The Real Dose of the American Dream

The song the FDA doesn’t want you to hear.

Macklemore is going to teach us today the frame work of economics that you won’t hear in mainstream economics, media, or basically anywhere. One of the best college professors I’ve ever had taught me this framework and without knowing it Macklemore explains it perfectly.

First, the Elephant in the Room

I seen pain, I felt the losses
Attended funerals and seen coffins
21 years old, an angel was lost here
Wings clipped by the grip of 80 milligram sniffs of oxycontin

The song starts off with the story of his friend Kevin, who died of a drug overdose of Oxycontin. I have the utmost respect for Macklemore and I know he has tackled some of society’s big issues through songs, like Same Love, White Privilege, Otherside, and many more.

But as an economist, I’ll be the first to say we can come off as insensitive because we claim “society” can’t make choices, only individuals can. And this tends to be the breaking point from economics and all other social sciences. I may disagree with some of his points he raises in the song, but that’s because he’s not an economist, but an artist.

Rules

When we look at anything, as economists, we always want to start with rules of the game, in this case how drugs and medical devices get through to doctors and then finally patients.

The FDA is supposed to demand proof of the safety and effectiveness of drugs and medical devices. This is its mission under the law. The FDA’s job is to approve safe and effective new drugs, biologics, and devices for use in the medical marketplace, making them available to doctors as they care for patients.

So the rules seem pretty straight forward, but it gets complicated because they are a government agency with a budget just over $4 billion dollars. How do they get their funding?

The FDA receives funding through the general fund (assets and liabilities) and user fees. Specifically, the drug industry funds FDA through the Prescription Drug User Fee Act (PDUFA), and the medical device industry funds FDA through the Medical Device User Fee Act (MDUFDA). Both acts are considered a success for requiring FDA to improve approval time for drugs and devices. However, decreased approval times have not resulted in more drug and device innovation (aka better medicine and devices that save lives). How the fuck does that happen? Incentives.

Incentives

The FDA does not have an incentive to actually increase innovation — its only incentive is to meet its MDUFA and PDUFA approval times to keep its funding flowing.

The primary laws governing devices and drugs are now 40 and 50 years old, respectively. These laws, in conjunction with other incentives, reduce progress in the device and drug arenas. As one congresswoman describes it, “Health research moves at a rapid pace, but the federal drug and device approval process is in many ways a relic of another era.” Yet we continue to increase the funding and authority for FDA and assume that we will somehow boost innovation in medical products (drugs and devices) despite the growing obstacles.

Just how much money are we talking about here?

The expense of putting drugs and devices through this system is almost unimaginable. The cost of bringing low- to medium-risk 510(k) medical devices to market averages $31 million — $24 million (75 percent) of which is dedicated solely to attaining FDA approval within an average of about six months. For higher-risk medical devices where there may be significant health gains, the costs are about $94 million — $75 million (80 percent) of which is dedicated to attaining FDA approval.

For drugs, the situation is much worse. It costs an average of $2.6 billion simply to get a drug through the FDA process and onto the market. This does not include post-market monitoring, the terms of which are laid out by FDA upon approval.

And here’s where I would change the song’s chorus:

Doctor, please, give me a dose of the American Dream
Put down the pen and look in my eyes
We’re in the waiting room and something ain’t right
All this is on you, we’re over-prescribed

Instead, I would say “FDA, please, give me a dose of the American dream, put down the applications and look in our eyes, your incentives are shit and that isn’t right. All this is you, we’re over-prescribed.” Incentives matter, and we get them from the rules of the game. The Doctor only gets the drugs or medical devices after the FDA approves it. Yes, some doctor’s over-prescribe and it is an issue, but the vast majority of them are good hard working Americans trying to save lives.

Actions

So we know the rules and the incentives, and that leads to the actions of individuals surrounding the pharmacy industry, many of whom Macklemore brings up as the cause for this over-prescribed state we’re in:

And now my little brother is in the sky
From a pill that a doctor prescribed
That a drug dealing billion dollar industry supplied
And the cops never go and profile at night
Yeah, the, the, the orange plastic with the white top they sell to you

But as I showed earlier the drug dealing billion dollar industry supplied the doctors because the FDA allowed it to. And the cops, while they don’t profile the pharmaceutical companies, they also don’t profile the FDA either. Who have caused more of the issues than the pharmacy companies because their incentives are backwards and they are the source of the innovation bottleneck.

The rules, in this case made by Congress, are what causes incentives to change — not the businesses. That’s not to say businesses in this sphere aren’t intensifying the issue. How you ask? By stopping other competitors entering the market by proposing new regulation, which is also known as corporatism or cronyism.

If the cost of getting one drug through FDA approval is $2.6 billion dollars, then we must ask, why? In this case, the rules have been shifted in favor of larger companies with the capital and ability to comply with all the regulations set forth by the FDA. And these large companies have great marketing and sales teams because they need to recoup at least 2.6 billion dollars back, just to break even with the FDA process. All of these actions are done because of the way the game is set up.

Results

Economists judge things by their results, not their desired intention. And the results for Kevin were extremely sad. Macklemore has many valid points in this last refrain, but there are some things I would change.

I don’t blame Kev or his mom freebasing while pregnant with him
I blame the pharmacy companies
And country that spends trillions fighting the war they supplying themselves
Politicians and business and jail
Public defenders and judges who fail

I don’t blame Kevin, or his Mom, since I don’t know the circumstances. But here’s where I disagree with Macklemore — I don’t blame the pharmacy companies. I do agree with him in blaming the politicians who have set up the rules of this game that has led to the FDA funding themselves through fees and without accountability. These fees are given to them by the pharmacy companies applying for new medications… no conflict of interest? Doubt it.

And Congress started allowing pharmacy companies to advertise directly to consumers, which was illegal until 1969. The only reason pharmacy companies push these new drugs so hard in advertising and to doctors to prescribe it is to recoup the FDA’s 2.6 billion dollar admission fee. Obviously businesses want to make profit, but they can only do that by helping their fellow humans.

He asks an important question at the end:

So America, is it really worth it? I’m asking you

So is producing drugs worth the terrible problem of over-prescribing? Well seeing as America is made up of a group of individuals, my answer to this is: It depends. Is it a life saving drug that you need? A diabetic needs insulin, that’s just a fact of life and pharmacy companies and doctors are the reason some people live. That’s why it depends, but still the choice to consume prescriptions is still up to the individual.

F.A. Hayek said it best:

Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes, we can turn to another. But if we face a monopolist we are at his absolute mercy.

Right now we are at the mercy of Congress and the FDA, they have a monopoly on the rules of the game and we can expect more stories like Kevin’s until we can set the rules of the game up so the incentives lineup to help people not the FDA, and the rest will follow.

The final verse:

Doctor, your medicine and your methods
Can’t cure my disease without killing me
You’re killing me, you’re killing me

It should read the “FDA, your approvals and your methods, can’t cure my disease with out killing me.” The way the system is set up, aka the rules, is what’s killing people, not doctor's. They are just a symptom, not the disease.

Thanks to Macklemore for addressing such a tough issue in such a beautiful way.

R.I.P. Kevin.