Assessing the Safety and Efficacy of the FDA: The Case of the Prescription Drug User Fee Acts

Tomas J. Philipson, Ernst R. Berndt, Adrian H. B. Gottschalk, Matthew W. Strobeck

NBER Working Paper No. 11724
Issued in October 2005
NBER Program(s):Health Economics, Productivity, Innovation, and Entrepreneurship

The US Food and drug Administration (FDA) is estimated to regulate markets accounting for about 20% of consumer spending in the US. This paper proposes a general methodology to evaluate FDA policies, in general, and the central speed-safety tradeoff it faces, in particular. We apply this methodology to estimate the welfare effects of a major piece of legislation affecting this tradeoff, the Prescription Drug User Fee Acts (PDUFA). We find that PDUFA raised the private surplus of producers, and thus innovative returns, by about $11 to $13 billion. Dependent on the market power assumed of producers while having patent protection, we find that PDUFA raised consumer welfare between $5 to$19 billion; thus the combined social surplus was raised between $18 to $31 billions. Converting these economic gains into equivalent health benefits, we find that the more rapid access of drugs on the market enabled by PDUFA saved the equivalent of 180 to 310 thousand life-years. Additionally, we estimate an upper bound on the adverse effects of PDUFA based on drugs submitted during PDUFA I/II and subsequently withdrawn for safety reasons, and find that an extreme upper bound of about 56 thousand life-years were lost. We discuss how our general methodology could be used to perform a quantitative and evidence-based evaluation of the desirability of other FDA policies in the future, particularly those affecting the speed-safety tradeoff.

download in pdf format
   (215 K)

email paper

A non-technical summary of this paper is available in the June 2006 NBER Digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11724

Users who downloaded this paper also downloaded* these:
Philipson and Sun w13561 Is the Food and Drug Administration Safe and Effective?
Berndt, Gottschalk, Philipson, and Strobeck w10822 Assessing the Impacts of the Prescription Drug User Fee Acts (PDUFA) on the FDA Approval Process
Begosh, Goldsmith, Hass, Lutter, Nardinelli, and Vernon w12803 Black Box Warnings and Drug Safety: Examining the Determinants and Timing of FDA Warning Labels
Berndt, Gottschalk, and Strobeck w11425 Opportunities for Improving the Drug Development Process: Results from a Survey of Industry and the FDA
Madrian w20318 Applying Insights from Behavioral Economics to Policy Design
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us