FDA Deregulation Increases Safety and Innovation and Reduces Prices

Regulating the Innovators: Approval Costs and Innovation in Medical Technologies. Parker Rogers, October 27, 2022. https://parkerrogers.github.io/Papers/RegulatingtheInnovators_Rogers.pdf

Abstract: How does FDA regulation affect innovation and market concentration? I examine this question by exploiting FDA deregulation events that affected certain medical device types but not others. I use text analysis to gather comprehensive data on medical device innovation, device safety, firm entry, prices, and regulatory changes. My analysis of these data yields three core results. First, these deregulation events significantly increase the quantity and quality of new technologies in affected medical device types relative to control groups. These increases are particularly strong among small and inexperienced firms. Second, these events increase firm entry and lower the prices of medical procedures that use affected medical device types. Third, the rates of serious injuries and deaths attributable to defective devices do not increase measurably after these events. Perhaps counterintuitively, deregulating certain device types lowers adverse event rates significantly, consistent with firms increasing their emphasis on product safety as deregulation exposes them to more litigation.

 

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After moving from Class III (high regulation) to II (moderate), device types exhibited a 200% increase in patenting and FDA submission rates relative to control groups. Patents filed after these events were also of significantly higher quality, as measured by a 200% increase in received citations and market valuations. These effects do not spill over into similar device types.1 For Class II to I deregulations, the rate of patent filings increased by 50%, though insignificantly, and the quality of patent filings exhibited a significant 10-fold improvement, suggesting that litigation better promotes innovation.

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Down-classification yields considerable benefits, as the proponents of deregulation would predict, but what of product safety? Perhaps counterintuitively, I find that deregulation can improve product safety by exposing firms to more litigation. Despite some adverse event rates increasing after Class III to II events (albeit insignificantly), Class II to I events are associated with significantly lower adverse event rates.3 My analysis of patent texts also reveals that inventors focus more on product safety after deregulation. These results suggest that litigation encourages product safety more than regulation [...]