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Covid-19: Regulatory Obstacles to U.S. Recovery

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Covid-19: Regulatory Obstacles to U.S. Recovery

10 Blocks podcast May 13, 2020
Covid-19
Politics and law
Economy, finance, and budgets

James R. Copland joins Brian Anderson to discuss how America’s uniquely cumbersome regulatory system impeded the national response to the Covid-19 crisis and how costly litigation could damage the economy even further.

The FDA and CDC’s administrative failings in the early days of the crisis proved costly. The federal process for reviewing and approving drugs and medical devices, writes Copland, still leaves much to be desired. And a wave of coronavirus-related lawsuits poses a serious threat to future business viability.

Audio Transcript

Brian Anderson: Welcome back to 10 Blocks, this is your host, Brian Anderson. Joining us on today's show is Jim Copland, my colleague. He's a senior fellow and director of legal policy at the Manhattan Institute and he's a frequent contributor to City Journal. You can follow him on Twitter @JamesRCopland. Jim's written three fascinating pieces for us over the last several weeks, which we'll be talking about here on the podcast, on the legal and regulatory side, really, of the coronavirus pandemic. His first piece which went online in late March and is in our Spring issue of the magazine, is called "The Real Life Costs of Bad Regulation." You can find this work on the City Journal website and we'll link to Jim's author page in the description. Jim, thanks very much for coming on.

James R. Copland: Thanks for having me Brian.

Brian Anderson: Your first piece details some of the early administrative failings that took place at the FDA and the CDC in fighting the pandemic. Could you talk a bit about some of the specific regulatory hurdles that may have delayed our response in those early days of the crisis or made it less effective?

James R. Copland: Absolutely. And I think this is the story it's somewhat told, but it's, but it's the untold story here. Everyone focuses on the political actors and of course the president, various governors in New York, governor Cuomo, people are looking at Congress passing more than $2 trillion of, of new allocations. But the real critical failing in the U S response came at the administrative agencies and the unelected actors running those agencies. And, and these aren't political hacks. I want to emphasize. I mean, Steven Hahn the director of the food and drug administration, the administrator is an experienced oncologist. He ran MD Anderson in Houston, very experienced doctor with administrative expertise. Robert Redfield who runs the CDC, very experienced doctor, a virologist who worked on HIV research. So these are experts but they made critical mistakes here. And the critical mistakes were a combination of in the moment judgment and sort of bad, obsolete regulatory garbage that got in the way, none of which was really ever authorized by Congress directly but was delegated to these administrative agencies.

And so the critical failure was the FDA's decision to have the CDC be the only authorized entity to create a test for the novel coronavirus coming out of China. Now the WHO working with some folks in Europe come up with an alternative task. We went with our own tests. Nothing wrong with the CDC developing its own test, in principle, ours actually had some problems but the bigger problem was an complete inability to scale the test up and get a lot of tests out early so that any sort of contract tracing, what we've seen happening in Korea and some of the East Asian countries, basically any of that was impossible in the United States. We were way behind the curve. By the end of February, the CDC had only manufactured 4,000 tests. Now the FDA, the Food and Drug Administration does have the authority to grant what's called an emergency use authorization to other entities, to any entity in approves to come out with testing.

And eventually in March started doing that and we've seen the private sector companies innovating very aggressively and, and getting more and more testing out substance. The United States is now well ahead of many European countries not just in the aggregate but on a per capita basis. And, and really it's not, it's not the front of the pack, but, but given our population size, our ability to scale up testing has been quite impressive since the middle of March. But we lost that critical six weeks, six-week window from the moment in time when the president the declared an emergency and, and health and human services declared an emergency, the FDA decided, well, we're going to do this all in house. And what does this tell you? It tells you that as important as experts are, and I want to emphasize, I'm not suggesting that our administrative agencies don't have expert staffing.

And that those experts are important, but they're not as well equipped as say, private sector companies to think about where are the critical shortages going to be in the manufacturing and distribution lines. When we were requiring this nasal swab test, what are the products that are going to be necessary, how available are there, what alternatives might we have? How are we going to able to be able to distribute these things? These sort of manufacturing production, distribution decisions are ones that are private sector companies do all the time. And our centers for disease control simply weren't equipped to do and it really left us behind the eight ball. And that's even beyond, you know, some of the, the Deadwood regulations that were getting in the way. So you had companies trying to apply for emergency use authorizations that weren't being granted and being told, well, no, you can't submit this online. You actually have to mail in a CD-ROM because that's what our regulation says. And that sort of tells you as much as the administrative agencies like to say, well, we can't have judicial review of what we do and we, we need, we can't have, we need to have this delegation so we can act quickly. They were actually sitting there and requiring CD-ROMs based on old regular regulatory rules.

Brian Anderson: Right. That's remarkable given how few people even know what a CD-ROM probably is these days. The second piece you wrote was kind of a sequel to this initial exploration of the the FDA and CDC problems and this concerned the Apple Watch and it kind of blew up on Twitter after you publish this. The argument or the analysis showed how FDA regulations were preventing users from deploying a function that could literally be lifesaving in the outbreak. Do you want to explain that narrative a little bit?

James R. Copland: Exactly. One of the things that emerged and we had the New York Times had a big article on this and there was an emergency room doctor who said, listen, I mean a lot of my patients are coming in and showing up at the hospital with Covid-19 infections and their blood oxygen levels are dangerously low. And they're dangerously low even if the onset of disease was relatively recent and he was picking up asymptomatic individuals who were coming in for something else but ultimately were determined to have Covid-19 and they had dangerously low blood oxygen levels. What does that mean? It means that sometimes it's hard to tell you actually aren't getting as much oxygen into your bloodstream. You can have an ongoing infection and if you don't pick this up early, like most things in medicine, picking up early is very good.

If you don't pick this up early, you could already be so far down the line that you recovery could be very compromised if once you actually get to the hospital. So what he suggested is everyone ought to try to get a pulse ox, what's called a pulse oximeter and do your own self-monitoring of your blood oxygen levels. Well it turns out is actually fairly simple technology and something that's pretty easy to do. The modern pulse oximeters, the basic technology was developed in the early 1970s in Japan. And you can an ordinary times at the drug store or on Amazon pick up these sort of cheap $30 pulse oximeter that you can put on your finger. They're using pre-1976 technology and we'll explain why it's pre 1976 in a minute, but they work well. The problem is, again, there's a certain stock of pulse oximeters that are made, but it's not a huge over supply to the ordinary demand situation.

So once this article comes out, you know, I go on Amazon and try to get one, Oh, well you can get one in two weeks maybe. And the price, the prices are kind of going up and everyone's afraid of a price gouging claim. So you end up with inevitable shortages. And the same way we had shortages of things like hand sanitizers, toilet paper, all sorts of different reasons. Hand sanitizers actually is another FDA question because the FDA actually regulates alcohol based hand sanitizers and was making it very difficult until they finally waived a bunch of regulations for say liquor companies to convert operations to making hand sanitizer. But, but the what's, what's amazing, we started looking at this pulse oximeter market is that the Apple Watch now, not everyone has an Apple watch, but it has a 50% market share and the smart watch market and when it was first released some five, six years ago the tech articles writing on and said, well, wait a minute, this is interesting.

They actually have technology to read your blood oxygen levels, in your blood. But that's basically the same technology used in pulse oximetry. You know, that's how you can check your pulse on the Apple Watch. But that is actually disabled feature. In other words, the actual architectures inside the watch, but you can't use it. And that's generally been the case across all of these devices with some exceptions, Samsung's phones actually have a reader on the back. And I had an old Samsung phone where you can read your blood oxygen level and pulse through this technology in the back, although they suspended that for their most recent S20 update. And my guess is, that's due to legal and regulatory concern. So what are those concerns? Well, in 1976, Congress passed what's called the Medical Devices Amendments to the Food, Drug and Cosmetic Act.

This was after the Dalkon Shield was determined to be dangerous in the mid seventies. And Ted Kennedy led this saying, what? We don't need the FDA only looking at pharmaceuticals, they need to be looking at medical devices. That means that any medical device manufactured using technology post-1976 has to go through various administrative clearances, through the FDA, to get approved. Well you can see instantly why a company like Apple, which wants to stay ahead of the curve, get its product out quickly and generates enormous sales, isn't going to hold up the release of an Apple Watch to go through an FDA review process. So they've got this technology built into the watch that no one can use. And, and my guess is Samsung may have gotten cold feet too, and it's not an American company, they may have had different legal counsel on it.

We are starting to see the Fitbit just got some approval this January for some pulse oximetry. It's more of an overnight reading, not an instant reading, but at least something there on the market. The point here isn't that you cannot get a pulse oximeter on the market. It's, it's possible to do so. I've subsequently been able to acquire one of the $30 ones. And the readings are essentially the same as the ones I get when I get on my old Samsung phone. But there's lots of people who already had a product with this technology. They can't get it based on the FDA regulation that's baked into there. And so basically all we can get on the market are these pulse oximeters. They're using pre 1976 technology. That's why they're able to wait in and waive past the review process that the FDA otherwise insists on.

Brian Anderson: It's quite remarkable, slowing down innovation and kind of needless regulatory oversight, in this case. Your most recent piece in this series covers one of the most important issues that's going to be facing the country as we now try to reopen local economies and move on from the Covid crisis. And that's lawsuits. While the economy's struggling to reopen, lawsuits are already being filed right against companies, hospitals. I wonder if you could elaborate on this extremely concerning problem and what might be done about it.

James R. Copland: This is a huge problem that is idiosyncratic to the United States. And by that I mean, I don't mean that there are no lawsuits over product liability and worker injury and customer injury in, in other developed countries, but they're not nearly as as significant a shadow regulatory force or a regulation through litigation forces we see in the United States. So in the average European country the total cost of tort liability or injury lawsuits is about one third what you have in the United States. And that's because we have a lot of features that are unique to our system compared to all the European countries. We're unique in not allowing the winner for lawsuit to recoup losses from the loser, the so-called Loser Pay system. So that in Europe, if you file a suit and you lose your suit, then you have to pay the legal fees of the defense.

That's not the case in the U S which encourages a lot of what we call "shakedown lawsuits" or what our former calling Marie Griffin called "nuisance lawsuits" where you, you can file a lawsuit and it has an instant settlement value because if you walk away, if you don't walk away from the lawsuit and you litigate it and when you still have to pay your lawyers and you don't get that recouped, we also give civil juries and they don't even have these in continental Europe, we give civil juries substantially more power to try to decide complex liability trials. We give sweeping rights towards civil discovery depositions and things like this. So these things all add up and, and make us have a much, much more expensive liability system. And it's particularly pernicious for small businesses, the ones that are really getting hammered by this epidemic.

And some of the government shut down and regulatory moves that are going on with this epidemic because small businesses cannot easily fight back against plaintiff's lawyers due to this lack of a loser pays mechanism. So if they get one of these suits, they almost have to settle it or they could be risking their entire company putting it on the line. So this is really a sort of second order layer of, go ahead Ryan. Well, I was just saying, so we're seeing some of these lawsuits already being directed at companies that are reopening. We're seeing a lot of them. And they're, they're kind of all over the map, which is somewhat the interesting point and why I call it a COBIT 19 recovery tax. I've, I've long talked about the tort tax. It wasn't some phrase I coined, our colleague Peter Huber, used it in his book in the 1980s, "Liability."

But the point here is if the tax is levied, no matter what you do, then it's much more like a tax than like a regulation in a sense. And that's what we're seeing. So Walmart beginning of April already got a suit, wrongful death suit, someone who worked at Walmart and got Covid. Not sure if they got Covid at Walmart, but the suit's been filed. Princess Cruise Lines which, which ran various cruise ships that, that had outbreaks on them has, has gotten lawsuits. You've had class action lawsuits filed against, against nursing homes against hospitals. Meat producer, Smithfield foods has already gotten a litigation. And one of the things president Trump did with the defense production act invocation executive order on April 28th was to try to insulate some of these food manufacturers from the litigation, which otherwise would create intense incentives for them not to reopen, which create of course food supply problems in the U S the last thing we want right now, our food supply problems, which isn't a minimize the health issues for the workers there, but the notion that we might have food sort of shortage in the United States would be something obviously a vital national interest

But we've also seen a panoply of lawsuits against businesses that have shut down that some of these may be sort of common sense contractual enforcements. Gyms, you may have had a contract with a gym and, and, and the gym's closed down. You're not able to get your usage of the gym that you paid for. Universities have been facing this, moving to online only not just room and board, but some people saying, well, you're not delivering the product you promised. And there we're seeing these all over the place so you're sort of damned if you do, damned if you don't in a sense on these sorts of things. And then we're even seeing suits that are directly at odds with, with various health responses. So as I alluded to earlier, the FDA finally sort of cleared off some of the administrative regulatory burdens to getting alcohol based hand sanitizers out there.

But we've already seen class action lawsuits filed, basically quibbling where these are so called consumer fraud lawsuits, which some states enable without any showing of injury or damages. And they're saying, well, these things say they're 99.9% effective against germs. That's an untested claim. It's fraudulent. And these are the sorts of things that could lead a producer. If you're doing a generic product and your target, are you gonna really want these use lawsuits for hand sanitizers that don't make much money to begin with? Are you just going to pull them off the shelves? So these are quite a problem for the recovery. And I think what we need to really think about here is how can we in a manner that's consistent with public health and consistent with, with, with individuals safety prevent this sort of extra layer of regulation through our liability system.

When we have people that are hospitalized and the hospital and a large percentage of those hospitalizations are leading to death, then we want to take more aggressive action. And the litigation threat here in addition to the regulatory threat is inhibiting that kind of action. So there are all sorts of things we could do. We could create safe Harbor programs. States could act individually as well. Most states have some sort of workers' compensation programs. The federal government may wish to get into those, into that game as they've done with meat packing industry, if there's critical infrastructure of national interest there. But a lot of these things could be done at the state level. But the federal government really needs to think about sort of the healthcare system the food supply and distribution system, the financial system any of which might get rocked by litigation as the trial lawyers are really circling and very aggressively trying to block both federal and state responses that, that dry out potential ways for them to make money. So we want to keep people safe. The question is, is, is this liability system the best way to do it? And, and are there better alternatives that could align businesses with safety? A safe Harbor program could give businesses guidance on how to open and also give them some assurance that they're not going to get a crippling lawsuit on the back end.

Brian Anderson: But you'll be returning to the topic in a summer story for City Journal, so really couldn't be more important in the current crisis time. For one more question, you have a book coming out in the not too distant future that explores some of these themes about administrative agencies and it comes with the title The Unelected. Do you want to talk a little bit about that and just give a preview and we'll for sure have you back on to talk about the book at greater length when it's out?

James R. Copland: Absolutely, Brian. And it really intersects with these themes. You know, we've been talking about here today. The title is The Unelected, the subtitle, how an unaccountable elite is governing America. And it really is sort of an offshoot, a book length development of themes that I developed in City Journal a couple years ago in the summer edition. And an article entitled "The Four Horsemen of the Regulatory State." And really this is the sorts of things we're talking about today are what the book talks about. And so it talks about how the administrative law powers of the executive branch crystallized here when, what with what we've seen from the food and drug administration and the centers for disease control are delegated huge areas of responsibility. And basically the way this has been working since the great depression is that Congress says, here, you fix it.

And the agencies then write all the rules and regulations that can get people into trouble and can govern our lives. And Congress never, it never goes back to Congress for approval or anything of the sort. So then you sort of have this, this follow on layer, not just administration, but enforcement. The prosecutorial power is where's the, what was the civil enforcement power where without even going through the formal rulemaking process, which is the norm that we see here, you get rulemaking. But you can at least challenge some of those regulations in court. Instead you get these administrative guidances, you get the threat of prosecution leading to what are called deferred prosecution agreements, where companies instead of getting prosecuted by a company that could a big business getting an indictment could sink the business a business getting an indictment often would be declared ineligible for reimbursement through Medicare or lose various financial licenses that are essential to its business or be unable to contract with the government if it's a military contractor.

So these businesses really have to do what the executive branch says and these things are not reviewable by the courts. Then you sort of get these private level actors. This is the regulation through litigation where you get the private attorneys often state, but also federal laws being enforced and nobody's voting on, on, on these folks at all. Now, some, some States may elect their judges and judges may have some power here and some legislatures may be able to come in here and change the system. Some, although we've also seen cases where state Supreme courts nullified legislative tort reform actions time and again that prevented actual legislative change here. But this is this sort of extra level of regulation that is unique to the U S triple the cost of Europe that we have to worry about. And then finally, you get these sort of actors who are, while they are elected, they're not elected by in a national elective sense, state and local actors who I call the new anti-federalists.

And that's when you get mayors and local districts and attorney and state attorneys general coming in there and through either lawsuits or enforcement actions dictating national policy attorneys general in the past, like Elliot Spitzer or Eric Schneiderman as state attorney general, nobody else in the country voted for those folks. So if they're able to actually change national commerce through their enforcement actions that are supposed to be at the local or the state level it creates another layer of, of what I call anti federalism. That means that, you know, one state can dictate to the other 49 what things look like in that state. So these are the things I'm gonna talk about in my book. Ut's easy to identify some of these problems. I go through a lot of the history and you know, try to chart a course to make this better. Although, you know, it's a heavy lift because this thing has been going on for a long time and evolving over over the decades.

Brian Anderson: This is going to be a very, very important book, Jim and we'll be sure to have you back on the podcast to discuss it. Do you, do you have a release date for it?

James R. Copland: It's supposed to be available on September the eighth. So early in the fall, if people are going back to school or however that's going to be happen, pick up this book.

Brian Anderson: That's great. All right, well thanks very much Jim. Don't forget to check out James Copland's work for City Journal. You can find them on. Are these pieces that we've been talking about today on our website, we'll, we'll link to his author page in the description that he's on Twitter @JamesRCopland, and that is again, without an "E." You can follow City Journal on Twitter, @CityJournal, and on Instagram at @cityjournal_mi. And as always, if you've enjoyed what you've heard on the podcast, please give us a rating on iTunes. Thanks for listening and thanks again, Jim for joining us.

James R. Copland: Thanks for having me. Brian

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