Using the FDA as a Club against Competitors

Most conservatives believe that mountains of government regulations drive up prices, discourage innovation, and crush small businesses. So why aren’t businesses united in their opposition to oppressive regulations? Because many have discovered that they can use regulations as a weapon to fend off competition.

Consider the example of Elizabeth Holmes, the founder and CEO of Theranos, a Silicon Valley health care technology firm. Ms. Holmes boldly proposes that consumers should be able to get diagnostic blood tests without waiting for prescriptions from their doctors (“How to Usher in a New Era of Preventive Health Care,” Wall Street Journal, July 28, 2015). That’s an excellent idea for at least three reasons: the earlier medical conditions are detected the easier they are to treat, blood tests (like those developed by Theranos) that use a fingerstick rather than poking a vein with a needle are extremely safe, and eliminating unnecessary regulations benefits both consumers and entrepreneurs.

However, in the very same guest column Ms. Holmes recommends that all lab tests should be reviewed by the Food and Drug Administration (FDA). While Ms. Holmes wants to make it easy for consumers and partners to do business with Theranos, she wants to make it hard for anyone to compete with Theranos, calling for regulations that protect her company’s head start.

Theranos was founded to make blood tests simpler, less expensive, and more accessible. For example, Theranos has partnered with Walgreens, the largest drugstore chain in the United States, to make blood tests available at neighborhood stores during evenings and weekends (when most outpatient hospital labs are closed).

Traditional blood tests have drawbacks: they take too much time, are expensive, and there is a small but real risk of injury when blood is drawn from a vein using a needle. Requiring doctor’s prescriptions may avoid unnecessary blood tests, but it also prevents patients from being proactive. As Ms. Holmes explains, “…many of us get lab tests only when we’re showing symptoms, which means we may already be sick. And too many of us find out we’re sick when it’s too late to change the course of these conditions.”

Ms. Holmes understands that blood tests have consequences. She points out that a doctor may recommend the patient take medication, undergo a medical procedure, or be admitted to the hospital based on the results. Weighing the benefits against the risks, Ms. Holmes concludes that we should treat consumers like intelligent and responsible adults, letting them exercise their own judgement about when to get blood tests. 

However, Ms. Holmes’ is more inflexible and one-sided regarding policies that affect competitors. She writes, “The FDA sets the gold standard for quality assurance. Its review is data-driven, objective and uniquely rigorous.” Yes, there is a legitimate argument for taking steps to ensure that lab tests are reasonably accurate and reliable. However, it’s not clear that a federal bureaucracy is best qualified to review lab tests. An industry that is constantly developing new tests and improving old tests probably knows more about the underlying technology. And an industry association with participants from regulatory agencies, competing vendors, and patients’ groups is likely to be fairer than a government bureaucracy targeted by lobbyists and politicians. Nor is it clear that a federal agency is most capable of striking the right balance between cost, time-to-market, and consumer safety.

Few people would deny that there is a role for federal regulations addressing the safety of health care products and services. For instance, physicians and consumers should be confident that any pharmaceutical marketed in the U.S. contains the type and quantity of active ingredients advertised. It’s also reasonable to require disclosure of all other ingredients to avoid adverse interactions and to protect patients with allergies.

However, there is reason to be skeptical of FDA regulations concerning effectiveness. In fact, it’s only through mission creep that the FDA became involved in determining effectiveness. Yet there is growing evidence that regulating effectiveness is counterproductive. Traditionally, the FDA gauged the effectiveness of a drug by studying its effect on a large population of patients. We’ve learned in recent years that some drugs may be ineffective for most patients but very effective for specific groups of patients. This has led to the common sense conclusion that it’s wrong to reject a drug merely because it is only effective for a small group of patients -- and has given rise to the new field of personalized medicine.

Ms. Holmes’ faith in the FDA’s lab test review process is misguided. There is no universally recognized standard by which lab tests can be evaluated. All diagnostic tests are subject to measurement errors and there is always a risk of false negatives and false positives. And lab tests are evolving. That’s not to suggest that blood tests shouldn’t be reviewed. But it does say that no one has a corner on objective and rigorous lab test reviews, and it’s reasonable to take speed and cost into account when deciding who should perform the reviews. Even if the FDA bureaucracy turned out to be most objective and rigorous, it is notoriously slow and expensive.

There is a troublesome explanation for why Ms. Holmes is so eager to have the FDA perform the reviews. As she states in her guest column, “…Theranos, the company I founded, voluntarily committed to submit all of its lab tests for review starting in 2013. On July 2 [2015], the FDA cleared the first of those tests, for herpes simplex virus 1, and the associated finger-stick blood-test technology and underlying system on which our tests are run.” If Theranos began submitting its lab tests in 2013 and received its first FDA approval in mid-2015, then it seems fair to conclude that a competitor submitting its tests for review today might not gain its first approval until 2017.

Government regulation works best when it is simple and direct. Even then, most of the responsibility for inspecting, reviewing, and certifying should be delegated to outside contractors who can be quickly replaced when there is evidence of negligence, incompetence, or corruption. Too much regulation drives up costs, delays new products and services from coming to market, and discourages innovation. Worse, convoluted regulations can be used by powerful companies as a club against their smaller or less experienced competitors. If Elizabeth Holmes trusts consumers to prescribe their own blood tests, then she should trust the health care industry to review lab tests provided that the review process is transparent and accountable.

Ira Brodsky is the author of The History and Future of Medical Technology.

Most conservatives believe that mountains of government regulations drive up prices, discourage innovation, and crush small businesses. So why aren’t businesses united in their opposition to oppressive regulations? Because many have discovered that they can use regulations as a weapon to fend off competition.

Consider the example of Elizabeth Holmes, the founder and CEO of Theranos, a Silicon Valley health care technology firm. Ms. Holmes boldly proposes that consumers should be able to get diagnostic blood tests without waiting for prescriptions from their doctors (“How to Usher in a New Era of Preventive Health Care,” Wall Street Journal, July 28, 2015). That’s an excellent idea for at least three reasons: the earlier medical conditions are detected the easier they are to treat, blood tests (like those developed by Theranos) that use a fingerstick rather than poking a vein with a needle are extremely safe, and eliminating unnecessary regulations benefits both consumers and entrepreneurs.

However, in the very same guest column Ms. Holmes recommends that all lab tests should be reviewed by the Food and Drug Administration (FDA). While Ms. Holmes wants to make it easy for consumers and partners to do business with Theranos, she wants to make it hard for anyone to compete with Theranos, calling for regulations that protect her company’s head start.

Theranos was founded to make blood tests simpler, less expensive, and more accessible. For example, Theranos has partnered with Walgreens, the largest drugstore chain in the United States, to make blood tests available at neighborhood stores during evenings and weekends (when most outpatient hospital labs are closed).

Traditional blood tests have drawbacks: they take too much time, are expensive, and there is a small but real risk of injury when blood is drawn from a vein using a needle. Requiring doctor’s prescriptions may avoid unnecessary blood tests, but it also prevents patients from being proactive. As Ms. Holmes explains, “…many of us get lab tests only when we’re showing symptoms, which means we may already be sick. And too many of us find out we’re sick when it’s too late to change the course of these conditions.”

Ms. Holmes understands that blood tests have consequences. She points out that a doctor may recommend the patient take medication, undergo a medical procedure, or be admitted to the hospital based on the results. Weighing the benefits against the risks, Ms. Holmes concludes that we should treat consumers like intelligent and responsible adults, letting them exercise their own judgement about when to get blood tests. 

However, Ms. Holmes’ is more inflexible and one-sided regarding policies that affect competitors. She writes, “The FDA sets the gold standard for quality assurance. Its review is data-driven, objective and uniquely rigorous.” Yes, there is a legitimate argument for taking steps to ensure that lab tests are reasonably accurate and reliable. However, it’s not clear that a federal bureaucracy is best qualified to review lab tests. An industry that is constantly developing new tests and improving old tests probably knows more about the underlying technology. And an industry association with participants from regulatory agencies, competing vendors, and patients’ groups is likely to be fairer than a government bureaucracy targeted by lobbyists and politicians. Nor is it clear that a federal agency is most capable of striking the right balance between cost, time-to-market, and consumer safety.

Few people would deny that there is a role for federal regulations addressing the safety of health care products and services. For instance, physicians and consumers should be confident that any pharmaceutical marketed in the U.S. contains the type and quantity of active ingredients advertised. It’s also reasonable to require disclosure of all other ingredients to avoid adverse interactions and to protect patients with allergies.

However, there is reason to be skeptical of FDA regulations concerning effectiveness. In fact, it’s only through mission creep that the FDA became involved in determining effectiveness. Yet there is growing evidence that regulating effectiveness is counterproductive. Traditionally, the FDA gauged the effectiveness of a drug by studying its effect on a large population of patients. We’ve learned in recent years that some drugs may be ineffective for most patients but very effective for specific groups of patients. This has led to the common sense conclusion that it’s wrong to reject a drug merely because it is only effective for a small group of patients -- and has given rise to the new field of personalized medicine.

Ms. Holmes’ faith in the FDA’s lab test review process is misguided. There is no universally recognized standard by which lab tests can be evaluated. All diagnostic tests are subject to measurement errors and there is always a risk of false negatives and false positives. And lab tests are evolving. That’s not to suggest that blood tests shouldn’t be reviewed. But it does say that no one has a corner on objective and rigorous lab test reviews, and it’s reasonable to take speed and cost into account when deciding who should perform the reviews. Even if the FDA bureaucracy turned out to be most objective and rigorous, it is notoriously slow and expensive.

There is a troublesome explanation for why Ms. Holmes is so eager to have the FDA perform the reviews. As she states in her guest column, “…Theranos, the company I founded, voluntarily committed to submit all of its lab tests for review starting in 2013. On July 2 [2015], the FDA cleared the first of those tests, for herpes simplex virus 1, and the associated finger-stick blood-test technology and underlying system on which our tests are run.” If Theranos began submitting its lab tests in 2013 and received its first FDA approval in mid-2015, then it seems fair to conclude that a competitor submitting its tests for review today might not gain its first approval until 2017.

Government regulation works best when it is simple and direct. Even then, most of the responsibility for inspecting, reviewing, and certifying should be delegated to outside contractors who can be quickly replaced when there is evidence of negligence, incompetence, or corruption. Too much regulation drives up costs, delays new products and services from coming to market, and discourages innovation. Worse, convoluted regulations can be used by powerful companies as a club against their smaller or less experienced competitors. If Elizabeth Holmes trusts consumers to prescribe their own blood tests, then she should trust the health care industry to review lab tests provided that the review process is transparent and accountable.

Ira Brodsky is the author of The History and Future of Medical Technology.