The unacceptably high incidence of clinical adverse events caused by medical devices (MDs), their high recall rates, and the frequent phase out of some of the devices that pose a greater risk to health have triggered alarm concerning the long-standing weaknesses of their regulatory processes. It has long been known that regulation is not strongly associated with the existence of market failures. In this article the deficient approval process and postmarketing surveillance of MDs in the United States and Europe, as well as the causes and effects of their very serious failings, that put patient safety at serious risk, are critically reviewed. Solutions to address the urgent need to develop new regulation in the European Union are set forth as well. The fragmented MD industry is plagued with externalities. It seems that regulation is more being supplied in response to industry's demand (legislation and agencies capture) than for redistributing health and wealth. Severe adverse events associated with MD are spurring demand for regulation. Governments should promote the most risked-based, cost-effective regulations, those that pursue the interests of individuals affected, by using public and unbiased estimates of their costs and benefits, maximizing net health gains through legislation, applying clear rules of the game, and braking up the effects of the influence of interest groups.