The case for an antibiotics tax

January 13, 2014

The rise of antibiotic-resistant germs is becoming a big problem in the United States. That's why last month  the Food and Drug Administration put out new rules to limit the widespread use of antibiotics in cows, pigs and chickens raised for food. (By some estimates, 80 percent of antibiotics in the United States are used on livestock.) That was followed by a crackdown on antibacterial soap.

Indian Prairie ranch manager Tom Gingerich works with a Texas longhorn raised without antibiotics. (Perry Backus/AP) Indian Prairie ranch manager Tom Gingerich works with a Texas longhorn raised without antibiotics. (Perry Backus/AP)

But might there be a better way to tackle this problem than blunt regulation? Perhaps. In a recent article in The New England Journal of Medicine, economists Aidan Hollis and Ziana Ahmed suggest that a simple tax or "user fee" on antibiotics used by the livestock industry would be a far more effective way to prevent overuse of these drugs.

It's an elegant argument. But one question is whether this logic should only extend to farms — or should there be a fee for all antibiotics? Let's take a closer look:

The problem with blunt regulations: Let's first recall what the FDA wants to do about antibiotics on farms: The agency is asking the makers of animal drugs to voluntarily alter their labels so that farmers can no longer buy antibiotics to promote animal growth (a fairly common practice). Second, licensed veterinarians will now need to sign off before antibiotics that are commonly used in human medicine can be used on farms.

Critics have outlined all sorts of potential problems with these regulations. Among others, it's still tough to distinguish "valid" uses of antibiotics from "invalid" uses. How do regulators distinguish between a farmer feeding livestock daily low levels of antibiotics to prevent disease and a farmer feeding livestock daily low levels of antibiotics to promote growth? That's hard to enforce, and doing so requires constant rule tweaks and pricey monitoring.

The case for an antibiotics tax: Hollis and Ahmed argue that a simple user fee on antibiotics makes more sense. Their logic goes like this: Every time someone uses antibiotics, they increase the chance that the relevant bacteria will develop resistance to the drug. That's a cost to society that's not currently included in the market price of antibiotics. So one thing to do would be to impose a user fee on these drugs to account for this cost:

Every use of antibiotics increases selective pressure, thus undermining the value for other users. In effect, each antibiotic can have only a limited amount of use, so it is appropriate to charge a fee, just as logging companies pay “stumpage” fees and oil companies pay royalties. (A perfect fee would be calibrated to the extent of antibiotic resistance caused by each use; a practical fee, which is what we propose, would be based on the volume of antibiotics used.)

This approach, they write, would have a number of advantages. Setting a proper fee would ensure that antibiotics are used only when the benefits outweigh the cost to society. "Farms with good substitutes for antibiotics — for example, vaccinations or improved animal-management practices — would be discouraged from using antibiotics by higher prices, whereas farms with a high incidence of infections would probably continue to use antibiotics," the authors write.

Estimated annual antibiotic use in the United States (NEJM) Estimated annual antibiotic use in the United States (NEJM)

What's more, the user fee is fairly simple to administer, and the revenue could help fund crucial public research into new antibiotics (or strategies to limit resistance). That's a big deal, since pharmaceutical companies are increasingly reluctant to sink the necessary money —from $800 million to $1.7 billion per drug — into new antibiotics.

The drawbacks? Well, it wouldn't be easy to determine the appropriate price for the user fee. And any such tax would almost certainly raise food prices (although so would regulations: the National Research Council estimated that an outright ban on using antibiotics to promote growth would increase production costs $1.2 billion to $2.5 billion annually).

But, the authors note, these costs are likely to be smaller than the costs of increased antibiotic resistance: "According to our calculations above, a 1% reduction in the usefulness of existing antibiotics could impose costs of $600 billion to $3 trillion in lost human health."

But why limit it to farms? This also raises the question of whether it would make sense to put a fee on other uses of the drugs. After all, it's still not clear how much the use of antibiotics for livestock is actually contributing to the resistance problem. Maybe a lot. Maybe just a bit.

There's plenty of evidence that humans overuse these drugs for medical purposes, too. One recent study in JAMA Internal Medicine found that doctors prescribe antibiotics in 60 percent of all sore throat cases — even though only 10 percent of cases involve strep, the specific condition requiring antibiotics. (Or see Kiera Butler's article on how it's increasingly common for doctors to prescribe antibiotics after a quick phone consultation.)

Indeed, as Maryn McKenna* points out, in 2011 the Infectious Diseases Society of America proposed a user fee for antibiotics — but for all uses of the drugs, not just livestock. (Do note that the group also proposed a slew of other steps, too, from improved monitoring to educating doctors about conservation — the user fee wasn't, by itself, seen as sufficient.)

At the time, advocates were speaking about the issue in terms familiar to those who follow environmental issues: "We need to think of antibiotics as a precious, limited resource, the way we think of forests and fisheries — something we protect and restore,” said one expert. Economists have long argued that pricing — Pigou taxes — are a good way to manage scarce natural resources. Carbon taxes. Royalties on oil drilling. Catch shares for fisheries. Are antibiotics any different?

Update: Here's a rejoinder from Duke University economist David McAdams, who argues that we should consider the positive externalities that come from antibiotics use, as well.

Further reading: The FDA is cracking down on antibiotics on farms. Here’s what you should know.

* By the way, if you're interested in antibiotic resistance and superbugs, you should really, really be following Maryn McKenna's work.

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