Medical Product Information Incentives and the Transparency Paradox

Abstract:     
Recent allegations that essential safety and efficacy information is often suppressed by medical product manufacturers or poorly evaluated by regulators have led to calls for greater information transparency. The public is justifiably concerned that its ability to conduct an informed risk-benefit assessment of drugs and medical devices is compromised. Several changes have already been made to federal regulatory law and medical research policy to mandate greater disclosure, and more are being considered. However, it is possible that these measures may backfire by enhancing significant tort-based economic disincentives for generating new information. In other words, greater disclosure could paradoxically lead to less information. The resulting shortfall could be extremely dangerous and have a detrimental effect on health care for years to come. This paper addresses the crisis on the horizon and proposes a unique solution that connects tort law disincentives to information production incentives. It explains why an economically rational company would be expected to respond to transparency with less information, and proposes a tort liability limitation as a solution that will encourage a cost-internalizing company to increase information production. The paper also considers the impact of the FDA's recent position on preemption along with other regulatory enhancements, and concludes that these are effective, but second-best solutions.

Keywords: FDA, products liability, tort law, regulatory law, pharmaceuticals, medical devices

JEL Classifications: K29, K14, K33, K42

Accepted Paper Series