Topic: Regulatory Studies

Regulation, The FDA, And Shortages Of Hospital Drugs

In recent weeks the press has been reporting widespread alarms about shortages of many frequently used hospital drugs [L.A. Times/Chicago Tribune, Scranton Times-Tribune, KMGH (Colorado hospitals swapping drugs in short supply), The Columbian] The drugs running short include various antibiotics, anesthetics, chemotherapy drugs and others, including many generic compounds long since approved by the federal Food and Drug Administration (FDA). “The most troubling aspect is that it is critical drugs for which there are limited alternatives. Many are involved in cancer care and surgery,” one hospital pharmacist told the Chicago Tribune’s reporter.

While a variety of factors have played a role in the shortages, including lawsuits and economic retrenchment by some drugmakers, there seems to be little dispute that one major factor is the federal government’s widely publicized crackdown in recent years on pharmaceutical manufacturing and quality-control practices, which has meant that closing down a production line or halting shipments of a drug for a while is often the only way to be sure of staying in compliance with demanding new substantive benchmarks or paperwork requirements.

The lesson? To some Senators, it’s that we need to intensify regulation yet further:

The drug shortages have gained the attention of members of Congress. This month, Sens. Amy Klobuchar (D-Minn.) and Bob Casey (D-Pa.) introduced legislation that would require drugmakers to give the FDA an early notification “when a factor arises that may result in a shortage,” according to a joint statement.

Which prompts Overlawyered commenter Greg S. to write:

In other words, when critical shortages of pharmaceuticals arise because of a tough new regulatory environment in Washington, the impulse of those in Congress is to address the problem by adding more regulations – i.e., by adding another bureaucratic compliance requirement. And how, exactly, will notifying the FDA help with the shortage? And what if the “factor” that’s causing the shortage is the FDA’s rules themselves – will the company find itself facing investigation and retaliation if it is perceived as blaming the FDA for the shortage?

The Other For-Profit College Scandal

Because the evidence of wrongdoing and evasion is so clear, and the effect has been so damaging, I have devoted a lot of pixels to the GAO’s horrendous ”secret shopper” report on for-profit colleges, as well as the stonewalling about what caused the initial report to be so biased. A potentially even bigger story, though, is what appears to be the machinations of an unholy alliance of Department of Education officials, Senate HELP Committee chairman Tom Harkin (D-IA), and Wall Street short-sellers hoping to make big bucks off the demise of for-profit schools. This Daily Caller article, and the connected video of Senator Tom Coburn (R-OK), are good places to start learning more about this, as is the website of Citizens for Responsibility and Ethics in Washington.

The problems with understanding scandals like this, of course, are trying to get the truth about things that have gone on almost entirely in real or virtual back rooms; knowing what is legal and what isn’t; and just figuring out who’s who. Such scandals also reveal little about whether for-profit schools are actually more or less effective than other higher ed sectors, arguably the main public policy concern.

What this sort of thing does start to reveal, though, is just how far out of public view policy is often made, as well as how people try to profit directly from government action. In other words, it’s a great case study in public-choice theory, and just how un-Schoolhouse Rock Washington really is.

So I can’t tell you everything about who said what to whom. However, at the very least it is clear, for instance, that famed short seller Steve Eisman had a huge amount to gain by testifying that for-profits are bad and there is a “bubble” in proprietary higher ed about to burst. After all, were either the Education Department or Senator Harkin – or both – to use his testimony to attack for profits, as indeed they have, Eisman would have a highly profitable self-fulfilling prophecy on his hands.

No matter how you feel about for-profit colleges – and my feelings are decidedly mixed– learning about how policy is really made can be a very unsettling thing. In fact, it can make you feel more than just a little sick.

Pro-Choice Activists Become Skeptics of Regulation

In the Richmond Times-Dispatch, Barton Hinkle notes that the Virginia General Assembly has just passed “tough new regulations on abortion clinics.” And

Suddenly, outraged liberals are sounding remarkably like libertarian advocates of laissez-faire capitalism and the industries they defend.

For instance, abortion-rights supporters already are warning that the heavy hand of government will impose requirements so absurd and so economically burdensome that they will force clinics to close their doors. “What they’ll do is put a burden of extra cost that is not backed up by sound science,” said one abortion provider who spoke on condition of … whoops! Actually, those were the words of Alva Carter Jr., chairman of a New Mexico dairy industry group, who was protesting new groundwater pollution regulations last April.

“The scale of the … current assault is unprecedented,” complained Planned Parenthood spokes — no, that was The Wall Street Journal, raging last November against the EPA. The paper said the agency “has turned a regulatory firehose on U.S. business and the power industry in particular.”

“The massive red tape … threatens to strangle … the industry,” complained — well, that was Investor’s Business Daily, writing about the Dodd-Frank financial bill last year. The paper cited a report by the American Bankers Association warning that “the coming ‘tsunami of regulations’ could wipe out hundreds of smaller banks.” Substitute “abortion clinics” for “smaller banks,” and you have the Virginia debate in a nutshell. (And yes, let’s stipulate right here that many so-called conservatives believe in limited government everywhere except the uterus.)

“They could require things that are completely unnecessary.” That actually was a quote from an abortion-rights supporter: Shelley Abrams, the director of A Capital Women’s Clinic in Richmond.

And she is entirely right. Sometimes government does require things that are not strictly necessary. And those requirements impose a heavy financial burden. This is hardly a revelation. Small-government advocates have been saying it for many years. Yelling it, actually, at the top of their lungs. To little avail.

Example: Supporters of abortion rights now worry that even existing clinics might have to obtain a Certificate of Public Need from the state. To which one might reply: Why should they be different? For years, certain voices in Virginia have been suggesting that the COPN process — essentially, a government permission slip for health-care providers — creates an unnecessary market entry barrier. They have argued that government has no business deciding whether a particular community needs a particular health-care facility.

He goes on to note that

when free-marketeers and industry groups gripe about the burden of governmental regulation, they often get truth-squadded by deeply skeptical liberals. On Monday, the AP’s “Spin Meter” gave the gimlet eye to predictions that the Obama administration’s new smog regulations could destroy more than 7 million jobs. The news service pointed out that the researcher who came up with the number was “industry-sponsored.” (Boo.) It lamented the “imprecise economic models” used. (Hiss.) And it pointed out that “those opposed to government regulations rarely mention the potential benefits to society.” Amen, brother.

Hinkle hopes that people concerned about the burden that regulation imposes on abortion clinics will eventually come to recognize that regulation also imposes costs and burdens on every other business.

Jerry Taylor and I have both noted in the past the differing media treatment of abortion and other science and health issues. Looking at two NPR stories on the same day, I praised one on the dangers of abortion pills:

It was a good example of careful, cautious reporting. But why are journalists seemingly much more cautious in reporting medical risks involving abortion than in reporting other kinds of risks? There are plenty of critics of the “junk science” involved in the Vioxx stories; why aren’t they interviewed in Vioxx stories? The numbers were small in the Vioxx study, as in the case of the abortion drugs, but that fact was dismissed in one report and emphasized in the other.

Cato’s Jerry Taylor noticed something similar in a Wall Street Journal column 11 years ago (January 3, 1995; not online). He noted that the Journal of the National Cancer Institute

caused quite a stir by publishing an epidemiological study suggesting that women who have abortions are 50% more likely to develop breast cancer than women who do not….”Not so fast,” countered epidemiologists; a 1.5 risk ratio (as epidemiologists put it) “is not strong enough to call induced abortion a risk factor for breast cancer.”

Taylor agreed that a 1.5 risk ratio is below the appropriate level of concern. But he wondered why “the same risk ratio that was so widely pooh-poohed by scientists as insignificant and inconclusive when it comes to abortion was deemed by the very same scientists an intolerable health menace when it comes to secondhand smoke. Actually, that’s not quite true. The 1.3 risk factor for a single abortion was significantly greater than the really hard to detect 1.19 risk ratio for intensive, 40-year, day-in-day-out pack-a-day exposure to secondhand smoke (as figured by the EPA).”

Is the REAL ID Rebellion Coming to Florida?

Until now, Florida has not been one of the states to buck the federal government’s national ID mandate, established in the REAL ID Act of 2005. A pair of grand jury reports in 2002 had moved the state to tighten its driver licensing processes prior to any federal action, so it was already doing many of the things that the Department of Homeland Security is now seeking to require of states in the name of REAL ID.

Full compliance with REAL ID remains a distant hope, so DHS has set out a list of 18 “milestones,” progress toward which it is treating as REAL ID compliance. Full compliance with REAL ID includes putting driver information into a network for nationwide information sharing—including scanned copies of basic identity documents. It includes giving all licensees and ID holders a nationally uniform driver’s license or ID card so their identity can be checked at airports, federal facilities, and wherever the Secretary of Homeland Security determines to have federal checkpoints.

Again, the state of Florida meets DHS’ milestones. Starting from an already strict driver licensing regime, the state’s bureaucrats have been doing (and asking the legislature to do) things that match up with the requirements of the national ID law. But now, thanks to the work of Florida’s Tenth Amendment Center, Floridians Against REAL ID, and others, the legislature is beginning to pay attention.

Why is it so hard for law-abiding citizens and residents of Florida to get or renew their licenses? What kinds of barriers to progress are being thrown in front of lawful immigrants from Haiti, who haven’t the documentation required to get a license and thus a job?

Rep. Geraldine Thompson (D-Orlando) has lived in Florida since 1955 and was elected to the Florida legislature in 2006. She was born in New Orleans and is not able to get a copy of her birth certificate. The Florida Department of Motor Vehicles would not accept her Florida House ID card as proof of her identity!

Several members of the Florida legislature are concerned that the state is scanning and databasing the basic identity documents of Floridians, exposing those documents and the people of Florida to unknown cybersecurity risks. If these databases were hacked, Floridians’ data would be treasure trove for identity fraud. A breach of an entire state’s identity data could collapse the system we now rely on to know who people are. This is not an improvement in security for Floridians.

Florida’s Cuban ex-pat population has some idea of what could result if they were herded into a national identity system. They are too familiar with central government control of access to goods, services, employment, and other essentials of life. Advocates of national ID systems here in the United States have already argued for using REAL ID to control access to employment, to financial services and credit, to medicines, to housing, and more.

In my testimony to the Florida legislature, I noted that the federal government is impotent to enforce REAL ID. The political costs of a DHS attack on air travel (if it refused to recognize drivers’ licenses from non-compliant states at airport checkpoints) would be too high. Indeed, word is spreading that DHS will soon extend the REAL ID deadline once again.

What’s clear from my visit to Florida is that legislators there respond to what they hear from their constituents. It’s unclear what the Florida legislature will do to reassert control of its driver licensing policy from the concerted action of the federal government and its motor vehicle bureaucrats.

One of the questions they might ask is, “Who committed Florida to comply with REAL ID?” That’s item number seventeen in the DHS’ eighteen-point material compliance checklist.

Keep Moving, There’s Still Nothing to See Here

In dribs and drabs the plot thickens in the quiet little saga surrounding the GAO’s brutal and broken August report on for-profit colleges. The latest development is the near-silent transformation of the GAO office that produced the knee-capping report that was later quietly reissued with lots of new, for-profit-exonerating material.

I say “near-silent transformation” because word about it somehow got to the Coalition for Educational Success, a career college advocacy group.  Yesterday, CES issued a press release on the matter, and this morning I contacted GAO’s public affairs office about it. To the GAO’s credit, their public affairs folks quickly sent me a copy of a memo announcing the end of the Forensic Audits and Special Investigations (FSI) team. Sadly, it was clear that there would be no public announcement of the change, which is utterly consistent with the behind-your-back way GAO has handled every development in this story. Well, every development save the very public release of the original, fatally flawed report.

Especially concerning is the following passage in the memo, which suggests that the for-profit college report provided the ultimate impetus for giving the FSI a new identity. This despite the FSI having done investigations in numerous other areas:

Since the Forensic Audits and Special Investigations team was formed in 2005 the team’s body of work has resulted in numerous accomplishments and benefits to the Congress and the public. To ensure good work continues and to bring greater management attention to the group and more seamlessly integrate its work with GAO’s program teams as well as the audit and investigative sides of the unit, today I am announcing several changes. These enhancements will also ensure greater attention to the issues that led to the need to produce the errata to the for-profit schools report and by the subsequent inspection.

So why does the group need “greater management attention”? And what exactly are “the issues that led to the need to produce the errata” to the August report?

As a member of the public it sure would be nice to know the answers to these questions, especially since these are the guys who are supposed to be holding the rest of the federal government ”accountable.” For proprietary schools’ employees and investors — the people who were most hurt by the dubious August report — these are thing they absolutely should know. But the GAO insists on telling us that nothing major went wrong while refusing to share information we’d need to confirm that. It’s not only totally unsatisfactory, it only makes you even more suspicious.

Cato’s First Brief in a Patent Case — On Constitutional Grounds

Recognizing an opportunity to make quick and easy money, private attorneys have been suing companies under the False Marking Statute, 35 U.S.C. § 292.  This law allows any person to sue to enforce a federal criminal statute that prohibits anyone from labeling an unpatented product with a patent number or to advertise a product with a patent number that is not actually patented. 

The penalty for violating this law is $500 per offense, which has been interpreted to mean each and every product falsely marked.  For instance, if a business is charged with falsely marking 100,000 products, it could be liable for $50 million.  Private attorneys suing under this statute seek massive amounts in damages and then try to settle with the defendant for a fraction of that cost (still a large amount of money).  Companies often settle even if the case against them has little merit because they do not want to risk such a massive amount in damages.

The longtime toy manufacturer Wham-O, however, successfully defended such a lawsuit in court, provoking the plaintiffs’ lawyers to appeal to the Federal Circuit (the only appellate court below the Supreme Court that can hear patent cases).  Cato, along with my colleague, Walter Olson — who has studied these patent marking cases — filed an amicus brief supporting Wham-O on constitutional grounds.  We argue that the False Marking Statute fails to give the executive branch, through the attorney general, control over the enforcement actions brought at its behest.  By allowing any person to sue and then receive half of the damages, the law abrogates the executive power to enforce the law and places it in the exclusive hands of the private attorney. 

There is clear precedent for this argument:  In the 1988 case of Morrison v. Olson, the Supreme Court upheld the independent counsel statute because it gave the attorney general “sufficient control” over the counsel’s hiring, firing, and investigative scope.  Other courts have held that for a private person to prosecute what is called a “qui tam” action under the False Claims Act — essentially stepping into the shoes of the government — the government must maintain “sufficient control” over the litigation.  The False Marking Statute does not provide sufficient control, or any control, and therefore violates Article II’s “Take Care Clause,” the font of the executive branch’s enforcement duties.

Ultimately, the separation of powers, the foundation for the governmental structure created by the Framers, ensures that laws are enforced by someone accountable to the people, the Executive. The False Marking Statute divests the president of this authority, so the Federal Circuit should strike it down as violating the Constitution’s separation-of-powers structure.

The Federal Circuit will hear FLFMC, LCC v. Wham-O, Inc. this spring.

Pressuring Toyota into an Overcautious Recall

With the news that Toyota has agreed to extend its floor mat and gas pedal recall to another 2.1 million vehicles, mostly SUVs, certain press outlets may slip back into the tone of coverage (Toyota in crisis! Safety mysteries still unresolved!) so prevalent last year before the scare was deflated. Some perspective:

  • As you learned if you read all the way down to paragraph 14 of the hyperventilating L.A. Times report – and never learned at all from some other reports – the National Highway Traffic Safety Administration (NHTSA) is now closing its investigation of alleged sudden acceleration problems in Toyotas. That’s a huge win for the Japanese automaker and the real news of the day.
  • NHTSA insisted, however – presumably as its price for stamping the case as closed – that Toyota expand its recall as happened yesterday.
  • Toyota’s stock went up on the news, not down, suggesting that in investors’ view the price was well worth paying for the automaker to rid itself of the regulatory entanglement.
  • Floor mat jams that obstruct proper operation of the brake and gas pedal are an exceedingly, even freakishly rare cause of unintended acceleration accidents. While they do seem to have been a factor in one much-publicized crash, they have nothing to do with the vast majority of unintended acceleration episodes, which as we now know (or knew all along) arise from drivers’ hitting the wrong pedal by mistake.
  • To the extent floor mat jams are a real safety worry, the main way to avoid them is to not throw extra mats in, and watch out for mats that aren’t intended for the make/model, may be prone to slip around, or both. The New York Daily News spoke to a Toyota manager in Brooklyn: “The biggest problem is people put in an extra mat, and that’s been the real issue,” said Michael Ianelli. “They’re not supposed to put in a second mat.” Much of the recall seems to be aimed at engineering around the problem of careless user maintenance.
  • Murmurings are already being heard that similarly designed Toyota vehicles sold in other parts of the world aren’t subject to the recall – another hint the company may be trying more to keep NHTSA happy than address what it views as a major safety issue.

Millions of dollars will now be spent with very dubious safety benefits. But at least a federal agency will be able to boast that it “did something.”