Don’t Regulate the Innocent, Punish the Guilty

What is the proper role of government when a product harms customers?

The New England Compounding Center (NECC), a Massachusetts compounding pharmacy, reportedly produced a pain-killing steroid medication that sickened at least 338 people in 18 states, resulting in 25 deaths.

A compounding pharmacy produces customized, mixed-drug products for individual patients. The industry has been around for a long time but has experienced strong growth in recent years, supplying drugs to “nearly every place medical care occurs,” reports David Brown. Compounding companies, which are less regulated than other parts of the pharmaceutical industry, serve the needs of patients with diseases such as macular degeneration and multiple sclerosis, providing them with medications not otherwise available and/or at a fraction of the cost of standard dosages.

Lena H. Sun reports that, in the case of NECC, an FDA investigation revealed that the company “knew it had extensive contamination by mold and bacteria throughout its operations for making sterile drugs but failed to take corrective action.”

It would be wrong to pre-judge the company, but, if there is evidence that the company has been negligent or has knowingly sold contaminated drugs, it should be prosecuted for violating the rights of both the patients it harmed and the health care providers who administered its medications. Government’s proper role is to protect individual rights, and, if evidence suggests that the company has violated rights, then government should pursue legal justice.

What would not be proper is for the government to punish the entire compounding industry—which is exactly what Democratic U.S. Rep. Ed Markey seeks to do. His proposed legislation would “increase federal oversight of specialty pharmacies” and make all compounding pharmacies that produce quantities of customized drugs for “general distribution” “FDA-regulated,” which they currently are not.

If someone seriously proposed putting all Italian-Americans under government probation because a few became Mafia gangsters, everyone would see the absurdity and injustice of the idea. Yet, that is precisely the widely accepted premise—instead directed at businessmen—that underpins Markey’s bill and, more broadly, helps feed the incessant growth of the regulatory state.

There is a profound moral issue involved here. Markey’s bill amounts to declaring that all compounding pharmacies are guilty until proven innocent, a violation of a core American principle as well as basic, common-sense fairness.

It would be wrong to downplay the pain this defective medication caused the victims and their families. They deserve civil restitution and, if appropriate, prosecutorial justice. But it is also wrong to punish the innocent members of an entire industry because of the wrongdoing of a single company.

If opponents of “big government” are ever to take a principled stand against government regulation of business, this case is a good place to start.

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  • Anonymous

    What legal concept would be used to prosecute a company for being negligent if no harm has yet happened?

    I read about a U.S. company that bought spices then packaged and resold them. The place was disgustingly mouse infested, but the feces were sifted out and the spices resold anyway. No mention was made of any harm done, although the place was, of course, shut down. Michael, I’m continually amazed at the breathtaking stupidity — and what looks like white collar psychopathy — of some businesses.

    I agree with you about the injustice of regulation, but it’ll be a hard sell, given what goes on that everybody reads about, day in and day out.

    Also, I don’t think I’m clear about where valid law ends and regulation begins.

    • http://www.facebook.com/people/Michael-A-LaFerrara/100001601178840 Michael A LaFerrara

      Mel: I’m no legal expert, so I can only speak in general terms.

      If a company sells a faulty or, in your example, a contaminated product in which no one was physically harmed, the customer(s) WAS still harmed–financially. The vast majority of the time, in my experience and contrary to “what everybody reads about day in and day out,” the company will make good on the faulty product by replacing it or refunding the money. If not, the civil courts give the customer the opportunity to seek redress. In the case of knowingly selling a faulty product or of negligence, I would think the company would likely become subject to anti-fraud laws, at the least.

      As to where valid law ends and regulation begins, the bright lines of the principles of objectivity and individual rights should define and delimit laws. In this regard, I would read Binswanger (http://www.tafol.org/bulletins/b07.html#b07whtisobjective) and Smith (“Humanity’s Darkest Evil” in the book Essays on Ayn Rand’s Atlas Shrugged). Government regulation is by its nature arbitrary, subjective, and non-contextual, and thus rights-violating, with bureaucrats dictating how a company is run in the absence of any evidence of actual or intended wrongdoing by the company.

      • Anonymous

        Thanks. I’d not seen that Binswanger article; it was really very helpful. I’ll check out the Smith article too. (Just now downloaded the Kindle edition of the book.)

        We see it all the time. An industry gets going, then some freaks show up and, finally, the whole industry gets regulated and freedom is rejected yet again. It’s an easy sell too, because people expect professionals to know what they’re doing, do it, and not cheat. Politically, it’ll be tough also; as long as people think their health and safety is better with regulation, they’ll want to keep it.

        I often ask myself about the legal framework for the political things I advocate, and it’s disappointing when I find that I really don’t have one. In several cases, kid’s rights is the source of the problem. (For example, if kids work, who is the legal owner of their earnings?) On top of that, I have no clue about rights-respecting investigative powers. I’ve also thought that we might have more chance, in some cases, of getting something done sooner, if we had, at least, a piece of legislation sketched out.

        I note that a House committee has started an investigation into NECC. It also looks like the regulators failed too. Link: Pharmacy Owner Refuses to testify about fungal outbreak

  • Mel_M

    What legal concept would be used to prosecute a company for being negligent if no harm has yet been done?

    I read about a U.S. company that bought bulk spices then packaged and resold them. The place was disgustingly mouse infested, but the feces were sifted out and the spices resold anyway. No mention was made of any harm done, although the place was, of course, shut down. Michael, I’m continually amazed at the breathtaking stupidity — and what looks like white collar psychopathy — of some businesses.

    I agree with you about the injustice of regulation, but it’ll be a hard sell, given what goes on that everybody reads about, day in and day out.

    Also, I don’t think I’m clear about where valid law ends and regulation begins.

    • http://principledperspectives.blogspot.com/ Michael LaFerrara

      Mel: I’m no legal expert, so I can only speak in general terms.

      If a company sells a faulty or, in your example, a contaminated product in which no one was physically harmed, the customer(s) WAS still harmed–financially. The vast majority of the time, in my experience and contrary to “what everybody reads about day in and day out,” the company will make good on the faulty product by replacing it or refunding the money. If not, the civil courts give the customer the opportunity to seek redress. In the case of knowingly selling a faulty product or of negligence, I would think the company would likely become subject to anti-fraud laws, at the least.

      As to where valid law ends and regulation begins, the bright lines of the principles of objectivity and individual rights should define and delimit laws. In this regard, I would read Binswanger (http://www.tafol.org/bulletins/b07.html#b07whtisobjective) and Smith (“Humanity’s Darkest Evil” in the book Essays on Ayn Rand’s Atlas Shrugged). Government regulation is by its nature arbitrary, subjective, and non-contextual, and thus rights-violating, with bureaucrats dictating how a company is run in the absence of any evidence of actual or intended wrongdoing by the company.

      • Mel_M

        Thanks. I’d not seen that Binswanger article; it was really very helpful. I’ll check out the Smith article too. (Just now downloaded the Kindle edition of the book.)

        We see it all the time. An industry gets going, then some freaks show up and, finally, the whole industry gets regulated and freedom is rejected yet again. It’s an easy sell too, because people expect professionals to know what they’re doing, do it, and not cheat. Politically, it’ll be tough also; as long as people think their health and safety is better with regulation, they’ll want to keep it.

        I often ask myself about the legal framework for the political things I advocate, and it’s disappointing when I find that I really don’t have one. In several cases, kid’s rights is the source of the problem. (For example, if kids work, who is the legal owner of their earnings?) On top of that, I have no clue about rights-respecting investigative powers. I’ve also thought that we might have more chance, in some cases, of getting something done sooner, if we had, at least, a piece of legislation sketched out.

        I note that a House committee has started an investigation into NECC. It also looks like the regulators failed too. Link: Pharmacy Owner Refuses to testify about fungal outbreak

  • http://www.facebook.com/profile.php?ref=name&id=100000501085308 Martin Lundqvist

    “If someone seriously proposed putting all Italian-Americans under government probation because a few became Mafia gangsters, everyone would see the absurdity and injustice of the idea.”

    Actually, a similar policy has already been enacted in American history, during WW2: http://en.wikipedia.org/wiki/Japanese_American_internment

  • http://www.facebook.com/profile.php?ref=name&id=100000501085308 Martin Lundqvist

    “If someone seriously proposed putting all Italian-Americans under government probation because a few became Mafia gangsters, everyone would see the absurdity and injustice of the idea.”

    Actually, a similar policy has already been enacted in American history, during WW2: http://en.wikipedia.org/wiki/Japanese_American_internment

  • frank jaworski

    By regulation of the innocent I would presume the innocent are latently guilty.

  • frank jaworski

    By regulation of the innocent I would presume the innocent are latently guilty.