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The pharmaceutical industry has been among the most innovative while being one of
the most highly regulated industries in the United States. Government regulation of
pharmaceutical product quality started in 19061 and has evolved into a stringent system
of premarket controls over new drug development and introduction. Several recent studies
have examined the effects of these regulatory controls on the costs and development
periods for new drug entities, the quantity of drug innovation, and delays in new
drug therapies available to consumers.2 Government laws and regulations indirectly
affect the innovation process through the distribution and marketing of pharmaceuticals.
In contrast to other products, drugs can be dispensed to an individual only with a
physician's prescription. This is true unless the Food and Drug Administration (FDA)
has approved the drug for self-medication (i.e., over-the-counter us-age). Historically,
state antisubstitution laws for prescription drugs have prohibited pharmacists from
dispensing a different brand of a drug than the one prescribed by the physicians.
A major structural change taking place in the pharmaceutical industry to-day is the
repeal of state antisubstitution laws. Over forty states have passed product selection
or drug substitution laws.3 While the state-enacted laws have significant differences,
essentially all enable pharmacists to substitute generic products (some mandate substitution)
unless a physician prevents substitution by checking a preprinted box or writing "dispense
as written" (DAW) on the prescription form.
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