Thoughts on Tuesday's Senate Hearing on Preemption

Following up on Ben’s post about Tuesday’s Senate HELP Committee hearing on medical device preemption, I’d like to respond to three issues that came up during the question-and-answer session.

Innovation: Senators Harkin and Hatch had a bit of a disagreement about whether the possibility of tort liability stifles innovation by medical device firms. Peter Barton Hutt, who Senator Hatch lauded as the “dean of all FDA lawyers,” noted that he sits on the board of ten small biotech firms and that “decisions made by venture capitalists based upon such issues as potential liability directly affect every one of those companies.”

Two points here. First, it is a good thing that investors take into account potential tort liability. In the context of FDA-approved medical devices, tort law simply ensures that companies are operating according to a duty of care defined by a standard of reasonableness. It is not a high bar for them to meet and as consumers we should expect companies to only develop and market products that meet that standard. Second, as CPR Member Scholar Tom McGarity told the committee, there is no strong empirical evidence to back up the anecdotal claims like those made by Mr. Hutt. In fact, almost all of the great innovation that has happened in the field of medical devices happened during a time (pre-Riegel) when the firms developing new devices were subject to potential tort liability. There is no reason to believe that a law overturning Riegel, which would put the medical device firms in the same situation they were in for decades, would suddenly make them more risk-averse than they were before.

Insurance: Senators Hatch and Burr brought up the argument that we need federal preemption to help staunch what they see as an abundance of frivolous lawsuits filed by greedy lawyers that are driving up insurance costs across the medical industry. But as Professor McGarity, CPR Member Scholar Doug Kysar, and former CPR Policy Analyst (now Assistant Professor at Loyola Law) Karen Sokol explained in a CPR white paper, rising malpractice insurance premiums have more to do with the insurance industry’s bad financial investments (among other things) than they do with having to pay claims to injured patients.

Insurance companies do not base their rates solely – or even primarily – on claim payouts. Because lag time inevitably exists between an insurance company’s receipt of premiums and its obligation to pay claims, the company invests paid-in premiums in a variety of schemes. ... Having based their premium rates on unrealistic projections of payout obligations and income from high-risk investments in relatively new companies, such as Enron and WorldCom, whose shares were increasing at incredibly high rates, insurance companies “began to double and triple the costs for doctors.” Thus, although payouts on medical malpractice claims are a component of insurance companies’ profit-loss statement, they are not responsible for the recent steep increase in insurance company losses or the subsequent increase in premium rates that companies implemented in an attempt to make up for those losses.

Devices vs. pharmaceuticals: With the Supreme Court ruling in favor of federal preemption in Riegel and against federal preemption in Wyeth v. Levine, Senator Harkin asked the witnesses an obvious question, “What is the difference between pharmaceuticals and medical devices?” Mr. Hutt provided the Senators with a description of the obvious physical differences between a drug and a device, wisely skirting the real question, which was: “Is there a rational reason that federal law should preempt state tort law in the context of medical devices but not in the context of pharmaceuticals?” The answer is no. It is dangerous to implant a new device in a patient or to take it out if it fails to work properly, so companies do not subject medical devices to significant pre-market clinical trials. (For a drug, on the other hand, the company can give it to a cohort of relatively healthy people to test its safety and efficacy. If the trial starts to show signs of too many negative side effects, they can quickly stop administering the drug and switch to a proven intervention.) FDA, doctors, and patients will always know less about medical devices when the devices are approved for the market. Though the device approval process is undoubtedly rigorous, it is not infallible, so FDA approval of a device should not prevent injured patients from getting the opportunity to argue that the company failed to meet its duty of reasonable care in developing and marketing the device.