Discover more from Vinay Prasad's Observations and Thoughts
The FDA commissioner does not understand how American insurance works
Yet, strangely he wants insurers to do his job
The US FDA commissioner Robert Califf runs the only federal agency with the legal authority to demand companies run RCTs to prove their products work as condition of marketing in the US. It now seems he wants insurers to do his job for him. Sadly, his comments betray that they does not understand insurers’ finances.
Specifically, Robert Califf has argued that ‘Insurers must do more to help providers participate in clinical trials that can confirm the effectiveness of drugs granted accelerated approval’ and elaborated:
But this is incorrect. Dr. Califf appears to misunderstand the most basic fact about insurers.
The Affordable Care Act capped the percent of profit insurers can take at 20%. This simple act changes the incentives for insurers. They make more money the more we spend, not the less.
Consider if we go out to dinner, and I offer to buy pizza, and you are very hungry. I say, bizarrely, you can eat 20% but no more. What size pie should I get? The answer of course is extra large. The same is true for insurance companies.
In the long run, insurers incentive is to expand health care spending— not shrink it. The trial that Bob Califf’s FDA should be demanding would only curb this. But there is also a short run problem.
In the short run, any evidence generated by an insurer would be immediately known to all competitors, who would take similar action. No insurer could have even a short term competitive advantage. Meanwhile, the insurer that pays for the trial will be out the cost of the trial.
Surely the FDA commish knows all this. If he knows all this why would be offer this suggestion?
In recent years the FDA has been rubber stamping all sorts of dubious approvals from aducanumab to Exondys to boosters for adolescents to paxlovid for young, vaccinated people— the FDA is failing in it’s only duty: demanding careful clinical trials. Instead of accepting this criticism, the commish is distracting for it, by dragging in insurers, (who are rightly criticized for some things but not this), to shift blame.
It is sad times for the FDA. The agency increasingly works for the pharmaceutical industry. In fact, with Biogen, congress specifically faulted the FDA for this. Instead of working to fix it, Califf offers solutions that make no sense. It is a sad day when an FDA commish simply doesn’t want to do his job.