Safety and Effectiveness: The FDA’s Approach to Risk in Prescription Medication

Abstract

The Food and Drug Administration (FDA) regulates the risks associated with pharmaceutical products; however, some drug uses are not directly regulated, and appropriate usage is left to the physician’s discretion. These risks can often be ambiguous or uncertain. In this dissertation, I study how consumers respond to ambiguity in pharmaceutical risk. I also examine two areas where risk is either not directly regulated or is perceived to be insufficiently regulated—I study whether patients, physicians, and third-party payers are sensitive to these risks or whether further regulation would be preferable. This dissertation begins by using an incentivized experiment to empirically estimate participants’ reactions to ambiguity in risks that a drug is unsafe or ineffective in the presence of framing effects. The experiment finds that attitudes toward ambiguity are sensitive to risk type and framing effects. The dissertation then concentrates on two areas where risk is not directly regulated: The second chapter studies narrow therapeutic index drugs, drugs for which the generic approval process has been suspected to be inadequate in ensuring therapeutic equivalence. It finds evidence of a price penalty for the extra risk associated with NTI drugs. The third chapter studies off-label uses—the prescription of a drug for an unapproved use—and examines whether inappropriate off-label uses are relinquished even in the absence of direct FDA regulation. It finds evidence that relinquishment of off-label uses can be spurred by False Claims Act suits. The dissertation provides insight into areas in which parties seem sensitive to risk absent regulation and those in which further regulation may be necessary.