[Mb-civic] Vioxx verdict's dark side - Steven Shavell and A. Mitchell Polinsky - The Boston Globe

[William Swiggard]

Vioxx verdict's dark side

By Steven Shavell and A. Mitchell Polinsky  |  August 23, 2005

A TEXAS JURY's Texas-size message to the drug manufacturer Merck last 
week may mean more than meets the eye. The jury awarded a $24 million 
base amount for the death of Robert Ernst and $229 million in punitive 
damages, apparently for Merck's failure to adequately disclose the risk 
of heart problems from Vioxx. Merck's stock market value declined by $5 
billion on Friday. Lawyers say that Merck may face up to 100,000 other 
Vioxx-related suits.

Ernst's death was a tragedy. Nonetheless, there is cause for concern 
about the size of the Texas award and about many similar judgments 
imposed on corporations in this country. The concern is that when 
corporations have to pay large damage awards, three things happen that 
may be disadvantageous to us as consumers.

First, the prices that we pay for goods and services will tend to rise. 
Drug companies have to charge enough to cover their costs, and when 
these costs include large liability bills, the result is higher prices. 
For instance, one study found that the price of the DPT vaccine for 
infants rose 6,000 percent mainly because of potential liability.

The second problem is that products might not be developed, or might be 
withdrawn from the market, even though they are valuable to us.

Merck halted sales of Vioxx last fall, and Pfizer stopped selling a 
similar drug, Bextra, shortly thereafter, but the public still needs 
pain-relieving drugs that are easy on the stomach. Other examples of 
withdrawn products and services abound: for example, some physicians 
refuse to deliver babies due to the threat of malpractice liability.

The third difficulty caused by large damage awards is excessive producer 
caution, adding to costs and prices. A classic example is defensive 
medicine, such as the ordering of unneeded tests due to the fear of 
lawsuits.

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2005/08/23/vioxx_verdicts_dark_side/
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