FDA Under Scrutiny

I read an interesting article http://www.economist.com/business/displayStory.cfm?story_id=3429205 today in the business section of the Economist. This article discussed some of the recent news concerning the efficiency of a familiar government agency known as the Food and Drug Administration. The pharmaceutical industry has been plagued with chronic criticism, and many of the big drug firms facing huge lawsuits because of damages incurred through drug usage are now pointing the finger at the FDA. In recent testimony to the Finance Committee, David Graham, a scientist with the FDAto the article cites the testimony of David Graham who is a scientist with the FDA "testified that the FDA overvalues the benefits of drugs and seriously undervalues, disregards and disrespects drug safety." The FDA is also described as having become "too chummy with the industry it regulates." The concern here is that the FDA having been criticized for its inefficiency and corruption will likely be held accountable for many of the damages that have been incurred by patients taking drugs which caused serious side effects and damage. The fact that the FDA has not been doing an effective job in regulating approved drugs has led to a suggestion of the creation of a new regulator. This article is filled with many of the recent topics we have covered in public choice. First, there are two principal agent relationships evident. One relationship is between the government which provides the funding and therefore acts as the principal while the agent is the FDA that is the agency carrying out the interests of the government in regulating the Food and Drug Industry for public benefit. It is evident from the article that there are problems with monitoring the behavior of the bureau. One of the problems we mentioned in class was the difficulty in measuring the output of the bureau since the FDA provides a service output which is not easily measured as would be a market output. The role of the FDA is to test and regulate certain drugs based on strict standards so that they can be readily and safely consumed by the public. Sometimes, it takes years to discover that a certain drug is unsafe and potentially harmful and many of the problems reported by patients to drug firms are not rectified or taken seriously by the pharmaceutical companies. A second problem with monitoring the behavior of the FDA arises because it is a monopoly supplier. It is the only Federally funded and approved agency that is charged with the responsibility of Food and Drug regulation. It has standardized procedures and without FDA approval many drugs and foods without much consumer confidence or legitimacy in the marketplace. There are virtually no other alternative sources of information regarding food and drug safety so the FDA has a monopoly in the industry. This does however lead to problems such as lack of incentive for efficiency and lack of innovation because there are no competitors. As mentioned in the article, "in the 1990's, the agency took flack for being too slow and too cautious in the way it approved new drugs, adding costs to the system and denying patients potentially life saving medicines." This lack of innovation has led to major ineffeciency problems within the FDA. The other principal agent relationship is between the FDA which acts as the principal that regulates the agents who are in this case the drug firms. The principal agent problem arises in this relationship because the agents may not necessarily act in the best interest of the principal and will likely act in their own best interest. The FDA must be more aware and active in tracking and monitoring the drug firms' products even after approval. As mentioned in the article, "the FDA's current reliance on the willingness of drug companies to report problems with products that can potentially earn them billions of dollars a year is likely to change." The FDA must work on this problem through more monitoring and improved research into safety standards of new drugs. I do not believe however that increasing the budget of the FDA as mentioned in the article will be the solution in resolving this problem. A rechanneling of existing resources with more careful monitoring and a stronger incentive system for both the FDA and the drug companies will prove to be a better solution.