Entrepreneurship in off-label drug prescription: just what the doctor ordered!

AuthorMarch, Raymond J.
  1. Introduction

    Any legally prescribed drug in the United States must undergo a lengthy, costly, and uncertain process enforced by the Food and Drug Administration (FDA). The time between drug discovery and approval averages sixteen years, and the probability of approval for human use is approximately 10 percent (Stossel 2015). Completing this approval process requires an average investment of $403 million (Demasi, Hansen, and Grabowoski 2003). (1) The high cost of FDA drug approval creates significant barriers to entry and reduces the number of pharmaceuticals available to consumers (Tabarrok 2000, 2009). Physicians are left with few options to serve patients (Benson 2004).

    Despite these high barriers to entry, physicians can exercise an entrepreneurial role in their practices by prescribing and recommending pharmaceuticals off-label. As noted by Salbu (1999), the FDA's authority to regulate the pharmaceutical market only extends to approval for human use for a specific condition. The FDA does not have the authority to tell doctors what an approved drug can be prescribed or used for. Off-label prescription, by some estimates, accounts for 25 percent of all prescriptions, (Leibman 2003) but can be significantly higher for certain conditions.

    Although off-label prescribing is common, many consumers, physicians, and other medical professionals believe that unregulated off-label prescription is reckless and requires additional FDA oversight (Stafford 2008; Dresser and Frader 2009; Buppert 2012; Howard and Copland 2013). A common assumption in proregulation literature is that prescribing pharmaceuticals outside of the FDA's scope of approved uses is unsafe and, because the evidence is insufficient to demonstrate safe use, prescribing for off-label uses is negligent. Despite a circuit court decision that promoting off-label uses of pharmaceuticals by manufacturers is protected under the First Amendment, (2) the FDA has recently engaged in efforts to more narrowly construe the definition of "promotion." This effort results in less information available for physicians to find effective ways to treat patients.

    Physician Randall Stafford believes off-label prescription needs greater FDA oversight. He writes, "Evidence regarding the efficacy and safety of off-label use is nearly always inferior to that required by the FDA in approving a product for its intended calculation" (2012, p. 291). Stafford concludes that the FDA may need to increase its mandate to monitor off-label drug prescription better. Radley, Finkelstien, and Stafford (2006) call for policy makers to "consider strategies for mandatory post-approval surveillance that focus on curtailing off-label practices" (p. 1026). Public opinion has demonized off-label prescription to an extent where, according to the Consumers Union, "Most of those [off-label uses] are for a use that lacks any evidence or rigorous study to back it up" (emphasis original) (2007, p. 1).

    The critical question is, Who is better suited to find effective and safe alternative uses for existing drugs and who can find them promptly: the bureaucratic FDA or the entrepreneurial physicians and pharmaceutical companies? This paper holds that the entrepreneurial actions taken by physicians and pharmaceutical companies through the market in a comparatively less-regulated area of healthcare serve patients better, expand medical knowledge, and increase treatment options in a more effective manner than the FDA approval method does. To bolster this claim, this paper uses three case studies: the use of aspirin for cardiovascular health, the development of sexual pharmacology and Viagra, and the use of minoxidil to treat hair loss. In these case studies, physicians and pharmaceutical companies attained new medical knowledge and effectively treated patients by acting entrepreneurially through the market process. This entrepreneurship developed research and effective treatment more efficiently than the FDA's approval process did.

    The next section examines the entrepreneurial framework for the off-label drug prescription market. The paper then uses this framework to examine each case study mentioned above. I conclude by examining the implications of the potential for entrepreneurial activity in the pharmaceutical market and by providing directions for future research.

  2. Off-Label Prescriptions, Entrepreneurship, and the Market Process

    The entrepreneur serves as a unique economic actor who determines "what resources should be used, and/or what goods should be produced" (Kirzner 1963, p. 13). For an entrepreneur's product or service to remain on the market, it must provide a benefit that consumers consider greater than the price (Lewin 2015). The entrepreneur's ability to perform this role depends on the number of restrictions placed on using their means to create products and services to exchange with consumers (Kirzner 1978). When consumers and entrepreneurs engage in buying and selling, a market process develops where inefficient or ineffective uses of resources to produce products create losses, and those products that add value to customers' lives produce profits for the entrepreneur. Entrepreneurs seek profits through competition to provide the best product possible.

    The profit-and-loss system plays an informational role, guiding entrepreneurs to distribute scarce resources to their highest desired uses (Hayek 1945; Mises 1952). Profits provide information that the consumer values the product, and losses provide information that the consumer values the product less than other products whose sales earned profits. Reducing the uncertainty of what consumers are willing to purchase requires constant discovery and innovation from entrepreneurs, with consumers determining which products are valued and should continue being produced (Mises 1949). Those entrepreneurs who earn profits do so by effectively competing against other entrepreneurs (Kirzner 1974).

    Competition among physicians, according to Phelps (2010), can be categorized as competition for correctly diagnosing patients and providing effective treatments. When common treatment methods fail, or no common and consistent treatments exist, a physician must be alert to treatment options that other doctors may not be aware of to compete on the treatment margin. Physicians who are better able to accurately assess alternative uses of pharmaceuticals and effectively evaluate the risk of less-common treatment options are better able to serve patients. (3)

    Despite operating in a highly regulated market, there is evidence that physicians act entrepreneurial^. By empirically assessing the relationship between physician concentration and economic growth at the state level, Reilly and Santerre (2013) find evidence that physicians in general act in a profit-seeking manner (in contrast to a rent-seeking manner). Other evidence suggests that physicians are responsive to their patients' desires. Schaumans (2015) reports that general practitioners facing more competition prescribed more medication in order to satisfy patients' expectations. Austin and Baker (2015) find that higher concentrations of physician practices are associated with lower prices paid by their patients for various common procedures. McCarthy (1985) finds that the market for primary care physicians is "reasonably characterized by market competition" (p. 93). Similarly, Dunn and Shapiro (2015) find that a one-standard-deviation increase in cardiologist concentration is associated with a 5 percent increase in cardiologist service provision and fewer overall remissions.

    A competitive environment in conjunction with limited restrictions on off-label prescribing allows physicians to allocate means to desired ends through finding alternative uses for resources (pharmaceuticals) that are most valued by consumers (patients). In short, when commonly used pharmaceuticals fail to treat the patients or when a commonly used pharmaceutical treatment is unavailable, the physician is performing the entrepreneurial act of determining what resources should be used to treat the patient.

    Although the transaction costs of switching physicians can be significant, physicians' services are subject to the wishes of patients, who may decide to switch when they feel a physician's service was inadequate (Harris 2003; Tai-Seale and Pescosolido 2003; Fiscella et al. 2004). Patients may also review their physician online. These reviews, according to Segal (2012), can either "create significant reputational damage" or "help promote one's practice" (p. 341). As of 2012, over eighty websites exist where patients can review their physicians (Segal 2012), and an estimated 21 percent of patients read online reviews of physicians (Gay and Pho 2013). Given patients' heterogeneous expectations when obtaining medical services (Feldstein 1986), a physician's willingness to prescribe drugs off-label to provide treatment where typical treatment methods have failed could positively affect reputation and allow that physician to outcompete other physicians who are less willing to prescribe off-label.

    Pharmaceutical companies also serve an entrepreneurial role in the prescription drug market through researching and developing alternative...

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