Academic journal article Economic Inquiry

Political Influence and Regulatory Policy: The 1984 Drug Legislation

Academic journal article Economic Inquiry

Political Influence and Regulatory Policy: The 1984 Drug Legislation

Article excerpt

I. INTRODUCTION

In the late 1970s and early 1980s dissatisfaction with the length, complexity and cost of the drug approval process combined with rising prescription drug prices led to Congressional attempts at reform. These focused on two issues: to compensate the developers of new drugs for the increasing costs and delays associated with FDA approval and to increase the availability of generic drugs. Until 1984, these reform attempts failed.

I use the structure-induced equilibrium (SIE) theory of Shepsle and Weingast [1981] to examine why regulatory reforms prior to 1984 were stalemated, and why the 1984 drug legislation was ultimately enacted. My results show that prior to 1984, the preferences of the members of the key congressional committees were such that the proposed bills could not beat the status quo. However, changes in both membership and turnover on the House Subcommittee on Health and the Environment, combined with a change in the majority party in the Senate, led to a situation in which the 1984 drug legislation could defeat the status quo in both the House and the Senate.

The Drug Price Competition Act facilitated the market entry of generic drugs following patent expiration by allowing generic versions of brand-name drugs patented after 1962 to use an abbreviated new drug application (ANDA).(1) The Patent Term Restoration Act extended the patent lives of brand-name drugs for up to five years to compensate for patent life lost during the FDA approval process. Initial, unsuccessful legislative reforms were introduced into Congress in 1978-79 and 1981-82, but no legislative reforms were passed until 1984. These earlier unsuccessful reform efforts raise the following questions. First, why did the status quo prevail until 1984 as the legislative equilibrium? Second, what endogenous changes occurred to produce the new legislative equilibrium in 1984?

While much of the previous literature about the pharmaceutical industry has focused on the efficiency and distributive effects of public policy, I focus on the theory of regulatory policy.(2) The sequence of legislative actions leading to the 1984 drug legislation shows how competing interest groups, representing brand-name and generic drug firms, forced legislators to face trade-offs in accommodating their interests. I look most closely at the members of the House and Senate committees with jurisdiction over pharmaceutical regulation issues. Data representing brand-name and generic firm or consumer interests are used to construct estimates of legislative preferences (ideal points).(3) Then, the SIE theory is used to generate predictions about legislative behavior and outcomes to help explain the initial failure of regulatory reform in 1979 and its ultimate success in 1984.

The results from the analysis explain both why the status quo prevailed in 1979 and why it was overturned in 1984. The analysis also illustrates how the industry and consumer groups represented on the relevant committees can protect their interests. This occurred in both 1979, when the Senate passed legislation favorable to the generic drug industry, and 1981, when legislation supported by the brand-name drug firms was passed. In each case, representatives of the unfavored interest group were able to block legislation in the House. Legislation was possible only when the majorities on the House and Senate committees could agree on a single policy which could defeat the status quo in both committees. Moreover, this policy provided benefits to both sets of industry interests represented by committee members.

The paper is organized as follows. In sections II and III, I describe the theory of political outcomes used in this analysis and provide some background on pharmaceutical regulation prior to the reforms. The estimation of congressional ideal points is discussed in section IV. Sections V and VI examine congressional responses to the 1979 drug reforms and interest group activity in the 1980s. …

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