Responses to Liability Immunization: Evidence from Medical Devices

Abstract

The Supreme Court's decision in Riegel v. Medtronic unexpectedly and immediately immunized medical device manufacturers from certain types of state tort liability. Riegel immunized manufacturers from liability if their devices had been approved through the Food and Drug Administration's most rigorous|and costly|review process, premarket approval ("PMA"). Exploiting this unanticipated decision, we examine whether manufacturers strategically respond to this new immunity. We find evidence that, following the Riegel decision, device manufacturers file more PMA applications for high risk product categories (relative to the comparable change for low risk categories), suggesting that firms are sensitive to the newly immunized risk. We additionally find evidence that physician treatment patterns with respect to medical devices also change, consistent with Riegel shifting liability away from device manufacturers and towards physicians. The analysis provides evidence that sophisticated actors respond to changes in their expected legal liability and that technical legal decisions have important ramifications for the provision of health care.

Keywords: Medical Device, Liability, FDA, Regulation

JEL Classification: I18, K13, K23