Substitution laws and innovation in the pharmaceutical industry.

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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.







Henry G. Grabowski

Professor Emeritus of Economics

Professor Grabowski specializes in the investigation of economics in the pharmaceutical industry, government regulation of business, and the economics of innovation. His specific interests within these fields include intellectual property and generic competition issues, the effects of government policy actions, and the costs and returns to pharmaceutical R&D. He has over one hundred peer reviewed articles analyzing the economics of pharmaceuticals and also several books and monograph publications. Professor Grabowski has testified several times before Congress on the issues of FDA regulation, health care reform, drug innovation and generic competition and vaccine policies. He has received numerous awards and professional recognition including a special issue of essays published in his honor in 2011 in the International Journal of the Economics of Business. He also has served as an advisor to various government and business organizations, including the National Academy of Sciences, the Institute of Medicine, the Office of Technology Assessment, the Federal Trade Commission, and the General Accounting Office. The US Congress has recognized the significant role that a paper he published with Duke colleagues David Ridley and Jeff Moe had in the passage of legislation that incentivized development of new therapies for neglected diseases through the creation of priority review vouchers.

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