Hat tip to Tyler Cowen .

Tyler comments on a post by Megan McCardle at the Atlantic about what the legal ramifications should be for drug companies' products that pass the FDA approval process. Megan's commentary was, in turn, prompted by a post by Kevin Drum at Washington Monthly .

Starting with Drum:

Kevin cites an LA Times article that talks about the possibility of an 8-1 SCOTUS ruling last month, which stated that injured patients cannot sue medical device manufacturers, being extended to cover prescription drugs too.

McArdle ponders the idea of legal immunity for FDA approved drugs: (emphasis mine)

Kevin Drum complains that "[H]aving already decided that injured patients can't sue medical device makers, the Supreme Court is likely to extend that ruling to apply to makers of prescription drugs too". Call me a crazy libertarian, but shouldn't regulatory approval get you a pass on lawsuits? I mean, obviously, if you mislead the Feds, you should be subject to criminal prosecution. But I don't understand quite why FDA approval of drugs and medical devices hasn't long provided legal safe harbor for their manufacturers. The defects that show up, such as the Vioxx and Fen-Phen problems, are discovered long after approval precisely because they're so rare that they don't show up in ordinary clinical trials. If the government experts, who are presumably highly motivated to avoid catastrophes, can't spot the danger, why do we expect the drug companies too?

I've thought about this whole conundrum before and I see the logic in McArdle's idea but I am inclined to disagree a bit. Lawsuits are a powerful incentive for drug companies to continue research and troubleshooting.

But there is a logic here on Megan's part and I am sympathetic. After all, we can argue that the FDA process is inefficient and provides distorted incentives for bureaucrats. A few complications from an approved drug are tangible results that we can point to and use to point fingers at guilty parties. OTOH, positive results for people who never get to use an unapproved drug are not tangible and do not prompt an uproar. One could point to probability statistics about the likely lives saved IF we had allowed a drug to reach patients all we want...it just doesn't have the emotion bite of REAL complications to REAL patients.....even if the those helped would outnumber those hurt by a factor of 10 to 1. That tangible "ONE" triggers more reaction than the hypothetical "TEN". With that in mind, we can argue that Megan has a valid point. If the FDA sees fit to approve a drug under these pretenses, it shouldn't be the drug companies' fault if some people slip through the cracks...after all, the FDA approved the damn drug...BLAME THEM.

But therein lies the problem. If the legal mechanism pushes all the liability or blame on the FDA, the bureaucratic process will grind down to an even slower and more overcautious process....a slow process many are already in inclined to complain about. This type of legal immunity would actually make it worse and much more corrupt. Now blame becomes political rather than legal...and that's never good. Ask any libertarian :). As always, a "property rights POV" helps clarify the matter. A drug is the property of the drug company. It's there right and burden to assume all the benefits and and responsibility of their efforts (which is their property).

We simply cannot trust the commons (the FDA and its bureaucrats) to do a good enough job here. Cowen makes this point and I agree.

If we were to incorporate any half measures (never a great idea, BTW), limited liability is a decent option. A cap on lawsuit compensation...one that is high enough to make drug companies mindful while being low enough to not pass along too much cost to everyone else and future delay is a plausible idea. But again, I shutter with trepidation as I write this because the parameters I just set could be (more like WILL be) wrought with unforeseen problems that arise from a clumsy one-size-fits-all rule-set for a complex and varied matter. But of course, this isn't perfect either. Nothing ever is.

One idea that is worth exploring is to have zero-liability for drugs that are in the approval process. A dying or desperate patient should have the right to accept a possible life-saving or helpful drug that has not been approved. They simply understand that this drug has not gone through proper number of trials and assume full responsibility of its use. That's perfectly fair in IMO. The possible problem here is that drug companies may end up, somehow, trying to keep more drugs in the FDA approval process! Maybe. I don't know.

Of course, all this still involves a public court system so we can't just expect things to happen "naturally".

Dicey stuff.

For his part, Cowen, though he admits he has no iron-clad view on the matter, offers three cursory and non-binding rebuttals to Megan's idea:

1. We simply can't trust the bureaucrats to find the flaws with drugs. But note this is inconsistent with both the rhetoric of FDA defenders ("the FDA can work") and FDA critics, who argue we are overinvesting in drug safety as it is.

2. Lawsuits encourage the companies to look for problems once a drug is already approved. Regulation does not.

3. People need lawsuits as a way of emotionally striking back. If they are denied that privilege, they will demand ridiculously oversafe levels of regulation in the first place. In this view regulation is as much about building consumer confidence in a health care system as it is about protecting people.

Good points to consider on a truly complicated topic. I tread lightly.