Regulatory Capture, Product Safety, and the Right to Recovery

Good discussion on Megan McArdle's Asymmetrical Information blog on the aftermath of Riegel v. Medtronic, the Supreme Court's decision that confirmed that the MDA (Medical Device Act) does preempt state tort actions for design defects in medical devices. Check out On Approval and Libertarians Under the Skin.

In essence, Megan asks the very good question of whether it makes sense to have a system where products are scrutinized both before the fact through regulatory approval and after the fact through product liability lawsuits. I posted a few times in the first comment thread, but probably didn't get my hands around everything I was really trying to say - I figured I'd try again back here at my own place.

First, it's fairly easy to point out the flaws of both systems. When it comes to regulatory approval, regulatory agencies often suffer from regulatory capture- the idea that the regulatory process is driven by industry itself, so that the approval process may be skewed more towards corporate interests than the safety of the public. This is a potential problem as is the possibility that the regulatory agency may be completely incompetent.

The problem is, after-the-fact product liability lawsuits don't help the people who have been hurt, nor do they really provide an efficient forum for adjudicating product safety in the first place. After all, jurors have no particular scientific or technical expertise.

Some of the commenters on both of the comment threads argue that because of these sorts of problems, both standards of protection are needed. That makes sense if one were to look only toward injured parties, but it makes little sense from both the perspective of the manufacturers and from the perspective of a logical system of law.

When we utilize multiple forums and apply differing standards, there is no guide for both consumers and manufactures as to whether or not a product is safe. Some of the commenters argue in favor of redundancy, but the problem with that is that is that it reduces the before-the-fact regulatory decisions to nothing more than a product safety floor. Regulatory approval is needed in order to sell a product in the first place, but that approval doesn't actually mean that the product is safe. Such a system would mean the expensive process of regulatory approval is essentially worthless. Companies would not rely on it to determine whether they are producing a safe product and consumers would not rely on it to determine whether or not a product was safe. So if that was the case, why have such a system set up in the first place?

As much as I am not a fan of regulatory agencies, I'm even less of a fan of juries making technical decisions about product safety. I trust the FDA's decisions on drug safety more than I would any juries. We tend to think of these cases in terms of the juries holding big drug companies liable for damages because of a so-called dangerous drug, but what if it worked the other way around? If the FDA told you a drug was not safe and a jury told you that the drug was safe and should be sold, do you think you'd really trust that jury?

For some types of products, the concept of strict liability decided by a jury makes sense. If my lawnmower explodes, that's the sort of thing a jury can wrap their heads around- and it's certainly more cost effective for consumers that every new lawn mower design doesn't have to go through an expensive pre-approval process. When it comes to drugs and medical devices, there is a lot to be said in opposition to pre-approval expenses, however, there's little argument that trained experts are in a better position to evaluate safety than untrained jurors.

The real problem with drugs is actually two-fold. It's not just the complicated science involved, but there's the simple fact that all drugs react differently for different people. We all know the wide array of potential side effects associated with both prescription and over-the-counter drugs, but the truth is, we also know from personal experience that most of those side effects are not common. And there lies the problem- how do you weigh the risks and benefits of a drug (or a medical device for that matter) to the population as a whole, when the risks and benefits can vary individual by individual? The FDA struggles with this, so it's hard to imagine a jury looking only at the cases of individuals highly prone to the risks of a drug can render decisions about their safety overall.

The real purpose of this post is to encourage discussion and avoid the usual sorts of overly broad arguments. I don't have a good answer to the problem as either a libertarian or a lawyer. One thing that seems certain to me is that the notion of corporate responsibility seems to be ingrained in the minds of most Americans. And by responsibility I don't mean the idea that corporations should behave responsibility but the notion that corporations should bare any and all damages that their products cause. Our legal system has leaned that way ever since the advent of strict product liability, but I think the public perception today seems to be that big corporations should be held responsible for any and all damages.

As we can see, that's a huge problem when it comes to drugs- Drugs that help some individuals may put other individuals at greater risk for for heart attacks and other medical conditions. A system that puts financial responsibility on the drug maker for any and all potential side effects has the end result of keeping such drugs off the market. So in order to prevent huge lawsuits over the side effects, the individuals truly helped by such drugs are denied access to them. Whatever your position on the political spectrum, that's not a result you should be happy with.

Clearly, there's a lot to balance here, and personally, I don't think much good is done just by pointing out the problems of one particular system- any system is going to have it's flaws. Maybe I'll have some good ideas in the future, but for now, I'm just fleshing out the issues.