June, 2015

FDA Effectiveness Standards: Helpful or Harmful?

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The Kefauver-Harris Drug Amendments of 1962 gave the Food and Drug Administration (FDA) the power to require that new pharmaceuticals be proven effective before they are released. The proof-of-efficacy requirement for new drugs is a large and unnecessary barrier to innovation in the healthcare market. There is evidence that adding this requirement reduced innovation and increased costs to both producers and consumers. Using public choice theory and Austrian economics, this paper argues that the FDA is not the best mechanism for ensuring effectiveness, and it recommends that the FDA remove proof-of-efficacy requirements, allowing market mechanisms to determine which pharmaceuticals are effective.