NEW YORK (Legal Newsline)-Two of the nation's leading legal observers on Monday called for a compensation program for patients injured by unknown side effects from federally-approved medications.

Manhattan Institute scholars James Copland and Paul Howard outlined their plan in a report issued Monday. Copland leads the think tank's Center for Legal Policy, while Howard is the director of the Manhattan Institute's Center for Medical Progress and former deputy director of the Center for Legal Policy.

Their paper comes on the heels of a much-anticipated U.S. Supreme Court decision last week that upheld a woman's right to sue in state court over complications from a medication approved by the U.S. Food and Drug Administration.

On Wednesday, the U.S. Supreme Court rejected an appeal by Wyeth Pharmaceuticals ruling that a woman may sue in state court over a federally-approved drug.

The Collegeville, Pa.-based drug company was seeking to reverse a $6.7 million jury award in a case brought by a Vermont woman whose forearm was amputated because of a reaction to the company's injected anti-nausea drug Phenergan.

The plaintiff, Diana Levine, lost an arm to gangrene after an injection of the drug.

The Manhattan Institute report says given the legal development, a new compensation system, similar to the one created by Congress in the 1980's to redress patients injured by vaccines, should be created for patients like Levine.

"A well-designed compensation program would offer as a substitute a mechanism for compensating the victims of unforeseen drug injuries, and it would do so without the uncertainty and expense of today's version of litigation," the report said. "By limiting compensation to unforeseen injuries, the program they propose would also give companies a powerful incentive to rapidly update drug labels with new safety information and to invest further in both safety and effectiveness."

In the Levine case, a jury awarded her more than $6 million because Wyeth failed to warn her adequately about the risks of the drug. Wyeth, however, argued her claims are preempted by the U.S. Food, Drug and Cosmetic Act.

Writing for the court's 6-3 majority, Associate Justice John Paul Stevens said the U.S. Food and Drug Administration's oversight of drug labeling doesn't prevent state-level actions against drug companies.

"In short, Wyeth has not persuaded us that failure-to-warn claims like Levine's obstruct the federal regulation of drug labeling," Stevens wrote.

"Congress has repeatedly declined to preempt state law, and the FDA's recently adopted position that state tort suits interfere with its statutory mandate is entitled to no weight," the opinion also said.

After the decision was released, Copland called the ruling disappointing because it allows a state jury to override the FDA's "carefully considered judgments" when approving a medication.

"The decision has vast negative implications, for both the economy and public health," Copland said at the time.

From Legal Newsline: Reach staff reporter Chris Rizo at chrisrizo@legalnewsline.com.