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Economic Effects of Product Liability and Other Litigation Involving the Safety and Effectiveness of Pharmaceuticals

Economic Effects of Product Liability and Other Litigation Involving the Safety and Effectiveness of Pharmaceuticals

Steven Garber
Copyright Date: 2013
Published by: RAND Corporation
Pages: 116
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  • Book Info
    Economic Effects of Product Liability and Other Litigation Involving the Safety and Effectiveness of Pharmaceuticals
    Book Description:

    Liability effects on the economic performance of the pharmaceutical industry play a prominent role in the debate about the economic effects of product liability in the United States. The author analyzes incentive effects on company decisions, implications for economic outcomes such as drug safety and effectiveness, and suggests how public policy changes could mitigate liability-based sources of inefficient decisions of pharmaceutical companies.

    eISBN: 978-0-8330-7991-6
    Subjects: Health Sciences, Law

Table of Contents

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  1. Front Matter
    (pp. i-ii)
  2. Preface
    (pp. iii-iv)
  3. Table of Contents
    (pp. v-viii)
  4. Figure and Tables
    (pp. ix-x)
  5. Summary
    (pp. xi-xvi)

    Product safety is a major policy concern in the United States, and potentially dangerous products are regulated by several federal agencies. Moreover, markets can penalize manufacturers and sellers of hazardous products by reducing demand. To further promote product safety, U.S. product sellers are also subject to product liability, which in some circumstances imposes legal obligations to compensate people injured by their products and thereby gives sellers additional financial incentives to reduce product hazards. Many product-liability proponents and policymakers point to compensation of injured product users as another worthy social goal served by product liability.

    Critics argue, however, that compensation for...

  6. Acknowledgments
    (pp. xvii-xviii)
  7. Abbreviations
    (pp. xix-xx)
  8. CHAPTER ONE Introduction
    (pp. 1-4)

    In theory, product liability can increase product safety by strengthening incentives for manufacturers or other product sellers to increase their levels of precaution (or “care”) in designing, manufacturing, labeling, and promoting their products. The economic effects of product liability, and many other forms of legal liability, play a prominent role in debates about civil justice policy, perhaps no more so than for pharmaceuticals. The purpose of this study is to improve understanding of the economic effects of several kinds of litigation brought against pharmaceutical companies in which a central issue is the safety and/or effectiveness of particular prescription pharmaceuticals.


  9. CHAPTER TWO Conceptual Framework for the Analyses
    (pp. 5-14)

    This study analyzes economic effects of several kinds of litigation involving prescription pharmaceuticals. Let’s define theliability exposureof a manufacturer associated with a particular (existing or potential) drug as comprising the probabilities and company costs associated with legal claims concerning this drug. The two major direct costs associated with liability¹ are (1) the defendant company’s payments resulting from settlements and trial judgments,² which I refer to asindemnity payments, and (2) expenditures on legal defense.3,4

    This monograph contains two kinds of analyses, namely, positive (or descriptive) and normative (or prescriptive) analyses. The positive analyses pertain to actual or potential...

  10. CHAPTER THREE The Legal and Institutional Settings
    (pp. 15-26)

    This chapter provides background about regulation and litigation involving prescription drugs that is required for the discussions and analyses contained in subsequent chapters.¹ First, I review pertinent aspects of pharmaceutical regulation by the FDA, emphasizing the distinction between regulations that apply to a drug that has not yet been approved for sale in the United States and regulations that apply after a drug has been introduced to the U.S. market. The following section reviews the basics of product-liability law pertaining to personal injuries allegedly caused by use of prescription drugs, which differs in important ways from legal doctrine that applies...

  11. CHAPTER FOUR Pharmaceutical Mass Torts During the 1990s and 2000s
    (pp. 27-46)

    I focus on mass torts to understand the incentives of drug companies stemming from product-liability exposure. This is because mass torts are fairly common for prescription drugs, they can involve extremely high costs and financial risks for drug companies, and (as a result) potential for mass torts is likely to be the predominant product-liability concern of drug companies as they make decisions.

    The previous two decades witnessed several attempts by plaintiffs’ lawyers to develop mass torts involving (alleged or scientifically established) personal injuries related to prescription pharmaceuticals.¹ Some of these attempts have succeeded from the plaintiffs’ point of view in...

  12. CHAPTER FIVE Preemption of Pharmaceutical Failure-to-Warn Claims
    (pp. 47-62)

    In November 2008, the U.S. Supreme Court heard oral arguments inWyeth v. Levine,¹ in which pharmaceutical manufacturer Wyeth petitioned the court to rule that FTW claims against drug manufacturers are preempted (i.e., precluded or barred) by federal law. Simply put, the issue is whether state-law FTW claims are allowed under federal law. If such claims were barred, then plaintiffs (with the exception of cases involving vaccines) would have no recourse because there is no cause of action available under federal law in such cases.

    Since the lion’s share of PPL cases involves, in fact, FTW cases, a ruling in...

  13. CHAPTER SIX Incentives Stemming from Other Litigation Affecting Safety and Effectiveness
    (pp. 63-76)

    To this point, we have emphasized product-liability litigation brought on behalf of individuals alleging personal injuries caused by pharmaceuticals. Some of the decisions of pharmaceutical manufacturers that determine product safety and/or effectiveness discussed in Chapter Two and summarized in Table 2.1 are also likely, however, to be affected by other kinds of litigation. I refer to such litigation, which is the subject of this chapter, as being safety and effectiveness related (to personal-injury, product-liability litigation) or simply “related litigation” for brevity. As will become clear as we go along, the first three kinds of litigation considered in this chapter (and,...

  14. CHAPTER SEVEN In Conclusion
    (pp. 77-84)

    Since 1990, pharmaceutical companies have paid out billions of dollars to defend, settle, and pay judgments in product-liability and related litigation. Looking to the future, it appears that they will remain exposed to similarly large liability costs. The future liability exposures of these companies involve legal actions brought by or on behalf of diverse parties, such as individuals suffering personal injuries, the DOJ, state AGs, consumers, TPPs, and pharmaceutical company shareholders.

    An indisputable economic downside of all forms of litigation is the associated transactions costs. Regrettably large transaction costs may be required to achieve such social goals as deterrence of...

  15. References
    (pp. 85-96)