Pharmaceutical Regulation

VII. Key Issues: Regulation & Reform >> B. Health Care Regulation >> Pharmaceutical Regulation (last updated 2.6.17)


Regulation of pharmaceuticals initially was motivated by concerns over adulterated patent medicines and a desire to protect the public against false claims made for them. This culminated in the Pure Food and Drugs Act of 1906 (which gave the government control over labeling of drugs). The U.S. Food and Drug Administration (FDA) was created by this law.

By the 1930’s, concern had broadened to protect the public from unsafe, potentially harmful drugs, leading to the Food, Drug and Cosmetic Act in 1938 (which extended control over advertising and labeling and required proof that drugs were safe). Finally, by the early 1960’s, concerns that Americans were being sold drugs of questionable efficacy at very high prices led to the 1962 Amendments to the FDC Act (which added proof of efficacy to proof of safety as a criterion for drug approvals).

The FDA process for drug approval, while streamlined in recent years, still requires many years of rigorous testing before a drug or medical device can receive approval. There has been a decades-long debate over whether the FDA process achieves the appropriate balance between minimizing the risks associated with early introduction of potentially hazardous pharmaceuticals and giving patients ready access to needed pharmaceuticals (Feldstein 1988).

Regulation of pharmaceuticals has been in place for nearly a century, starting with the Pure Food and Drugs Act of 1906 (which gave the government control over labeling of drugs), followed by the Food, Drug and Cosmetic Act in 1938 (which extended control over advertising and labeling and required proof that drugs were safe) and the1962 Amendments to the FDC Act (which added proof of efficacy to proof of safety as a criterion for drug approvals).  The Duke Center for Health Policy and Inequalities Research has developed a draft working paper on the benefits and costs of pharmaceutical regulation.

FDA Regulation

Accelerated Approval

According to the FDA, “Accelerated approval is given to some new drugs for serious and life-threatening illnesses that lack satisfactory treatments. This allows an NDA (new drug application) to be approved before measures of effectiveness that would usually be required for approval are available.” According to Kansas Health Institute (11.16.15), Kansas lawmakers are promoting bills at the state and federal level intended to streamline the FDA approval process or let people like Johnsen bypass portions of it and access experimental drugs sooner. But some fear those efforts could allow profit-seeking drug companies and medical device manufacturers to rush products to market before anyone knows the potential risks or side effects.

  • State LegislationHouse Bill 2004 seeks to give Kansans with terminal illnesses access to drugs in the early phases of FDA clinical trials. It’s based on model legislation from the Goldwater Institute, a small-government advocacy think tank. According to Kansas Health Institute (11.16.15), more than 20 states, including Missouri, have passed some version of Right to Try. The more states that push back on the FDA, he says, the more pressure there will be for federal changes.
  • Federal Legislation. According to Kansas Health Institute (11.16.15), the 21st Century Cures Act, would put more money into research for new treatments and smooth the regulatory pathway for those treatments to get to market. It would infuse the FDA with about $550 million in cash while requiring the agency to make changes that would speed the approval of new antibiotics and medical devices. The bill passed the U.S. House 344-77 and awaits action in the U.S. Senate. Supporters of the legislation say it will modernize a ponderous FDA approval process, get treatments to patients sooner and encourage companies to invest in more research and development.


Compounding Pharmacies

Drug Shortages

Drug Imports

  • New York Times (2.14.14) reported: “India, the second-largest exporter of over-the-counter and prescription drugs to the United States, is coming under increased scrutiny by American regulators for safety lapses, falsified drug test results and selling fake medicines.”
  • The World Health Organization estimates that one in five drugs made in India are fakes.
  • A 2010 survey of Delhi pharmacies found that 12 percent of sampled drugs were spurious.
  • Research by Roger Bate shows that roughly 6% of the thousands of antimicrobial medicines Americans procured in emerging markets are substandard, and about half of these are from India. Increasing access to antibiotics for the poor has saved millions of lives but it has accelerated resistance. Indian companies make the cheapest antibiotics on the planet and they deserve huge credit for helping the poor. But some of these companies cut corners in production and make substandard products that positively drive resistance. Antibiotic resistance already kills over twenty thousand Americans every year.

Drug Promotion

  • FDA, Office of Prescription Drug Promotion (OPDP). This was formerly formerly Division of Drug Marketing, Advertising and Communications – DDMAC). Its mission is “To protect the public health by ensuring that prescription drug information is truthful, balanced, and accurately communicated. This is accomplished through a comprehensive surveillance, enforcement, and education program, and by fostering better communication of labeling and promotional information to both healthcare professionals and consumers.”
  • EyeonFDA. Social Digital Media and FDA. This page contains links to resources related to FDA’s regulation of social and digital media. The page contains relevant guidances, key warning/untitled letters, and key web pages on the FDA site.

Generic Medications

  • CBO. CBO Preliminary Estimate for S. 2019, the Preserve Access to Affordable Generics Act, as IntroducedS. 2019 would impose significant restrictions on certain agreements to settle a claim of patent infringement between drug manufacturers relating to the sale of a drug product. The legislation would restrict certain kinds of compensation flowing from the manufacturer of a brand-name drug to the manufacturer of the generic version of the drug. CBO believes that under current law there is an incentive for brand manufacturers to compensate generic manufacturers for delaying the availablity of the generic drug within such agreements. CBO estimates that enacting S. 2019 would accelerate, on average, the availability of lower-priced generic drugs affected by such agreements and generate savings to public and private purchasers of prescription drugs. Those lower prices would reduce spending in public programs that purchase prescription drugs and would also lower medical costs for people with private health insurance coverage. Because the federal government subsidizes the purchase of health insurance, those effects will reduce direct spending and increase revenues.


Public Reporting of Clinical Trials

State Regulation

National Conference of State Legislatures maintains a data base covering legislative proposals that involve prescription drugs, allowing one to sort legislation based on its category and topic. Through the data base you can also get access to search for the actual text of bills within the various states.


  • EyeonFDA. While national policy issues often indicate the direction that things are taking – it is often at the state level where details play out. So at the state level right now, a lot of states are looking at the issue of biosimilars. According to the NCSL database, in the past two years 31 states have taken up legislative proposals that deal with the standards of how a biosimilar drug might be used in place of the original brand product. The various characteristics of the state legislation are overviewed here with more details.

Pharmaceutical Prices

  • S. Corlette, A. Williams, and J. Giovannelli. State Efforts to Reduce Consumers’ Cost-Sharing for Prescription DrugsThe Commonwealth Fund Blog, Nov. 16, 2015. Lists 7 states in a side-by-side comparison of pharmaceutical price control initiatives.
  • EyeonFDA. The NCSL database has a category for pricing and payment that contains over 160 bills in over 30 states, but a search of all the categories using the term “pricing” yields a subset of proposals across several states more specifically aimed at the pricing of pharmaceutical products. While a hot topic at the national level, there were only thirteen proposed bills in nine states, with one of the most common proposals being related to setting up a means for studying the issue of pharmaceutical pricing and to make recommendations.

Prescription Drug Abuse

  • EyeonFDA. While national policy often leaves some of the details to the state level when it comes to implementation, states may take actions that end up driving national policy or that faster than federal policy. A search in the data base across all categories with a key word of “abuse” yields 48 proposed bills across 23 states in 2016. Many of the proposed bills promote access to abuse-deterrent opioid analgesics, such as this bill (Illinois – S 102).

Pharmaceutical Prices

The Policy Problem

  • Senate Report on Gilead (December 2015). According to Time (12.1.15), “A new report out Tuesday from the Senate Finance Committee slams Gilead, maker’s of a $1,000-per-pill Hepatitis C treatment, for pursuing a greedy business model with no regard for the human lives affected. “Gilead pursued a calculated scheme for pricing and marketing its Hepatitis C drug based on one primary goal, maximizing revenue, regardless of the human consequences,” Oregon Democrat Sen. Ron Wyden said in a statement. Gilead’s Sovaldi pill is designed to eradicate Hepatitis in a weeks-long regiment that costs around $84,000 start to finish, reports NBC News. The cost, Senators argued Tuesday, put the drug out of reach of millions of patients and severely burdened Medicare and Medicaid.
    • According to Wall Street Journal (12.1.15), “Among the documents cited in the Senate report is an internal Gilead slide presentation from July 2013, before Sovaldi was introduced, predicting that 24% of insurers and other U.S. payers would restrict patient access to Sovaldi if it were priced at $75,000 per patient, rising to 47% if priced at $90,000.”
    • According to Wall Street Journal (12.1.15), “The committee also concluded that Gilead underestimated the degree of restrictions that health insurers would impose as a result of the price. State Medicaid programs paid $1.3 billion before rebates on Sovaldi in 2014, yet less than 2.4% of the roughly 700,000 Medicaid patients with hepatitis C were treated, according to the report.
  • Wall Street Journal Study (November 2015). The Wall Street Journal compared prices for 40 top branded drugs in Norway, England, and Ontario, Canada with the prices for the same drugs covered by Medicare Part B in the U.S., for which prices are made public. Prices in the U.S. were higher than prices in Norway for 93% of the drugs surveyed. Prices were higher in the U.S. than in England for all but one drug surveyed. In Ontario, prices were lower than in the U.S. for 28 or the drugs surveyed, while U.S. prices were higher for only two drugs (not all drugs are covered by all plans).
  • Light, D. W., & Lexchin, J. (2005). Foreign free riders and the high price of US medicines. BMJ : British Medical Journal, 331(7522), 958–960. The United States government is engaged in a campaign to characterise other industrialised countries as free riding on high US pharmaceutical prices and innovation in new drugs. This campaign is based on the argument that lower prices imposed by price controls in other affluent countries do not pay for research and development costs, so that Americans have to pay the research costs through higher prices in order to keep supplying the world with new drugs. Supporters of the campaign have characterised the situation as a foreign rip-off. We can find no evidence to support these and related claims, and we present evidence to the contrary. Furthermore, we explain why the claims themselves contradict the economic nature of the pharmaceutical industry.

Policy Options

Value Pricing

One option is for insurers to change how they pay for pharmaceuticals. According to New York Times (11.21.15), “Dr. Mark B. McClellan, a former head of the Medicare agency, said insurers could devise plans to encourage the use of drugs that produce the best results at the lowest cost. Patients might not have any co-payments for “the highest-value drugs,” he suggested, but would face higher co-payments for drugs with fewer proven benefits. Dr. Steve Miller, a senior vice president and the chief medical officer of Express Scripts, a pharmacy benefits manager, gave another example: A health plan could pay more for a drug that extends the life of a lung cancer patient by five months, but less for the same drug used to treat people with pancreatic cancer, for whom the drug extends life by less than a month.”

Medicare Price Negotiations

  • CBO (2007)Issues Regarding Drug Price Negotiation in Medicare
    • Selective Negotiations. “[N]egotiations limited to a few selected drugs or types of drugs could potentially generate cost savings. For example, negotiations could be focused on drugs with no close substitutes or those with relatively high prices under Medicare. In such cases, CBO assumes that the effect of the Secretary’s actions—if he or she took advantage of the new authority—would primarily reflect the use of the “bully pulpit” to pressure drug manufacturers into reducing prices. Although cost savings might be possible in selective instances, the impact on Medicare’s overall drug spending would likely be limited. Bully pulpit strategies would probably be effective only if they were constrained to a small number of drugs; otherwise, the pressure of the spotlight would be dissipated…drug manufacturers could seek to limit the impact of the Secretary’s actions by setting higher initial prices for their drugs, to offset any potential price concessions from negotiations with the Secretary. As a result, CBO expects that the overall impact on federal spending from negotiations targeted at selected drugs would be modest. Beyond that general conclusion, the precise effect of any specific proposal would depend importantly on its details.”
    • Broad Negotiating Authority. “CBO thus estimates that providing broad negotiating authority by itself would likely have a negligible effect on federal spending.”
  • Gagnon, Marc-André and Sidney Wolfe (July 2015)Mirror, Mirror on the Wall: Medicare Part D pays needlessly high brand-name drug prices compared with other OECD countries and with U.S. government programs Carleton University and Public Citizen (7.23.15). This study finds:
    • Medicare Part D, “even with its rebates, spends 198%, almost twice the median of the amount paid for brand name drugs in the 31 OECD countries. And based on other analyses, even within the U.S., Medicare Part D pays on average 73% more than Medicaid and 80% more than VBA for brand-name drugs.”
    • The federal government could save between $15.2 billion and $16 billion annually if it negotiated with drug makers for Medicare Part D medicines and obtained the same prices that are paid by Medicaid or the Veterans Health Administration.
  • Medicare Part D. According to PhRMA: “Part D program has been widely successful, keeping total costs low – $349 billion lower than initial CBO 10-year projections – through plan competition and negotiation. Robust negotiation occurs in Medicare Part D between plans and biopharmaceutical companies, resulting in substantial rebates, often as much as 20 to 30%, with average rebate levels increasing each year of the program.”

Drug Reimportation

David G. Tuerck, John Barrett, Douglas Giuffre, and Zaur Rzakhanov. The Impact of Drug Reimportation and Price Controls: The U.S. and Massachusetts. Institute for Policy Innovation. Policy Report 184 (September 2004). Advocates for lower prices generally favor two approaches: allowing U.S. citizens to reimport drugs from foreign countries like Canada, or instituting price controls in the United States. Drug price controls and reimportation schemes would shrink the pipeline for new prescription drugs by reducing the ability of companies to recover their investment in research and development. We estimate that, in the 12 years following the implementation of a price control policy:

  • R&D spending by pharmaceutical and biotechnology firms would fall by $14.8 billion, in net present value terms.
  • Price control policies would lead to the abandonment of an additional 262 drugs for economic reasons.
  • Under a price control policy, only nine new drugs would likely be approved in a year— a decrease of more than 70 percent from the current average of 31.

General Resources


  • Federal Government
  • Health Sector
    • Centerwatch. Founded in 1994, CenterWatch is a trusted source and global destination for clinical trials information for both professionals and patients. Located in Boston, CenterWatch provides proprietary data and information analysis on clinical trials through a variety of newsletters, books, databases, and information services used by pharmaceutical and biotechnology companies, CROs, SMOs, and investigative sites involved in the management and conduct of clinical trials.
    • Pharmaceutical Quality Group
  • Policy Research Organizations
    • Food and Drug Law Institute a non-profit organization providing a marketplace for discussing food and drug law issues through conferences, publications and member interaction.
  • Mass Media: Blogs
    • EyeonFDA. Eye on FDA is published by Mark Senak of FleishmanHillard’s Washington, D.C. office. There are two sectors that have changed dramatically over the past ten years – one is health care and the other is communications. Sometimes the changes are obvious – sometimes they are more subtle. Given FDA has jurisdiction over both new treatments and the speech to talk about them, a blog about the nexus between the two seems like a good idea.


  • Adverse Drug Events.  Adverse Events, Inc. (AEI) is the only provider of up-to-the-minute, critical, potentially life-saving information regarding side effects associated with FDA-approved prescription medications. AEI has created a unique set of online tools that are optimized to provide un-paralleled access to adverse event information on over 4,000 drugs, in an easy to understand and navigate format. AEI’s tools give control over treatment plans back to patients and their doctors, while providing an immediate view of potential trends and problems in the drug industry to pharmaceutical, healthcare, insurers, financial institutions and media. RxFilter™ is a proprietary 17-step data refinement process developed by AdverseEvents, Inc. that standardizes and normalizes the Federal Drug Administration (FDA) Adverse Events Reporting System (AERS) database. Combining complex computer algorithms with hands-on data analysis by highly trained researchers, the RxFilter process is the most thorough optimization procedure ever applied to the FDA’s drug safety database. It accurately measures and tracks adverse events associated with medications reported to the FDA.

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