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Product Liability and Medical
Device Regulation:
Proposal for Reform
SUSAN BARTLETT FOOTE
The revolution in medical device technology in the last two decades
has not occulted in a policy vacuum. This paper focuses on two very
different and comprehensive public policies product liability and
regulation that have emerged in response to the growing availability
of medical devices. Congress passed the Medical Device Amendments
of 1976 (P.L. 84-295; 90 Stat. 539 [codified at 21 U.S.C. 360cI) to
promote the safety of new technological products. Since that time,
there has been an increasing number of product liability cases in state
courts, including lawsuits against medical device manufacturers.
The goals of product liability are broader than those of regulation,
and include compensation of individuals, deterrence of unsafe products,
and punishment of socially irresponsible firms. Although both systems
reflect deeply held American values, neither has fully achieved its
goals. Moreover, medical devices are subject to these two regimens
simultaneously; serious distortions have occurred as the two interact.
Both systems have been controversial and have generated heated
debate, and proposals for reform have proliferated in recent years.
This paper presents an analytical framework from which the strengths
and weaknesses of product liability and regulation, as they affect
medical devices, can be appraised. The framework is premised on two
observations: First, the values underlying product liability and regu-
lation serve both individual and social functions. The primary goal of
individuals is to receive compensation for product-related injuries.
Plaintiffs initiate lawsuits because they may offer the only source of
money to cover expenses related to their injuries. Tort law also has
73
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CURRENT TRENDS
social functions, which include punishment of irresponsible producers
and deterrence of future harmful actions. Regulation benefits society
by deterring the production or use of unsafe products, mandating
disclosure of information, and punishing irresponsible corporations.
Much of the dissatisfaction with product liability and regulation as
they relate to medical devices arises from inefficient allocation of these
individual and social functions.
The second fundamental observation is that medical devices should
be distinguished from other consumer products for purposes of policy
reform. Medical devices present unique issues, and their special nature
led to the passage of medical device legislation. Drugs and devices are
the only consumer products subject to intense scrutiny through a
federal agency such as the Food and Drug Administration (FDA).
(Although there are many similarities between pharmaceuticals and
medical devices, it is beyond the scope of this paper to analyze drug
issues.)
In addition, medical devices are an integral part of the health care
system that provides essential services to the American public. All
policies that directly or indirectly affect medical devices must acknowl-
edge their impact or the health care system as a whole. For example,
if product liability suits raise the costs of particular products, this
result must be evaluated against the public's demands for widespread
access to advanced medical technology and the real cost constraints
that government and third-party payers face.
Effective policy reform requires an understanding of the individual
and social functions underlying product liability and regulation gen-
erally, and in relation to medical devices specifically. The framework
presented here offers justifications for these fundamental distinctions
and sets the stage upon which the specifics of policy reform for medical
devices can be debated.
INDIVIDUAL AND SOCIAL FUNCTIONS:
THE LIMITS OF REGULATION AND PRODUCT LIABILITY
The primary purpose of federal safety regulation is to deter behavior
that unacceptably imperils the general public (Breyer, 1982; Lowrance,
19761. The Medical Device Amendments of 1976 are a classic example
of social regulation. Congress authorized the FDA to regulate all
medical devices to ensure that these products were safe and efficacious
(21 U.S.C. 360c). The law created a three-tiered classification scheme;
only devices that pose the most significant safety risks must meet
premarket approval standards equivalent to new drugs. However, all
medical devices are subject to general controls during production and
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PRODUCT LIABILITY AND MEDICAL DEVICE REGULATION
75
after the product has entered the stream of commerce. These controls
include the federal government's power to order recalls, notification
of defects, and repair. Because of the difficulty of uncovering all
device-related problems before marketing, the authority to acquire
information on medical devices in the marketplace and to respond to
newly discovered public health risks is a critical FDA responsibility.
The medical device law has been in place for over a decade.
Implementation of the law has not been without controversy: Congress
expressed dissatisfaction with FDA's commitment to device regulation
in 1983 (U.S. Congress, 1983~. Bills to improve the law have been
proposed (U.S. Congress, 19861. Although the basic premises of the
legislation are sound, problems have arisen because of limited regu-
latory tools primarily postmarket surveillance constraints, shifting
political philosophies that have led to inconsistent enforcement, in-
sufficient financial resources at FDA, and some cumbersome proce-
dures, particularly in the area of standard-setting.
Unlike the purely social functions of regulation, tort law has a more
diverse mandate. Generally defined, tort law encompasses civil wrongs
where one person's conduct causes injury to another in violation of a
duty imposed by law (Kionka,.19771. The principles of tort law
developed within the common law tradition, evolving through state
court judicial decisions. In the context of product liability, tort law
encompasses both negligence, based on fault, and strict liability, which
is premised on no-fault principles (Prosser and Keeton, 19841.
It is generally agreed that tort law has three major functions. A
primary goal of every product liability suit is to compensate deserving
victims of accidents by awarding compensatory damages. These
damages can include economic losses such as medical expenses or
lost wages, and noneconomic losses such as pain and suffering. This
is tort law's response to individuals.
In addition, tort law seeks to deter socially undesirable conduct. In
the context of medical devices, the goal is to prevent the production
of unsafe products that cause harm (Sugarman, 19851. This goal benefits
society generally, not injured individuals. Implicit in the concept of
deterrence are notions of justice. In some instances, tort law punishes
individual corporations for socially unacceptable behavior by seeking
redress. In a civil system, such punishment occurs through assessment
of punitive damages.
Finally, there are traditional economic justifications for tort law;
these also benefit society generally. First, resources are allocated
efficiently by attributing the social costs of accidents to those who
"cause" them for example, irresponsible corporations. Alternatively,
tort law may spread the costs of accidents widely to mitigate the rise
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in prices that would occur as the costs of harm are internalized
(Calabresi, 19701. If the legal system is efficient, both individual and
social goals of tort law will be met.
Tort law, however, fails to meet these goals generally, and fails to
meet them in relation to medical devices specifically. Admittedly, this
conclusion is drawn on what is generally recognized to be limited
statistical data (American Bar Association, 19871. Information on
product-related injuries is sketchy because injuries may go unreported.
Lawsuits may provide additional facts, but over 90 percent of such
suits are settled out of court; insurance information on settlements is
not public information. Trial court rulings are not generally reported-
only appellate opinions are widely available. Although there is some
dispute regarding the actual state of affairs in tort law, we do know
that insurance rates, the number of cases filed, and the amount of jury
awards have all been rising in recent years (Peterson, 19871.
Product liability law has had an impact on medical device users and
producers. Improvements in FDA's reporting system have led to
increases in notifications of potentially hazardous device-related inci-
dents, although severe underreporting still exists (General Accounting
Office, 19861. Recalls of medical devices have been rising as well.
Costs of liability suits have been directly responsible for at least one
bankruptcy (A. H. Robins Co., producer of the Dalkon Shield), and
some firms have left medical device fields because of liability costs,
for example anesthesia device producers and vaccine manufacturers
(Rordamor, 19841.
Though incomplete, sufficient information exists to draw general
conclusions. First, product liability does not compensate victims of
accidents fairly or equitably. Studies show that arbitrary factors such
as geography (Danzon, 1984), quality of lawyers, and wealth of
defendants result in similarly situated plaintiffs receiving very different
awards (Fleming and Sugarman, 1980; Sugarman, 1985~. A capricious
relationship has been shown to exist between the amount plaintiffs'
recover and the seriousness of their injuries (Fleming and Sugarman,
19801.
The legal system also exacts a terrible toll on injured people because
of long delays between injury and recovery and the risk of no recovery
after protracted litigation. Injured people receive lump sums instead
of payments as they need them. Sugarman (1985) has argued persua-
sively that, when plaintiffs are compensated, tort law compensates
them in a whimsical, arbitrary fashion, similar in many respects to a
lottery.
Compensation of individuals for device-related problems illustrates
these general observations. First, similarly situated plaintiffs in mass
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PRODUCT LIABILI7'Y AND MEDICAL DEVICE REGULATION
77
tort cases—for example, the Dalkon Shield, pacemaker, and toxic
shock/tampon suits received vastly disparate awards. The awards
often depended upon when the action was filed and where the case
was brought.
Second, producers view the product liability system as unpredictable;
it can as easily deter the production of desirable products as discourage
undesirable ones (Eads and Renter, 19831. In the area of health-related
products, valuable innovations have been lost or delayed. Critics point
to areas of contraceptive research, vaccine development, and anes-
thesia devices as having been particularly affected by unpredictable
liability consequences (Galen, 1986; Rordamor, 19841. Additionally,
conflicting rules among the 50 states exacerbate the uncertainty of the
liability system. It is no wonder that firms treat liability as "random
noise" (Eads and Reuter, 19834.
This is a particular problem under strict liability, which holds a
manufacturer liable even in the absence of fault. In Greenman v. Yuba
Power Products, Inc.~i the California Supreme Court extended strict
liability to product-related injuries for the first time. Applying the
principles in a later case, Barker v. Lull Engineering,2 courts found
products defective if they fail to perform as safely as the user would
expect, or if the defendant cannot prove that the benefits of the design
outweigh the risks. The Restatement of Torts, a compendium of the
views of leading legal scholars, recommends limiting application of
these principles to products that pose generic risks so-called "una-
voidably unsafe" products3 and cites vaccines and drugs as examples
of such products. Some state courts have consistently upheld this
exception to strict liability; others have not. In Beshada v. Johns-
Manville Products Corp.,4 the New Jersey Supreme Court held that a
state-of-the-art defense is irrelevant for strict liability; manufacturers
are responsible for failure to warn of dangers that were undiscoverable
at the time of manufacture.
While there continues to be uncertainty among the jurisdictions on
this issue (Page, 1983; Schwartz, 1985), there is also uncertainty within
certain states. For example, the California appellate courts have been
inconsistent in regard to medical devices. In the most recent case
involving the drug diethylstilbestrol (DES), Brown v. Superior Court,5
the appellate court held that strict liability does not apply to drugs
with unexpected side effects. Thus, plaintiffs could only use a theory
of negligence to sue the producer. However, in West v. Johnson &
Johnson,6 a case involving toxic shock syndrome related to the use of
tampons, the court allowed the victim to use the "consumer expec-
tation" test derived from the Barker v. Lull Engineering2 principles
of strict liability. The court did not address the question of whether it
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is proper to use this test when the danger was unknowable at the time,
as the defendant company argued. Nor is there discussion of whether
the recommendations of the Restatement of Torts might be restricted
to drugs and vaccines, and therefore be inapplicable to medical devices.
The point, however, is clear: There is uncertainty for medical device
producers in the liability system.
In addition to compensating individuals for device-related problems,
product liability suits may also seek to punish corporations for egregious
behavior through the imposition of punitive damages (Mallor and
Roberts, 19801. Studies document a growing tendency to award punitive
damages in product liability cases (Peterson, 1987; but see Daniels,
19861. An interesting anomaly occurs, however, because of the mingling
of individual and social goals in tort. Litigation involves disputes
between an individual and a producer. Traditionally, court awards
simply transfer damages, including any punitive damages, from the
defendant to the plaintiff. Thus, some plaintiffs receive windfall awards
in addition to the monetary damages intended to compensate them
fully for their injuries. Critics question the merits of a system that
"punishes" a company by conferring these monetary judgments on
fully compensated individuals. Punitive damages have been awarded
in a number of highly visible device cases: $3 million against an
anesthesia device producer (Airco v. Simmons First National Bank),7
$1.35 million against a tampon producer (O'Gilvie v. International
Playtex)8 and several million dollars against A. H. Robins, the producer
of the controversial Dalkon Shield (Schwadel, 19851. One can argue
that there should be mechanisms to chastise certain producers, yet
can question whether this particular tool is efficient or rational.
Finally, there is little dispute that tort law is inefficient. Transaction
costs have been described as "fabulously expensive" (Sugarman,
19851. Generally, less than half of the premiums paid for liability
insurance go to compensation. The Inter-Agency Task Force on
Products Liability estimated that 40 percent of premiums go for
underwriting expenses and profit and 20 percent of premiums go for
loss-adjustment expenses; this leaves only 40 cents of every premium
dollar available to compensate victims (cited in Fleming and Sugarman,
[19801~. Economists have argued that these costs should be internalized,
and the cost of accidents should be reflected in the price of a product
or activity. Products or activities with higher accident rates will
therefore be less attractive in the marketplace. But medical devices
are part of the health care system and are not part of a free market
system. Much of the costs of medical devices will be borne by public
payers, private insurers, of- employers. Moreover, it is frequently
impossible to assign, and therefore internalize, accident costs to a
specific product. It has been noted that:
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PRODUCT LIABILITY AND MEDICAL DEVICE REGULATIO1Y
79
[I]n the case of a dangerous drug, not only would the drug in all likelihood be
totally withdrawn from the market after its risks have been discovered but the
cost of compensation would in any event probably be spread among all or
most other products of the particular manufacturer, with the result that the
consumers of the safe drugs would in eject be bearing the accident costs of
the dangerous drug. In a theoretical free market, this "externalizing" of the
cost might be blocked, but often and prescription drugs is a good example-
such a hypothesis is wholly unrealistic (Fleming and Sugarman, 19801.
Finally, uncertainty costs are a fundamental element of inefficiency.
The tort system carries great uncertainty for producers. As Fleming
and Sugarman persuasively wrote, tort encourages investment in
litigation rather than investment in safety.
DISTORTIONS CAUSED BY INCONSISTENCIES BETWEEN
REGULATION AND PRODUCT LIABILITY
Supporters of the present product liability system may argue that,
in the absence of alternatives, a flawed compensation system is better
than none at all. Justifications for retaining the present liability system,
however, weaken in the face of distortions caused by interactions
between regulation and product liability. In theory, there is no conflict
between the goals of product liability and regulation generally, or in
relationship to medical devices specifically. Although their institutional
structures and mandates are quite different, both tort and regulation
seek to deter the production or use of unsafe products. Tort law has
the additional goals of compensation and punishment. In practice,
however, the interplay between these two institutional regimens creates
tensions that can undermine the success of each.
Every well-intentioned producer wants to make a "safe" product.
The conclusion that a particular product is "safe" is a value judgment
(Lowrance, 19761. Once the risks of a product are measured, it will
be considered "safe" only if the risks are found to be "acceptable"
when weighed against the benefits. The problem facing producers is
that a regulatory evaluation of safety is very different from a judicial
one.
The FDA, as regulator, is concerned with public health; its focus is
on broad social policy. Scientists on the agency staff aided by advisory
panels of independent experts—evaluate products prospectively. The
agency does have some postmarketing remedies if defects are later
uncovered, but these remedies do not involve compensation for harm.
Product liability cases are initiated by individuals whose primary
interest is compensation for their injuries. This view is retrospective;
the harm already has been incurred. The opportunity for compensation
is contingent on a finding that the product is unsafe, and there is
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enormous pressure for the court to make a finding in order to
compensate. It has been noted that "in demanding such explanations,
tort lawyers may press scientists beyond their capacity to provide
answers" (Abraham and Merrill, 19861. The intensely individual func-
tion of product liability is reflected in the nature of the jury system: a
jury of one's peers, confronted with an injured individual and a faceless
corporation, may press for a conclusion of liability in order to
compensate.
Product liability law also requires that the allegedly unsafe product
cause the harm. The pressure to compensate an individual encourages
judicial decision makers to link the harm and the product, resulting in
rules of evidence that substitute "legal sufficiency" for scientific
certainty. This was recently illustrated in Wells v. Ortho Pharmaceu-
tical Co.,9 in which the court held:
A cause-effect relationship need not be clearly established by animal or
epidemiolog~cal studies before a doctor can testify that, in his opinion, such
a relationship exists. As long as the methodology employed to reach such a
conclusion is sound, . . . products liability law does not preclude recovery
until a "statistically significant" number of people have been injured or until
science has had the time and resources to complete sophisticated laboratory
studies of the chemical.
Law turns scientific method on its head. As the New York Times
editorialized: These "decisions are of great concern to the medical
community because they indicate that the courts will not be bound by
reasonable scientific standards of proof" (New York Times, December
27, 1986~. Deviation from scientific principles also occurs because
decisions are made by laypersons the judge or jurors.
Differences between concepts of regulatory and legal safety are
acknowledged by the treatment of regulatory conclusions in court. It
is well accepted in most jurisdictions that "mere" compliance with
federal or state regulations does not preclude a jury from concluding
that the product is unsafe, either because the design is defective or
the warnings inadequate (Ferebee v. Chevron).~° Courts may draw
these conclusions even if the FDA has mandated the precise language
in the warning labels and has determined that the product is safe and
effective. Even where states have interpreted case law to mean that a
medical product that meets FDA requirements is not defective for
purposes of strict liability, one trial lawyer asserted that "an effective
presentation can be made in court that the FDA's standards for medical
devices do not preclude recovery since they are so ineffectual as to
be virtually meaningless" (Ramsey, 19861. Many jurisdictions treat the
failure to comply with any FDA requirements as per se negligence. In
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PRODUCT LIABILITY AND MEDICAL DEVICE REGULATION
81
essence, there are no positive incentives for producers to comply fully
with FDA requirements. Compliance provides no protection in a court
of law.
In addition, the unpredictable judicial climate undermines the FDA's
goal of disclosure of information, particularly once the product has
entered the stream of commerce. Although manufacturers are required
to report adverse reactions, health care providers report such reactions
on a voluntary basis. And information submitted to the FDA is never
rewarded; the company faces enormous risks upon reporting. For
example, plaintiffs' attorneys often can acquire reported information.
Rather than encouraging a free and frequent flow of information,
including information that may ultimately prove that a product is not
defective, the opposite occurs (General Accounting Office, 1986~.
While the public should not be foreclosed from access to information
on risks, this must be balanced against the need to encourage a free
flow of information that can be used to make effective public health
policy. Scientific improvements and protection of public health depend
upon information; yet, providing such information in a volatile liability
environment may be more threatening to producers than would non-
compliance with FDA reporting requirements.
This problem is exacerbated by the fact that product liability law
does more than merely compensate. In the name of deterrence and
punishment, individual plaintiffs may receive windfalls in the form of
punitive damages that are intended to serve a social function. But the
social goal of information gathering is threatened by pressure from
individuals and their lawyers for compensation. These inconsistencies
could be reduced if the compensation function now served by tort law
were separated from the broader social functions poorly served by
inconsistent tort and regulatory principles. In the process, we might
develop more efficient mechanisms for meeting both individual and
social goals.
MEDICAL DEVICES AS A SPECIAL KIND OF CONSUMER
PRODUCT: A FRAMEWORK FOR APPROACHING REFORM
At present, medical device regulation and product liability rules
have inefficiently and ineffectively addressed both the individual goal
of compensation and the social goals of deterrence and punishment.
Realignment of the responsibilities of regulation and product liability
will lead to a better fit between the desired goals and the processes
by which they can be achieved.
But to accomplish this, medical devices first must be distinguished
from other consumer products. There are two compelling reasons to
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make this distinction. First, medical devices are an integral part of the
health care system. Any policies that affect devices ultimately affect
health care. As we have seen, imposition of costs on particular products,
especially in the inefficient manner provided for by the court system,
will raise the prices of these products, classes of products, or products
produced by particular firms. Because 40 percent of all medical
technology is paid for by the government, higher product prices may
convict with federal efforts at cost-containment. Higher prices also
may reduce the availability of desired products and impede their
diffusion to all who need them. Ignoring the interface between medical
devices and medical care is short-sighted and, in the long run, may
reduce innovation and be destructive to values of access and equity.
A second justification for realignment is the presence of the FDA.
The regulatory authority of the FDA is clear testimony to the fact
that, as a society, we consider devices qualitatively different from
other consumer products. For decades, the FDA has played a crucial
role in protecting the public health through regulation of drugs and
devices. Given its size, expertise, and jurisdiction, reform proposals
should take advantage of the FDA's unique potential to protect health
and safety.
A number of proposals to change various aspects of regulation and
tort have been presented. While some contain interesting features,
none address the unique problems of medical devices or acknowledge
the importance of both social and individual values inherent in regu-
lation and tort, and the tensions between them.
Although deregulation has been a rallying cry in recent years, no
one has seriously called for dismantling FDA regulation and substituting
exclusive reliance on tort. If anything, there has been pressure for
more and better regulation. FDA received a scathing review of its
performance in a congressional report in 1983; the House Report
accused FDA of "cavalier disregard for potential consequences" and
"bureaucratic neglect for public health and safety that shocks the
conscience" (U.S. Congress, 19831.
However, there has been significant activity at both the federal level
and among the states to alter product liability rules. Congress has held
many hearings on the issue, and a number of bills have been introduced
during the 1980s (Foote, 19861. In these proposals, manufacturers of
all types of products have sought to limit their liability exposure.
Consumer groups have generally opposed these efforts.
Pharmaceutical and medical device manufacturers, however, are
subject to FDA requirements designed to protect public health. The
Pharmaceutical Manufacturers Association (PMA) and the Health
Industry Manufacturers Association have lobbied for provisions that
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PRODUCT LIABILITY AND MEDICAL DEVICE REGULATION
83
recognize the conflict between regulatory policy and tort. PMA pro-
posed a government standards defense, arguing that the process of
premarket approval for new prescription drugs and other regulated
products should be an acceptable defense for both compensatory and
punitive damages in a tort case (Health Industry Manufacturers
Association, 1985; Pharmaceutical Manufacturers Association, 19861.
However, these proposals overlook the widely held public belief that
people are entitled to compensation for harm, particularly harm caused
by negligence. Individual citizens may oppose the trends in tort law
without compromising a belief in some form of compensation. And,
unlike all other industrialized societies (many of which have more
restrictive tort rules), the United States has no comprehensive social
insurance net for injured victims other than for workers injured on the
job. In the absence of alternative mechanisms to compensate, proposals
to limit compensation through the tort system appear self-serving and
are politically unrealistic.
Some reformers, recognizing the general limitations of product
liability, have proposed comprehensive accident compensation plans
similar to those in New Zealand and other Western countries (Sugar-
man, 19851. These proposals would protect the value of compensation
for individual harms and may be feasible. Given the federal deficit,
however, the uncertain costs of new widespread compensation pro-
grams of this magnitude make them politically impractical. Yet it can
be argued that more limited alternatives addressing health care issues
may be essential to protect health care delivery, even if only as interim
solutions.
Other reformers have proposed substituting private sector initiatives
for public solutions, such as trading contract rights to sue (O'Connell,
19841. While these proposals may be intrinsically interesting, there
appears to be no significant support for eliminating the government's
role as guardian of public health and safety.
It is my view that we need new, creative approaches to medical
device policy. The following proposal incorporates the fundamental
principle essential to rational reform: Individual and social functions
need to be decoupled in a framework that treats medical devices as a
special kind of product. Within this boundary, the discussion will
identify the areas in which further debate must take place.
Overview of Reform Proposal
Figure 1 illustrates the broad contours of a proposed institutional
realignment. First, three stages are described that provide a road map
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FOOD AND DRUG ADMINISTRATION
Premarket Postmarket
Safety/ Update safety
efficacy data
review Remedies
Develop incentives .... Expand jurisdiction ..
to foster compliance . .. and incentives for reporting..
Injury claims
1 1'
Theory of compensation
Awards
Source of $
Procedures
FIGURE 1 Proposed institutional realignment.
CURRENT TRENDS
:::::::::::;
~::~:::'
Compensation
Board
Actions against companies
(redress / deterrence)
Administrative or
judicial
Civil penalities or
criminal penalties
$ Judgments
Fines
Imprisonment
for reform. Issues that will need to be resolved in each stage also are
identified.
At stage 1, FDA would retain its present premarket and postmarket
authority over medical devices. In addition, incentive systems would
be developed to foster compliance with FDA regulations and to improve
the flow of information to the agency. FDA would thereby retain its
important social function of protecting the public health by regulating
all medical devices.
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PRODUCT LIABILITY AND MEDICAL DEVICE REGULATION
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Stage 2 creates a new administrative mechanism for compensating
individuals harmed by medical devices. A Compensation Board would
receive injury claims from individuals. This board would have access
to the FDA data and expertise. The purpose of this compensation
scheme would be to provide uniform, expeditious, and equitable awards
for individuals injured by medical products and to separate compen-
sation of individuals from other social goals.
Stage 3 creates new mechanisms for meeting the social goals of
redress and deterrence. Individuals would no longer have the right or
the responsibility to redress social grievances through the product
liability process. The FDA, the agency entrusted with protecting public
health, would bring claims against corporations for corporate behavior
determined by law to be socially irresponsible. Like the Securities and
Exchange Commission, the FDA would become the watchdog for
society at large.
The Stages Described: Issues for Debate
Stage 1
During stage 1, FDA would retain the general contours of its present
mandate. However, several reforms could resolve some of the existing
tensions within the liability and regulatory systems. New rules would
be designed that provide positive incentives (in addition to the negative
sanctions) for complying with FDA procedures, both before marketing
and after approval. Thus, companies would benefit from fully coop-
erating with FDA. The public also would benefit from more timely
and complete information on medical device hazards. The positive
incentive for compliance with FDA during stage 1 would be the creation
of a defense to, or a bar against, actions for redress at stage 3. Thus,
companies would know that no punitive damage awards or other civil
or criminal penalties would be assessed if they comply with the FDA.
However, compliance would not prevent injured parties from receiving
compensation at stage 2, if all the requirements of that process were
met. In summary, rules would be drafted that provide greater certainty
to producers, better information, and increased compliance (more
safety), with little increased regulatory costs. With greater certainty,
liability insurance may be cheaper to purchase, and some companies
with conscientious compliance systems might even be willing to self-
insure, knowing that their liability would be limited to compensation
claims.
One issue to consider at stage 1 is the possibility of extending FDA
mandatory reporting requirements to health care providers. While
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providers are most likely to know of defects in, or problems related
to, medical devices, they now are not required to report them to the
FDA. The threatening liability environment discussed in relation to
manufacturers also applies to physicians and other providers. The
absence of good provider data is a weak link in the FDA information
bank and is illogical if accurate information is the goal. However, this
proposition would involve the federal government even more deeply
in decisions of health care providers, and could prove excessively
burdensome.
Stage 2
Stage 2 makes a major change in the present compensation process,
shifting compensation decisions from the courts where it is inappro-
priately imbedded in social policy and burdened with inefficient
processes to an administrative federal agency. The challenge is to
create a system that is faster, fairer, and more efficient than the present
one. Several major issues need to be resolved.
First, who decides? The Compensation Board must be an expert,
independent, and diverse body that would administer the rules credibly.
There are many possible models. For example, the Federal Trade
Commission (FTC) has established an autonomous body of adminis-
trative law judges that have expertise in FTC policy but are independent
of FTC policymakers. A similar semi-independent board could be
established with access to FDA data and FDA expertise.
The individuals on the Compensation Board could develop expertise
over time, as do hearing officers for the Social Security Administration
and the FTC, and could be assisted by an advisory board established
to review decisions (see Figure 21. There are a number of models for
such an advisory board, including the Prospective Payment Assessment
Commission, which is a 15-person permanent independent commission
with members representing various sectors of the health care industry.
FDA itself has significant experience in the management of technical
advisory panels that assist in FDA decisions.
The second issue to be resolved is what the Compensation Board's
operative theories of compensation will be. Elements of the compen-
sation theory include principles for compensation, types of awards,
and sources of funds for these awards. The goal would be to provide
some monetary recompense for injuries caused by medical devices.
Debate will center on whether the system should be no-fault, like
workers compensation, or fault-based, like negligence law. There could
be a blending of the principles of compensation with the nature of the
awards. For example, if the injury were generic to the product and
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PRODUCT LIABILITY AND MEDICAL DEVICE REGULATION
-
Compensation Board
Structural issues
Independent
Expert
Diverse
Individual claims
Compensation Claims
Process
1. Theory of compensation
- Fault/no-fault
Compensation
\ Redress/
ice
\
- Awards/economic
noneconomic
- Source of funds
industry-wide
individual companies
public funds
2. Procedures
- Written claims
- Open hearings
- Health advocates
- Lawyers
- Appeals
Actions to Redress or
Deter
1. Who initiates
2. Theories of redress
3. Procedures
- Administrative
- Judicial
4. Remedies
FIGURE 2 Proposed Compensation Board, shifting compensation decisions from the
Courts to an administrative federal agency.
not based on fault, the award could be for economic losses only (i.e.,
medical costs, lost wages, etc.), with reductions for medical payments
covered by insurance. Under a fault principle, the award could be
higher and could include other losses such as pain and suffering. At
no point would there be awards for punitive damages in stage 2,
because these awards serve a purely social, not an individual, function.
It is important to remember that the entire theoretical structure can
be designed to balance the goals of compensation with the competing
values of access and cost-containment for all individuals.
Development of appropriate theories of compensation and the
87
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CURRENT TRENDS
procedures to implement these theories would be the most challenging
tasks. If the system is fault-based, the language and processes of law
inevitably would enter the system. At worst, the tort system would
simply be replicated in a new forum. On the other hand, a no-fault
system raises the spectre of excessive claims, possibly including efforts
to transfer injuries caused by user error (still subject to the tort system)
to the product in order to take advantage of the cheaper and more
streamlined administrative process. Further work is clearly necessary
to resolve these concerns. The success or failure of proposals of this
type depends, to a large extent, on careful articulation of the theory
of compensation for harm.
The third issue to be resolved concerns the source of funds. There
are several alternatives. For example, no-fault awards could be paid
from general industry contributions based on assessed fees (size of
company, dollar amount of sales, etc.~. This would spread the costs
of unexpected adverse reactions as widely as possible across the
medical devices industry. An alternative would be to establish a public
fund, perhaps supplemented with private money, for unintended,
unexpected adverse reactions (in effect, a public-private partnership).
In either case, individual firms would be responsible for any injuries
that are determined by the Compensation Board to be the firm's fault;
the board could bill them for awards assessed against them during a
given calendar year. Proceeds from any civil liability assessed at stage
3 could be added to the fund and used to defray administrative costs.
The Compensation Board would administer the medical device com-
pensation fund, paying successful claimants on a continuing basis
rather than with a lump sum, when appropriate.
The final issue to be resolved in stage 2 is the procedures that will
be used by the Compensation Board. Claims could be in the form of
written petitions or hearings. Written petitions would be cheaper to
process than public hearings and may be sufficient for most, if not all,
claims. The important point would be to reduce or eliminate legal
aspects of the compensation process and concentrate on medical
issues. This would be a medical, not a legal, inquiry. Primary data
would include the facts of the case; medical records; and sworn
affidavits of injured individuals, witnesses, and medical device man-
ufacturers. One could argue that judgments should be based only on
scientific principles of cause, but such a requirement may preclude
recovery for significant numbers of individuals. Once again, policy
trade-offs would be crucial; how much money can or should we commit
to these claimants, given the overall impact on the costs and concom-
itant availability of health care? A system that limited compensation
too narrowly would be opposed by consumers; a system that paralleled
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PRODUCT LIABILITY AND MEDICAL DEVICE REGULATION
89
too closely the tort system would not be an improvement. Unlike the
uncertainty of the tort system, however, rules of procedure for the
Compensation Board could be carefully developed in advance, bal-
ancing the needs of the individual against the impact on corporations
and the health care system as a whole.
In developing institutional structures, several critically important
issues must be kept in mind. First, the goal is equitable, efficient, fast,
and fair compensation. Elimination of unnecessary procedures, de-
velopment of rules of compensation and schedules for multiple claims,
and streamlining and simplifying the process are all important. The
overall need is to develop a compensation system that can satisfy the
public's need for compensation for harm without compromising the
important values of medical device innovation and health care access
and distributional equity.
Stage 3
Redress of grievances fulfills a social function. The criminal law
system illustrates this point. Victims of crime cannot punish the
perpetrators; prosecution and punishment are public functions. Simi-
larly, it can be argued that the FDA, as guardian of the public health,
should have an exclusive right of action against companies that deserve
additional sanctions beyond compensating injured individuals. This
proposal raises several issues: Can the FDA be trusted to bring cases
against regulated industries? Agency inaction when action is appro-
priate would undermine the important goals of deterrence and redress.
Although the FDA has not demonstrated such tendencies, implemen-
tation of new regulatory tools is always somewhat unpredictable.
Various mechanisms could be created to encourage the FDA to take
appropriate action. For example, a unanimous Compensation Board
recommendation to pursue stage 3 sanctions could automatically trigger
them. The commissioner of the FDA, or the secretary of the Department
of Health and Human Services, could have the discretion to bring
sanctions. Individuals and public interest groups could petition the
agency to act; however, they would have no individual right of action.
If a decision were made to pursue redress in a particular case, what
actions would be available? Although the FDA has no civil remedies
now, several reform proposals in the past have considered conferring
this power on the agency. A civil action could be based on allegations
that the company had engaged in fraud, misrepresentation, or willful
endangerment of the public health. Such an action could generate large
monetary fines that could be transferred to the Medical Device Trust
Fund and used to defray compensation costs. In addition, the FDA
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could expand its present criminal sanctions so that individuals within
corporations might also receive criminal punishment for wrongful
actions, including imprisonment or fines. (There is a significant body
of literature that discusses the difficulties in deterring corporate
malfeasance and punishing corporate bad actors [Metzger, 19841.)
In general, the FDA would act to defend public health and safety
much as the Securities and Exchange Commission acts in the public
interest. The social goals of deterrence and redress are most appro-
pr~ately protected by a public, not a private, entity.
CONCLUSION
There are several important values that undergird the tort system
and medical device regulation. The appropriate test for evaluating
existing systems is not whether they achieve one goal, such as
compensation, but whether they best achieve a combination of goals,
including deterrence and redress, compensation, and efficiency. These
goals must be achieved within the context of the health care system
as a whole, recognizing the additional values of widespread access to
care at reasonable cost and support for innovative technology. The
framework developed here distinguishes the individual and the social
functions of these two systems, realigning them to achieve an efficient
process and to facilitate the attainment of the defined goals. This can
only be accomplished if medical devices are considered separate from
other consumer products and are viewed as an integral part of the
health care system. If we do not address the significant limitations of
the present tort and regulatory policies in the near future, we may find
ourselves making health care compromises that obstruct the values
that we intend to protect.
NOTES
~59 Cal. 2d 57 (1963).
220 Cal. ad 413 (1978).
3Restatement of the Law, Second, Torts American Law Institute.
4447 A. 2d 539 (1982).
5227 Cal. Rptr. 768 (1986).
6220 Cal. Rptr. 437 (1985).
7638 S.W. 2d 600 (1982).
8609 F. Supp. 817 (1985).
9788 F.2d 741 (11 Cir.) (1986).
~°736 F.2d 1529 (1984).
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Representative terms from entire chapter:
medical devices
