guidelines for an extraordinary range of complex issues involved in regulating and enforcing the Pure Food and Drug Act and its extensions. The agency has no shortage of detractors, but review of its regulatory output suggests that it attempts to avoid the bureaucratic mindset by offering guidelines, not prescriptions for managing the issues for which it is responsible.

For an example of the alternative, consider HIPAA - the Health Insurance Portability and Accountability Act of 1996. Intended to protect patients' rights to privacy of their health information, HIPAA's byzantine prescriptions and penalties have inspired an industry of healthcare providers largely clueless about the letter and the spirit of the law, who take no accountability for its accurate implementation, or responsibility for the inconvenience they create.

Finally, products of the bureaucratic mindset set the stage for abuse by the bureaucracy itself. To the extent that there is oversight, legislation like PPACA invites arbitrary and politicized action, because the requirements are so complicated and contradictory that ultimately they can be used to justify any decision. The tax code has been the "take-down" tool of last resort by law enforcement for many years. PPACA is only 2700 pages, but that's more than enough to serve the same purpose - and all the rules aren't out yet!

Implicit in the bureaucratic mindset are the following underlying assumptions:
1. people's judgments cannot be trusted.
2. bureaucrats who write regulations are sufficiently omnipotent to anticipate all contingencies and prescribe optimal responses to all of them.
3. people who genuinely want to do a good job will be satisfied following rules that others have laid out.

In short, the bureaucratic mindset is the outgrowth of a kind of terminal hubris that imagines those who create and enforce the rules as the only stakeholders worthy of any respect. We've had enough of that already. I, for one, would like to see more judgment and fewer rules. We'd all be better off for it. We might even get better health outcomes at lower cost ...

Having spent a fair amount of time lately writing and talking about two particularly critical medical issues, my only viable current solution is to hide under the bed. But I'm not sure that's there is room for me and the dust, so I'll just vent here.

We are headed for big trouble in two areas of our health care. I don't know which is worse.

First, in the absence of a sudden congressional agreement on a pending bill, the Medicare reimbursement for doctors will automatically drop by 27% by at the end of this month. It will be a very bad time to be 65.

A 2011 survey conducted by the Medical Group Management Association polled over 93,000 doctors about how they handle Medicare patients-- now and if the cut goes through. Right now, over 95% of the respondents accept Medicare patients. But if Congress does nothing (something they excel at), the numbers change in a big way.

In that event, 31 percent of the respondents said that they would stop accepting new Medicare patients, and another 45 percent said they were uncertain. Let's say that the undecideds split evenly when it is time to decide. This will mean that more than half of the doctors in the US will stop seeing people, simply because they happened to turn 65.

Thirty-five percent of the respondents said that would reduce the number of appointments for existing patients, while 51 percent said they would do so for new patients. Nine percent said they would stop treating existing patients entirely.

This ain't good. And it's already happening. A number of recent stories have looked at what seniors face even before the end of the month. One story in particular was particularly awful. A senior woman in Connecticut spent the better part of a day just trying to find a doctor that would see her. The first four offices she called said they were no longer accepting Medicare patients, and the rate cut hasn't even taken place. Pretty horrifying.

Another big mess is the continuing, or maybe growing number of essential, generic drugs that are unavailable because of shortages. Last August I wrote an op-ed in The New York Post about people suffering and dying because their doctors or hospitals were unable to get staples such as epinephrine, morphine, antibiotics, cancer drugs and general anesthetics. There are about 250 drugs in short supply, and that number has been growing every year.

The only "remedy" announced since then was an executive order from President Obama. He directed the FDA to: 1) collect information about impending shortages and work with manufacturers to at least be aware of the shortages; 2) speed up inspections of manufacturing facilities (pretty much impossible, since they are drastically short staffed) and 3) work with the Justice Department to identify instances of collusion and price gouging. The FDA has no power to force any company to make anything, and all the inspections and criminal prosecution in the world won't change this.

So, rather than do anything useful, the administration seemed to be more interested in punishing price gougers, who were raising prices on drugs in short supply by absurd amounts, since desperate hospitals had no choice but to buy them. Hardly an ethical business practice, but perhaps we should worry about the shortages first and market abuses later. And one could argue that the required advance notification of impending shortages will make the problem worse by tipping off unscrupulous buyers to hoard drugs that will soon become unavailable.

The answer to this problem is not at all obvious. Many very smart people have been discussing this and there is no simple solution. Although a good place to start might be to lift the price controls on generics that started the problem. The shortages consist mostly of simple generics where there is little or no profit to be made given price constraints. Seems pretty simple, no? But that would involve doing something to help drug companies-- a political no-no if ever there were one.

Pay attention to this. It will only get worse. The hatred for the pharmaceutical industry is so strong that it is now impossible to get even necessary things done, should there be any hint that a profit will be made. Perhaps some of our political leaders will learn the hard way about how the perpetual demonization of an industry will come back to haunt them. Maybe when people with heart attacks start showing up in the ER only to find that they are short on epinephrine, saline and morphine will they belatedly realize that government policies, made in the name of affordable medicine or simply for political expedience, weren't such a great idea after all.

The last few days have seen a storm of outrage because the Patient Protection and Affordable Care Act (AKA Obamacare) will require all health insurance plans to cover contraceptive and sterilization methods, including the morning-after pill. Of course, Catholics and those who support the First Amendment's religious protections rallied against this new mandate.

Ignore for a moment the religious implications of this mandate and instead focus on the logic used by President Obama and three U.S. senators--Shaheen, Boxer, and Murray--in its defense. They argue that insurers "should" provide birth control for free because contraception actually reduces overall costs for insurers by preventing expensive pregnancies. They quote a statistic that it costs about 15% more for employers to exclude birth-control coverage.

These politicians are saying that profit-seeking organizations have missed an area to reduce costs and therefore increase profits. And so the government should force these insurers to take such cost-saving steps. This logic assumes:

(1) These politicians know more about the insurance business than the insurance companies themselves.
(2) The insurance companies are either stupid or biased against birth control to the extent that they are willing to forgo additional profits.
(3) Force, through government mandates, is a good method to enlighten the insurance companies and to achieve the optimal outcome.

I can't imagine how point #1 would be true. Regarding point #2, I make my business consulting with companies and, yes, there are some companies and individuals that make conceptual mistakes. However, marketplace pressures eventually steer companies toward good decisions. If not, these companies eventually lose to better managed companies. Point #3 could justify a whole shelf of books just by itself. Suffice it to say that government mandates bring with them a slew of unpleasant baggage that needs to be factored into the equation.

Imagine there is no regulatory agency saying which drugs are efficacious, and consequently, which drugs could be marketed. (Assume that safety is still regulated.) Pharmaceutical companies would develop and manufacturer medicines and sell them to patients. If the patient felt better or got better, he/she would keep taking that medicine. If the patient didn't get better, had a tolerability issue, or didn't see the value, he/she would stop taking that medicine.

The problem with this, as we all know, is the placebo effect. The patient's perceived net benefit is equal to the real benefit plus the placebo effect. There could be a real effect like reduced blood pressure or increased CD4 cell counts--or there could be none at all. The placebo effect could convince the patient that there's a real benefit even when there is none.

The FDA's approach to get around this problem is to separate the real effect from the placebo effect via clinical trials with large numbers of patients to determine whether the medicine is really working or not. Sometimes this divide-and-conquer solution isn't possible, or even necessary, when the entire patient experience is holistic and subjective.

Consider pain. In clinical trials, the visual analog scale is used frequently to assess a patient's perceived pain level. This is merely an objective measurement of nothing other than a subjective assessment. A patient's assessment of pain is highly individualized and situationally dependent.

A recent article in the Wall Street Journal reported on a study that concluded that nicotine replacement therapy (NRT) doesn't positively impact smoking cessation. Not surprisingly, this report has raised a number of questions for insurers, consumers, and the FDA.

The study, A prospective cohort study challenging the effectiveness of population-based medical intervention for smoking cessation, conducted by the Harvard School of Public Health and the University of Massachusetts, examined a sample of 787 adult smokers who had recently quit smoking. The study's objective was to "examine the effectiveness of NRT... to better inform healthcare coverage decisions."

Participants were surveyed over three time periods: 2001-2002, 2003-2004, and 2005-2006. In the initial interview, they were asked whether they had used a nicotine replacement therapy in the form of the nicotine patch, nicotine gum, nicotine inhaler, or nasal spray to help them quit. They also were asked if they had joined a quit-smoking program or received help from a doctor, counselor, or other professional. During the subsequent interviews, they were asked if they had started smoking again.

One of the most significant conclusions, and the source of much of the controversy surrounding the report was the relapse rates between the first, second and third interviews reported by the participants were no different between individuals who used NRT and those who did not. The lead author of the study, Hillel Alpert, was quoted in the Harvard Gazette as saying "This study shows that using NRT is no more effective in helping people stop smoking cigarettes in the long term than trying to quit on one's own."

Since the study only examined relapse rates, this claim is not supported by the evidence put forth in the study. Effectiveness is measured in more than one dimension -- relapse rates are only one piece. As numerous, larger studies around the globe have indicated (according to a review from the Cochrane Collaboration of 123 different controlled studies), NRT is effective among smokers who are motivated to quit, regardless of setting. The quit rate among smokers who use NRT is 1.5 to 2 times higher than smokers who quit cold turkey.

So, if we were to compare two equal sized populations of smokers trying to quit smoking -- one that used NRT and one that did not -- the population of people who successfully quit using NRT will be larger than the population of people who successfully quit without it. Even if both populations relapse at equal rates in the years to come, nearly twice as many people will have successfully quit smoking for good using NRT.

Furthermore, even if the ex-smokers relapse, there are health benefits to quitting for even a short time period. According to the US Surgeon General's Report, 3 months after quitting, circulation and lung function improve, after 9 months, coughing and shortness of breath decrease, and after 1 year, the risk of coronary artery disease is cut in half (not to mention the social benefits of not constantly being engulfed in a cloud of smoke!).

So, reimbursing NRT may still be cost effective, even if some smokers relapse. Another study in the UK actually examined the cost effectiveness of NRT and found that NRT was a low-cost treatment when measured per life-year saved. And this study examined the cost of nicotine patches 15 years ago; since then, the patent on nicotine patches has expired, so they are available at an even lower cost today.

Alpert, according to the Harvard Gazette's coverage, argues that even though clinical trials have found NRT to be effective, the new findings demonstrate the importance of empirical studies regarding effectiveness when used in the general population. But since the study only includes participants who have already quit smoking, it doesn't provide sufficient evidence to conclude the value of NRT is questionable. There are confounding variables that the study does not take into account -- for example, the number of people who would have failed to quit in the first place had they not used NRT.

To really understand the effectiveness of NRT in a real-world setting, researchers would have to start with a population of smokers who are trying to quit, not a population of smokers who have already quit, and follow them over several years. And since so few people who want to quit smoking are successful, the population studied would have to be very large. Only then can the study measure NRT effectiveness in a real-world setting.

So what does all of this mean for insurers? Not much. The Harvard study examined such a narrow indicator that the value of NRT can't really be argued one way or another based on the evidence provided. Because the study only looked at relapse rates, it does not sufficiently undermine the numerous other studies that have indicated that NRT does improve quit rates and can improve health outcomes.

For consumers, the water is even murkier. The study underscores the point that NRT is not a long-term treatment; it's meant to be taken for 6-12 weeks to help with initial symptoms of withdrawal. It doesn't make the urge to smoke go away forever. Still, based on other studies -- like those included in the Cochrane Collaboration's review -- it can be a valuable tool for people who are trying to quit.

Alpert's point about the importance of real-world evidence in evaluating different treatment options is a good one, though, and as long-term, observational studies become more prevalent, there are clear implications for the FDA. Medical device and pharmaceutical manufacturers will increasingly look to real-world, post-market evidence to find new information about existing products, including information to support new indications for existing products. These studies will be increasingly complex, as they examine many dimensions of similar products and protocols. The FDA will need to learn to process this information quickly, and should re-examine its approach to ensuring product safety.

Currently, the FDA usually makes demands for clinical evidence based on large-scale clinical trials to gain product approval. But if it were to adapt a more flexible approach, looking at more diverse kinds of studies, it could revolutionize the medical products industry as we know it.

Manufacturers could design clinical studies that rely on data reflecting a real-world evidence approach and modeling, rather than merely relying on the current "gold standard" -- traditional, large-scale, randomized, placebo-controlled clinical trials (RCTs) with their associated inclusion/exclusion issues. Instead of waiting years for an actual clinical outcome from RCTs, manufacturers could use a "surrogate endpoint" (like quit rates, in the case of NRT) to establish an event that can reasonably predict improved clinical outcomes. Additional confirmatory studies would provide longitudinal evidence that the treatment either does or does not provide clinical benefits for specific sets of patients, allowing the FDA to react accordingly.

New products would reach the market faster and enable many patients the opportunity to try a new treatment sooner rather than later. This approach, in turn, could reduce development costs, and medical products companies could focus their attention on innovating new life-saving therapies.

To reach this goal, the FDA will need to shift its focus from an almost exclusive emphasis on pre-market gatekeeping to post-approval oversight. There are clearly inefficiencies in the agency's ability to bring new products to market, and it does need to do a superior job in its post-approval oversight role. What's really needed is an overhaul of both the agency's regulatory process and its focus.

The American Action forum has a helpful short primer on understanding the Biosmiliars User Fee Act recently negotiated by the FDA and industry. It also gets into some of the thornier issues surrounding biosimilars, namely whether or not you can produce a biologic that is clinically identical to the innovator drug without access to protected trade secrets:

Members of the biotechnology industry have questioned the constitutionality of the FDA review process. Genentech, one of the leading biotech manufacturers, suggested that agency reviewers cannot perform the rigorous scientific comparative assessment necessary to reach legitimate conclusions about the "similarity" or "sameness" of two products without first examining secret trade data concerning the manufacturing processes of the innovator, which is prohibited by law.vii Moreover, such unauthorized reliance would violate not only section 505(b)(2) of the Food, Drug and Cosmetic Act (FDCA), but also the Trade Secrets Act and the United States Constitution.

Beyond legal issues, the scientific community has raised concerns over biosimilars and patient safety. This is, without question, the primary topic discussed throughout FDA meetings.viii For decades, the FDA had taken the position that each biologic is unique and inexorably linked to the manufacturing processes used in its creation. Complex operational details of the manufacturing processes are central to and define the identity and unique molecular safety and effectiveness attributes of each biologic. A follow-on biologic manufacturer that uses different starting materials and a different process will produce a product that is different from the innovative product. The effects of the differences between a "follow-on" and its respective innovator product can only be determined by subjecting the follow-on biologic to substantial clinical testing in patients to prove that it is safe and effective.

This concern is legitimate. Even innovative companies have run into serious manufacturing problems when they've made small changes to products they otherwise know and understand intimately. As I wrote in 2007:

In 1998, Johnson & Johnson added a new stabilizer to the European manufacturing process for its drug Eprex, an erythropoietin molecule grown in cloned Chinese hamster ovary cells and used by cancer and kidney-failure patients to help stimulate production of red blood cells.

Later, J&J noticed that some Eprex patients developed a dangerous blood disorder: antibody-mediated pure red cell aplasia, where bone marrow stops producing new red blood cells. It took J&J four years of painstaking research to learn the PRCA cases were caused by an interaction between its new stabilizer and uncoated rubber stoppers used in some syringes.

The moral is that even Eprex's original manufacturer...was caught off guard by an adverse event after a seemingly harmless manufacturing switch.

As a result, while some simple biosimilars will require relatively little clinical testing for safety and efficacy, more complex ones will have to go through a process that is much closer to that of a new biologic.

Still, assuming technology has progressed to the point that clinical testing can be pared back at least somewhat, analysts expect biosimilar prices to be 20-30% less compared to the original biologic. And when you're talking about drugs that can cost $100,000 or more a year, that's nothing to sneeze at.

One final note; While biologics have 12 years of marketing exclusivity under the Patient Protection and Affordable Care Act, the Obama Administration has signaled that it wants to cut that exclusivity down to 7 years as part of its deficit reduction plan. While this might be a boon for payers, who could access cheaper biosimilar drugs five years earlier, it would sharply dampen incentives for innovation - leaving patients worse off in the long run.

Joel White, executive director of the Health IT Now Coalition, argues in the Washington Times that the FDA should avoid regulating health care applications on smart phones and other mobile devices. FDA regulation would drive up costs and slow innovation, he argues:

Mobile medical applications are becoming increasingly popular as many Americans want to engage actively and control their own health care. Estimates indicate that the number of smartphone consumers using medical apps will grow to 500 million by 2015. This demand for mobile medical applications underscores a market-driven explosion in the use of health-information technology in ways that engage consumers, health care providers and technology vendors to enhance health care outcomes and lower health costs.

All of this innovation and growth in mobile medical applications could come to a screeching halt if the Food and Drug Administration (FDA) moves forward with its proposed regulation of mobile medical applications. The FDA continues to explore options to regulate mobile medical applications as medical devices under the Food, Drug and Cosmetic Act, particularly around adverse-event and patient-safety reporting. At this formative stage of emerging mobile medical applications, complicated and expensive new regulatory structures through the FDA would dampen prospects for future lifesaving innovations. ...

The average time to approve a medical device is about three years and can cost upward of $75 million. In the software market, that is a lifetime. Additionally, if mobile apps are regulated as medical devices, they will be subject to the health care reform law's 2.3 percent medical-device tax, raising prices as taxes are passed on to consumers. Free apps may no longer be free.

The FDA, in its defense, believes that regulation would only be required for a small subset of apps that would directly impact the operation of currently regulated medical devices, as it notes here.

There's no such thing as a free lunch or free health care, a lesson my colleague Nicole Gelinas illustrates again in a City Journal article on, of all things, a European breast implant scandal.

It turns out that a French medical device company sold "tens of thousands" of breast implants filled with industrial grade silicon, in an effort to cut costs and boost profits. Replacing all of the implants, Gelinas reports, could cost hundreds of millions of dollars.

Hence the question: Who pays? Suing the manufacturer is one possibility, although it seems to have shut down. Eventually, Gelinas believes the bill will be paid, in whole or in part, by taxpayers:

Britain's National Health Service has said that it will pay to remove implants that women got after breast-cancer surgery. That sounds reasonable enough. But the French government has already said that it will pay to remove all victims' implants, putting pressure on Britain to do the same. ...

The NHS may pay for another reason: its medical experts could determine that doing so would avoid higher government costs later, as women suffer the ill effects of silicone seepage and come in for government-paid care. The NHS knows that it's likely to do a better job treating these women than would a clinic whose managers view them as people they will never see again. Indeed, national health officials have said that the government might pay for implant removal if women show a "clinical need," a standard they didn't define.

Clinical need is becoming an increasingly fuzzy concept in every health care system. If you're sixty years old, and want to keep jogging, should taxpayers pay for your new bionic knee? If it turns out that green tea prevents cancer, will insurance have to cover Lipton (or maybe Tazo)? How about gym memberships and yoga (regular excercise decreases stress, which is a risk factor for a number of bad health outcomes)?

The line between what's needed and what's wanted is fundamentally blurred by the third party schemes that we use to finance health care, either through taxes (as in much of Europe) or through combination of taxes and private funding (in the U.S.).

When other people pay for your health care, it creates a powerful incentive for small groups of highly motivated providers and special interest groups to demand that insurance cover everything from birth control pills to chiroprators' services. Insurance mandates lower cost for the people who use those products or services, but raises costs for everyone else (and as health insurance costs rise, more people become uninsured!).

Gelinas - and I agree with her - suggests that "government require all but the destitute to pay for their day-to-day healthcare", and that insurance (public or private) should return to its classic role paying for catastrophic costs.

This scheme wouldn't end all of our health care arguments. There'd still be plenty of debate about what constitutes catastrophic care. But that situation would be much preferable to our current system where the federal government is mandating Catholic Hospitals to pay for birth control pills - which sell for $4 for a $30 supply at Wal-Mart, to say nothing of the hundreds of additional mandates imposed on health insurance at the state level.

When insurance covers routine care it distorts how we use the the health care system (through overuse), drives up health care costs (subsidies raise prices), and shifts spending away from other public and private priorities (like education and defence).

The best defense of a catastrophic based insurance system is that it actually reflects demographic reality. Insuring the vast majority of healthy Americans against catastrophic costs would be far less expensive than the first dollar coverage for all medical expenses insurance offers today - as Chris Conover at AEI illustrates here.

The savings could then be funneled into subsidied coverage for the relatively small number of Americans with persistently high medical costs - through risk-adjusted vouchers, or high risk pools.

This would be a direct, simple, and sensible alternative to the Byzantine structure of the Affordable Care Act, which basically extends high cost insurance to the uninsured through massive government subsidies. If the Supreme Court strikes down the ACA, or if a fiscal crisis forces Congress to revisit the issue, universal catastrophic coverage should be the first market-based alternative on the table.

On the FDA's web site, FDA Commissioner Margaret Hamburg looks back at the 50th anniversary of the thalidomide tragedy, and argues that it was a watershed moment for the FDA and a paradigm for how sound regulation can protect the public health and advance innovation:

Now I know that in some circles regulation is viewed as a roadblock to innovation and economic growth. But in actuality, when done right, regulation isn't a roadblock; it's the actual pathway to achieving real and lasting innovation. Smart, science-based regulation instills consumer confidence in products and treatments. It levels the playing field for businesses. It decreases the threat of litigation. It prevents recalls that threaten industry reputation and consumer trust, not to mention levying huge preventable costs on individual companies and entire industries. And it spurs industry to excellence.

The tragedy of thalidomide led to changes that strengthened both the regulatory and scientific environment for medical product development and review.
In response to the public uproar, in 1962 Congress enacted the Kefauver-Harris amendments to the Federal Food, Drug and Cosmetic Act. Thanks to these new amendments, manufacturers had to prove that a drug was not only safe, but also effective. Approvals had to be based on sound science. Companies had to monitor safety reports that emerged postmarket and adhere to good manufacturing practices that would lead to consistently safe products.

I agree with Commissioner Hamburg that government regulations should set the basic "rules of the game" in markets. When they do that, they actually do lead to the kind of competition, quality improvements, and innovation that Commissioner Hamburg lauds. But regulations can also become a tool for restricting competition (a barrier to entry) and American history is replete with regulatory policies that hamstrung innovation for decades (like the AT&T monopoly in telecommunications). So the question is not whether regulation is good or bad per se, but what type of regulations are applied to a given technology, and how regulatory agencies like the FDA apply the powers at its disposal (predictably or unpredictably, etc).

In this respect, I think the FDA's overall performance - at least since 1962 - is much more nuanced than Commissioner Hamburg suggests. Safe - and effective - drugs certainly predate the Kefauver Amendments. Many drugs that we take for granted today, including corticosteroids, antihistamines, vaccines and antibiotics (like penicillin and streptomycin) were developed decades before the FDA's current regulatory structure evolved. The efficacy requirements also - whatever you think of them - undoubtedly raised the costs of innovation, as economists Daniel Klein and Alex Tabarrok point out:

The task of proving efficacy is much more difficult, expensive, and time-consuming than the task of proving safety. To a great extent, efficacy, which is sensitive to individual conditions and mediated by market process, had in the past always been judged jointly by doctors and consumers. A drug's efficacy ought to be judged relative to the alternative therapies and is therefore constantly changing, being discovered, and being proven by medical-market experience, with the use of postmarket surveillance and research. Safety, naturally, always calls for strong prior assurance. But the search for improved efficacy had proceeded, to some extent, by people serving as each other's guinea pigs, and the result had been rapid progress. In 1962, however, the FDA began to act on the premise that it could establish authoritative knowledge of efficacy prior to experience and experimentation in actual market processes.

The time spent waiting for FDA approval and the expense and duration of the bureaucratically determined testing procedures combined to cause tremendous delays in drug development and production. Drug development declined significantly after 1962, and the wait for new life-saving drugs increased to more than a decade by the end of the 1970s.

(For a left of center critique of the FDA, see Michael Mandel's review of the FDA's Melafind decision.)

Aside from the efficacy requirement, the FDA arguably learned the wrong lessons from the thalidomide tragedy: namely, that its primary job was to keep bad things from happening, rather than accelerate market access for truly innovative medicines.

By the 1990s, more medicines were approved first in Europe than in the U.S. - in some cases several years longer. After the AIDS crisis hit the U.S. in the 1980s, AIDs activists demanded that the FDA accelerate access to experimental therapies, and the FDA responded - under intense pressure - in creating several new regulatory pathways including compassionate access, treatment IND, and (eventually) accelerated approval. But, again, the agency was responding to a crisis, rather than being proactive in its approach to innovation.

After Congress passed the Prescription Drug User Fee Act in 1992, FDA reviews of new drug applications sharply accelerated, and the U.S. based pharmaceutical industry came to dominate the global scene, albeit for complex reasons that have as much to do with the U.S. ecosystem for life sciences research and the importance of the U.S. prescription drug market, than the FDA per se. In the wake of the Vioxx tragedy in 2004, the FDA seems to have again ratcheted up its safety requirements, demanding more data, more tests, and longer clinical trials from companies to rule out the risk of rare side effects.

The FDA faces steep challenges: drug safety problems are highly visible, while lost innovations are, by definition, invisible. Congress alternates between excoriating the agency and saddling it with new responsibilities - often without the funds to actually implement them. The agency struggles to keep up with the latest scientific developments, and adapt its regulations to changing scientific realities. When it does adapt, it's accused of collusion with the industry it is supposed to regulate.

Recent FDA Commissioners, including Commissioner Hamburg (and before her Dr. Andrew von Eschenbach and Dr. Mark McClellan) have struggled to modernize the agency, and recognize that it is trying to regulate the "21st century products with 20th century regulatory tools" but they face a steep uphill climb because of the culture of the agency, its strained relationship with Congress, limited budget, and restictions on its ability to tap outside expertise. Douglas Holtz-Eakin and I discuss several recommendations for FDA reform here.

But the most important innovation would be for the FDA to find more ways measure safety and efficacy without the use of large, expensive, and time consuming clinical trials - and without coming to all or nothing decisions on drug approvals. Thalidomide, as Commissioner Hamburg notes, returned to market decades later as a drug for leprosy (really a cover for off-label AIDS use) and later for cancer.

The right lesson to draw from the thalidomide scandal is that no drug is safe for all patients, in all circumstances - and that patients and physicians need to be empowered with the information to use new treatments most effectively. That lesson is only beginning to be absorbed now, fifty years after the thalidomide tragedy.

Lauren Neergaard at the Associated Press reports President Obama will ask Congress for $80 million in new money to spend for Alzheimer's research in 2013. Right now the National Institutes of Health spends $450 million a year on Alzheimer's research compared to the $3 billion spent annually on AIDS research.

It's just starting to sink into public consciousness how fiscally deceptive the Affordable Care Act is and was, and how much it worsens an already unsustainable trajectory for U.S. health care spending and the federal deficit. With Republicans in the House of Representatives voting yesterday to repeal the Community Living Assistance Services and Support (CLASS) Act, it may be an opportune time to revisit some of the other key fiscal gimmicks and extremely dubious fiscal assumptions that helped pass the law:

Double counting $53 billion in Social Security payments

Ignoring up to $115 billion in implementation costs

Pretending that Congress would allow a 30% cut in physician payments under Medicare that it has routinely halted (thus assuming hundreds of billions of dollars in savings that will never materialize)

Cutting Medicare reimbursement rates for hospitals and nursing homes to the point that, by 2019, Medicare payments would be lower than those currently paid for Medicaid - and which the Medicare Actuary says are, in the long run, unsustainable

But the CLASS Act has got to take the cake in terms of sheer chutzpah, since it was touted by supporters as saving $81 billion over its first decade - but only because the program counted 10 years of premiums before it started paying out benefits in earnest. The program was so seriously flawed even in its earliest conception that Senator Kent Conrad, Chairman of the Senate Budget Committee, called the CLASS Act "a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would be proud of."

(While the Obama Administration has finally admitted that the program is unworkable as structured, it refuses to repeal the Act, perhaps hoping that if the U.S. Supreme Court sustains the individual mandate to purchase private health insurance or pay a penalty, President Obama could add another mandate and make the CLASS Act "sustainable" by imposing yet another mandatory entitlement program on every American.)

Here's what no one can argue with: the ACA creates a massive (and massively expensive) expansion of Medicaid (16 million Americans) and spends hundreds of billions of dollars in new subsidies for the purchase of private insurance on state health insurance exchanges. As the "out years" in the previous CBO estimate of the ACA's price tag have come into focus, cost estimates have risen as well: CBO now estimates that the subsidies and costs of running the exchanges will start at $17 billion in 2014, but will exceed $100 billion by 2022 (CBO now estimates that the ten year cost for the exchanges will be $650 billion).

To add insult to injury, America's budget forecast keeps getting uglier: according to the CBO, in 2012 the U.S. will spend $1.6 trillion or 44% of the entire federal budget on just three programs: Social Security, Medicare, and Medicaid. In 10 years, that figure will rise to 54% of the federal budget. (Along the way, the Social Security Disability trust fund is projected to go bankrupt in 2016; the Medicare hospital insurance trust fund will go bankrupt six years later, in 2022.)

What does any of this have to do with innovation? By expanding coverage without first seriously addressing existing entitlement costs, the ACA creates tremendous political pressure to crack down on spending through the crudest tools we have available: price controls.

Along the way, truly innovative reforms are apt to fall by the wayside because drugs or devices (or programs) that cost more up front, but payoff more in terms of better health and lower costs in the long run don't fit into the ACA's cut first and ask questions later structure. Indeed, if experience holds true to form, price controls will simply shift costs across the system and encourage providers to find yet more ways to game reimbursements without actually improving quality.

There are a few bright glimmers in America's health care system today: personalized medicine promises to make health care more predictive and more powerful, improving outcomes while chasing waste out of the system; health savings accounts continue to show the potential to make consumers smarter health care shoppers; and in the few parts of the market where providers compete (like retail clinics) it does seem possible to improve outcomes and access at lower cost using technology like electronic health records.

Ultimately, the CLASS Act is another morality tale in Washington's perennial fiscal shell game, promising everything without actually paying for it (like a jumbo subprime mortage, with no money down). To be fair, both parties have played that game cheerfully, but every fiscal bubble bursts eventually.

No matter who wins the White House next November, health care reform Part II is already a given, this time (hopefully) driven by smart bipartisan reforms like the Wyden-Ryan plan. While few people give it much chance of passing today, it has this to recommend it: we've tried everything else already.

And look where that got us.

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Rhetoric and Reality—The Obamacare Evaluation Project: Cost
by Paul Howard, Yevgeniy Feyman, March 2013

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